The US standard of living and most of europe track pretty nicely from the late 50's until reagan yes. Then the Europeans start to 'fall behind' as their societies stayed relatively equal while the US become more unequal.
But none of the rest of what you wrote is particularly accurate. Yes, germany was a wreck until about 56, and italy was about the same wreck it was before the war until about 1970. But the UK and France were humming along quite well within a decade of the war being over. Their whole invading egypt in the suez crisis didn't exactly do them any favours however.
Um... 15 years you say? Were you in public school in 15 years? Were you *ever* in public school? The fact that the rest of the public can read this post because *they* were in public school means you benefit because you can communicate with them.
Ever had to call the police? No? Good. Because much of government is a giant insurance system. If you don't have to use it that means nothing has gone horribly wrong. Ever been invaded or bombed by a foreign power? In 15 years. Why yes, yes you have. And your military has seen fit to convey the point to anyone else that gets the same idea just what will happen to them. If someone happens to steal your stuff and run it across state lines you *can* call the police.
Lets go down the list shall we: Parking: And you got to the parking lot how? On who's roads? Ever had to park in a different city. How did you get there?
Food: You're still alive. This means the department of agriculture is doing its job limiting the amount of toxic shit that gets in your food. Ever bought beef? How do you know it's beef? What counts as beef that can be labeled beef? Right. Government inspections and labeling. That doesn't mean they don't make some spectacular mistakes, but most of the time the system hums along.
Petrol (what you called 'gas'): And where exactly did those oil supplies come from, who had the facilities to try and clean up the mess from the deepwater horizon oil spill and where did the first round of disaster aid come from. Not BP.
Lawyers: Ooh ooh, I'm a lawyer I'll charge you 500 dollars an hour for my advice on how to get rid of your citizenship so you don't have to pay taxes. Except i'm not actually a lawyer. Who makes sure that a lawyer is actually a lawyer, and prosecutes people who fraudulently represent themselves.
Education: We covered this one already. But at a federal level education spending, paltry as it is, is mostly for backing student loans to keep interest rates down. Sure you have to pay, but you pay less under this scheme than if you were going through banks. On the other hand, this way you can get a degree in english at the same interest rate as a degree in engineering.
Medical care: Sure, you're an american. If you can live to 65 you get decent healthcare, or if you get a government job or have a spouse with a government job. If not you're fucked. Because for they money the US government spends on healthcare every civilized country in the world provides healthcare to everyone. But if you're between the ages of 18 and 65 and not a government worker, go fuck yourself. Doesn't make any sense to me either. Of course if you land in an emergency room and *can't* pay because you go bankrupt from the expense the government will have paid the bill for you through an insurance system. Otherwise all medical care would be 'cash upfront'.
Public transport: Can you sit anywhere you want on the bus? Define 'cheap'? A single ride one way on the New York subway is 2.50. Which is about 20 minutes of work at minimum wage.
Who gets the 'goodies'? Old people... yep. they paid into the same insurance system you pay into. Live to 65 to collect. People with children. Erm... how about children? Are you *ever* going to have kids? On average everyone has 1.005 children in the US (2.01/woman is the fertility rate). So sure, the government is subsiding that investment in the future for everyone who has a kid. Which is on average everyone. Yep, Corporations buy their way into preferential laws. In the UK rich people have their own part of government, it's called the house of Lords. However you do it, rich people will *always* collectively influence government to their benefit, and always have. Disabled people. yes, those poor people who had some tragic accident befall them. Feel free to get hit by a bus to collect disability. Remember that part about government being a giant insurance system, and when you don't collect it means nothing went horribly wrong? Ya, disabilit
Honest taxation is actually what the US has and Sweden has. Greece and pakistan have dishonest taxation.
Honest taxation means that if the tax rate is 15%, you, me, and everyone else pay 15%. Dishonest taxation is if the tax rate is 15%, and you pay 15%, but I pay 0, because I bribed an official to look the other way or forget about the purchase. The fact that I paid 5% as the value of the bribe doesn't matter, because it's not gone into government coffers.
And sure, the US is not *as* honest as some places. But it is actually one of the most honest, despite a self reporting income tax system.
Sure, the US system it's easy to legally avoid taxes, by paying off politicians to give you a lower tax rate, and by following rules to your advantage. But you can't bribe an IRS official out of your tax bill, and on the whole it seems like americans are pretty good about honestly disclosing how much money they make when it comes to tax time.
(http://images.businessweek.com/mz/10/32/1032_econtaxes16.pdf, although the bottom graphic doesn't actually have numbers on it, it conveys the point. The first chart is useless, as it is looking at total underground economic activity, not per capita)
Devaluing isn't defaulting*. But yes, if they could simply pay back.96^n where n is the number of years in future times the value of their current debt that would contribute to solving the problem as well.
Since they're being asked for 28% interest rates or something crazy they would actually be better off to devalue by like 26% and pay (1.02)^n back. Which is essentially what the bailouts are. Other countries are lending them money to pay off their expensive debt with cheaper debt. Like getting a 5% loan from the bank to pay off your 22% credit cards. Banks go along with this (even when they also own the credit cards) because they'd rather get some money they know they can get than have you go bankrupt. European countries are going along with this because they'll be on the hook if greece can't pay back their banks and the banks need to be bailed out.
Keep in mind inflation helps anyone who has debt in that currency as well. If you have a mortgage for 300k and you can lock in at a say 5% interest rate 4% inflation means your net interest rate is only 1%, whereas 0% inflation means your net interest is 5%.
*Keep in mind that devaluing still pays the face value. That's a guaranteed investment. In any investment portfolio you want some in government bonds because in the vast uncertainty that is the private market you know you'll at least get this much in government bonds. That creates a degree of stability and safe savings. Losing 1% on government bonds is better than losing 10%. The Dow peaked at 13.9k and is now 12.5k. Sure, in the extremely long average the DOW will always outperform inflation, but it depends *when* you need money where you want it saved.
Honestly, I'm not sure. http://en.wikipedia.org/wiki/Government_spending gives a good comparison. Actually that's probably a better metric than taxation, because tax bases plummeted due to the economic downturn.
The US, Canada, most of europe, japan are all in and around the 35-45% range as total government spending as a percent of GDP. France being an outlier up around 52 and taiwan being down at like 20. Where exactly the taxation comes from to pay for it is secondary, and the gap between receipts and spending is the deficit (including the non federal level).
Cutting out some rent seekers and other parasites so that there are more jobs and income collectively for society.
Jobs are jobs. People who don't have jobs don't spend. People who don't spend don't have demand, no demand means no hiring and no spending.
And yes, dumping greece from the Euro would help them were it not for the challenges involved in exiting the euro and the fact that they have debt in euros owed to banks in the rest of europe they'd never be able to pay in that scenario. But their problem is the same as everyone else in the euro, balance of payments problems and local economic problems they can't address by devaluing a currency which would be the least painful way out of the mess.
They're in the process of finding jobs that don't involve them sucking wealth from their fellow citizens by force. This is the short term sacrifice.
They're not in the process of finding other jobs. I don't know where you're getting that idea from. Unemployment is rising, and the overall economic base of greece is contracting. It's short term in the sense that they will be in a death spiral for decades like this, but sure, on a centuries long scale this might be short term.
The thing is recessions will end on their own anyway. The demand, the supply, or whatever happens to be lacking, will come back. There's no evidence that government borrowing and spending improve that outcome. That's just the sorry state of modern economics.
that's the state of 19th century economics and long discredited. Recessions won't just magically end on their own (and by what mechanism exactly?) Governments *can* and *have* demonstrably created demand. For the most extreme example feel free to look at WW2. Now the trick is someone will start the ball rolling, probably not greece. If demand picks up in the US for example because they stop with austerity that demand will eventually, and potentially quickly, cascade into europe. And the chinese won't spend it on anything european or american for the moment. The most obvious example of this is germany in the early 50's. Their economy, having been flattened was in a bad state. Then demand picked up around the world for goods as everyone else was fighting the korean war. German labour was available and cheap, so guess what, they got money and jobs and had huge growth. That was government spending, just not their government.
Japan is actually an example of extreme levels of debt helping quite a lot. They have 200% of GDP in debt, paying 0.8% interest as their 10 year rate. They have almost no unemployment relatively and they are actually kicking up a bit of growth now that they borrowed enough money to get things going again rebuilding from the tsunami. Japan is an example of how if you chronically undershoot a stimulus you can at least not end up in a massive economic death spiral. They are a strong case for 'spend more, a LOT more' because spending just a little at a time prevents disaster but it never really kicks things back into gear. Greece is different, in that they are bound to the euro. If they were never in the euro we wouldn't even need to be having this conversation because they would have devalued their currency boosted exports (and tourism) and moved on by now.
the money would need to be borrowed or taxed from people who have money but aren't spending it. Seriously. It's not complicated. Business have big piles of cash, the wealth gap is increasing there are places to borrow money from. A space programme is probably a better plan for the US than europe, in that the US has people with relevant expertise who are unemployed and can borrow money from itself at next to nothing. Europe as a whole could borrow money, or france and germany could borrow money relatively cheaply, but greece and spain could not.
Although you're wrong in the "your debt can only go so high before the credit rating is degraded". Credit rating don't matter. Interest rates matter. Those two should be related. But aren't. If you can borrow money like Japan with 200% of GDP in debt at 0.8% interest for 10 years, and 1% inflation well.. the debt will actually be worth less when you go to pay it off.
If they could create jobs that would spur demand by borrowing money that would be sufficient. That would pick up demand, get the private sector spending again to meet that demand, and you end up with the so called virtuous cycle going, which would increase the tax base etc. Then when the economy isn't in the toilet is the time to start making cuts. Governments have been doing the exact opposite of what they should be doing, which is spending in a downturn and cutting spending in an upswing. Instead they were spending when times were good and and cutting when times are bad.
That's not a conspiracy theory. Those are literally the only two choices for the euro. Fiscal union, or start kicking out countries that are weak. Which will quickly be all of them except france germany and the benelux countries, and in that situation they'd be better to split back up entirely.
Germany kept inflation low, but could also devalue the mark against the dollar to keep boosting exports. Their exports are competitive at the current rate. The greeks aren't. Devaluing the euro would be good, except there's no one to devalue against. If the euro devalues against the dollar the dollar will have to try and devalue against he euro. You can't devalue against each other.
It's actually a balance of payments problem. Within the eurozone other countries really should be devaluing against the mark. But they can't, because it's the same currency. During the pre euro and early euro eras money flowed to the periphery, overvaluing those economies. Now they're stuck at that over valuation and can't get out of it. Germany could keep inflation low because as they devalued against the dollar everyone else devalued against the mark, keep their prices low etc. That would be fine now. But isn't possible. So given the non option, basically the only option is for the whole eurozone to devalue its debt through inflation (which again, doesn't need to be radical 3-4% a year isn't all that much), and form some broader political union which glues all the budgets together, or to break apart.
Your definition of stupid and mine vary. It depends how credible the plan is. If you have nothing to take of value, or if your business plan is good it could be worth more investment. If your plan is "I'm going to take 20k and buy gold" well... the bank could buy gold itself. It doesn't need you.
I'll just point out that in the real world, such plans tend far more often to the incredible than the credible. And any borrower who says they just need borrow more and then they'll be able to pay you back, is just an invitation for the bank to lose more money than it already has. Just saying that's how it usually plays out.
Sure, which is why people get foreclosed on. And in the real world austerity is shrinking economies, which is why they are on the verge of getting foreclosed on.
Does social security have value? Do pensions?
So do sport cars. Should the state buy me one? Social security is a very affordable, selfish interest. You already have the means to buy it with your income. If you choose not to, then I see absolutely no reason for society to take up that role. In other words, your lack of planning is not my responsibility. If you want a much smaller safety net for extreme bad luck, then that's a different story. But you'd be spending a lot less on it.
Social security is a relatively small amount of spending for small safety net. Government pension plans are not actually a safety net, in that they're earned pensions. Medical care is a massive safety net for a big cost in absolute terms, but because it's aggregated over a large area it's not so bad. And yes, if a car becomes cheap enough and transportation critical enough the government can and will provide you a car essentially. It provides you unemployment and welfare and that will eventually be enough to cover a cheap car. As it is it's enough to cover a bus pass which is functionally the same thing. In fact they provide public transportation for just this sort of thing. Because not everyone can afford a car yet, and collectively buying into the infrastructure for trains is valuable. The public also generally build and own the road the sports car would drive on already.
My view is that you are justifying the EU on the basis of dubious social programs. If the individual states really can't afford such programs, or if such programs make them completely uncompetitive compared to other states, then that's a solid indication to me that the programs in question shouldn't exist. I think it's the height of folly to instead attempt to create a superstate merely so that one can create an oligopoly for providing social programs. Where's the control on that superstate?
What's to control the power of any federal government? The fact that you ignore evidence of the effectiveness of social programmes I can't help you with. They're a giant insurance system, and you can't do better than a government guarantee. You can (and should) supplement them where appropriate, but you can never personally be prepared for an aircraft crashing into the world trade centre and wiping out hundreds of billions in value in airlines and destroying a number of companies housed there. Social insurance is just that, insurance, it provides a guarantee of a baseline of income which is enough to not starve to death on, and enough to cover medical care that will save your life if you get cancer twice by the time you're 30, and will keep paying until you're 80, where a private insurer will run and hide from that if they can.
You're exactly wrong on 'if they can't afford it individually they shouldn't exist'. Should arizona and texas be handed back to mexico because they couldn't defend themselves in a fight against mexico alone? Same problem. Seriously. Exactly the same problem. Should florida be denied social security because of a housing bubble there? Should louisiana because they got hit by
Devaluing your currecy only makes it competitive in the short term, until you have an inflow of capital that causes your currency to appreciate again. Your relative buying power within the country does diminish, it's only foreign buying that's affected buy a currency devaluation. When you're the US this is basically everything, because everything is made somewhere else, except houses, cars and airplanes, you know, small stuff.
If the 20k is used to build a house (or more like 200k) then it has created wealth. It created a house. I could have created the house myself. But if I already have a house I don't need another one sort of thing. And yes, that's exactly the argument you made about the tomato and chicken farmer. I added a middle man to help me distribute the wealth I have that isn't isn't being used. Governments can tax this money away from people who aren't spending it (the growing wealth gap) or they can borrow it from those same people. Either way, the net effect is a new house created, and more people working. Jobs *do* create wealth. The argument you made illustrates how. If the private sector won't create the job and is sitting on un used cash then it's not generating wealth.
Um... you realize that to lower the minimum wage you've just moved jobs to china right? The minimum wage has actually gone down in real buying power, quite a lot. How much has that helped? Right. It hasn't. It's just reduced the wealth of the people in the bottom quartile, and left them without the means to be mobile.
Government healthcare seems to produce better outcomes in the short and long term. Compare the US healthcare system to france, the UK, canada etc. The US spends a lot of money on ineffective innovations in healthcare. All of the countries with healthcare have different approaches and do quit a lot of research. They just refuse to actually use it unless it can be proved beneficial. Naturally, like all science, the US has a big economic advantage here. But that's not because of healthcare spending.
I don't know why we're rehashing an 80 year old debate were your long since discredited positions keep coming up honestly. it's not like this is new. The great depression had the same arguments, and it was people on the side of government spending and national healthcare that eventually dragged the economies out of that mess. Much of that was forced government spending due to wars, but government spending none the less. All of that spending gave soldiers and workers piles of money for defending things, not actually producing anything of long term value (your misguided definition of wealth) which in turn meant they created demand for things which had longer term value when the war was over.
Also, the euro can be inflated. Germany is strongly resisting that plan, probably because they're trying to force through a fiscal union or to get greece to leave the euro. But 3-4% inflation in the eurozone would do wonders for the debt problems.
Theoretically that would work, as long as you could guarantee and indefinite demand for lunar or martian colonies. Actually you could do that, it wouldn't solve all the economic problems, but if you could guarantee funding for space research for say, the next 30 years (insofar as governments ever make guarantees), you would create jobs, spur demand which would create more jobs. Naturally the problem with this plan is that the payoff from all of that investment may never match the investment, directly or indirectly. Certainly not colonies anyway.
10 billion dollars a year though (or 10 billion euros). Or even 100. That could be reasonably guaranteed, and would put a million people to work at least, and their demand would then create a couple of million ancillary jobs (in retail, construction, automotive etc.). Granted, the Eurozone has 35 million unemployed people, 2 or 3 million would help, but they need more like a 300 or 400 billion euros in spending. 100 billion euros bailing out spanish banks would have been better spent over the last 2 years putting a half a million people per year to work in spain.
Kicking greece out won't help spain, italy, ireland, portugal etc.
Kicking out countries that can't cut it would sure help the rest. I think the mistake here was attempting full integration with weak economies and societies. If they had stopped at dropping most trade barriers, they wouldn't have a problem with Greece. But integrating all those disparate societies together just didn't work.
Lets say you have a business with 100k in debt. At high interest. And the bank wants its money. Are you going to slash inventory, and reduce operating hours in the hopes of getting a positive balance? The bank won't go along with that plan and will foreclose on you because you can't make the money back. If you go to them and say "look, with 20k more I can expand into these new markets that will make me money I might actually be able to pay you back properly" they might go for it. They all need to spend, to get people working and spending, to create private spending to supply the demand they should have.
Now, if the bank is pretty stupid, sure they might go with plan B, "doubling down" on a bad investment in you. You have high interest rates because you are a huge risk. Adding another 20k of debt onto that risk is throwing good money after bad.
Let me introduce a variation of plan A. You tell the bank that you can't pay them back. You're going to slash inventory and reduce operating hours in the hopes of getting a positive balance. Now, they can foreclose on your business and get cents on the dollar. Or they can forgive a significant fraction of the loan, own a good sized, but non-controlling piece of the business and get a better return overall. Their choice.
They choose right? Then you trim the business and you have less debt weighing you down. Good position for when the recovery happens. They choose wrong? Then you walk away from the business and let the bank foreclose on it. That's a real plan.
The eurozone needs a political union or a trans-national social insurance system (say health care, pensions, education and defence, they already have agriculture) if it wants to remain a currency union.
Suuuure. I think the problem here is the erroneous assumption that political unions, trans-nationa social insurance, etc has positive value. This mess wouldn't exist if these things really were beneficial.
Sure, kicking all of the countries out of the Euro except france germany and the benelux countries would work. That's whats going to happen because of austerity anyway.
Your definition of stupid and mine vary. It depends how credible the plan is. If you have nothing to take of value, or if your business plan is good it could be worth more investment. If your plan is "I'm going to take 20k and buy gold" well... the bank could buy gold itself. It doesn't need you.
Does social security have value? Do pensions? The reason florida hasn't exploded but greece and spain have is because people who benefit from medicare and social security in florida aren't suddenly on much contracted incomes because the housing bubble burst. In any single currency area except the Eurozone money is transfered from regions doing well to regions doing badly, not necessarily directly. The military base pays soldiers the same just because the local car factory shut down for example. One option (not necessarily a good option, but an option) for Europe is to federalize into a single megastate like the US, with certain things insured at a federal level, so local economic problems only damage an area and not wreck it completely. Think about federal disaster aid from the oil spill as another example.
Whether or not they are beneficial is hard to say. Is any country better off being a country or would they be better off broken apart? How small do you want to make places. Certainly from the outside delaware, new york, california texas would all appear to be better off separately. The
That's an interesting assertion. You have evidence that that's going to happen?
Uh... what exactly do you think austerity is? We can't have our own facts here. Cutting spending means slashing salaries and laying people off. It doesn't mean anything else. It's not *going* to happen, that *is happening* that's what austerity is. If you cancel and order for a ship then the people who were going to make the ship don't have a job anymore. If you lay off a teacher they aren't a teacher anymore. In good economic times they transition to the private sector. In bad economic times they are unemployed. Which is what they are.
I see instead that some pretty dumb policies have borne fruit in Greece as well as elsewhere. All I can say is that if a little short term sacrifice can destroy Greece, then I don't see the point of the country. Just end it and come up with something better.
Um... What about this is short term? There's no 'short term sacrifice' that will fix this. That's the problem.
The double dip recession is a classic sign of what happens when you bail out banks and other failed businesses rather than end them. Often they fail again (the second dip) because the problems that led to the recession never went away.
You're basing this on what exactly? http://en.wikipedia.org/wiki/Greek_government-debt_crisis specifically the section on counter measures talks about how much the greek government has cut. What do you think happened to those people? They stopped spending because they have no income. That contracted the overall economy.
It's also destroying 'confidence' in their ability to recover, because everyone with money to lend realizes you can't cut your way into prosperity in bad economic times.
I'd call that a "talking point" for spending more public funds on pork not an actual belief held by most people with money.
Fair enough. If you came to me for a plan to start a business asking for 30k when every other similar business was asking for 300k I'd think you were lying. Investors charge higher interest rates because they don't think they will get their money back. That's 'confidence'. Cutting spending hasn't produced the oft discussed 'confidence' that will drive interest rates down. In fact it needs to be the other way around. Would you put your money in greece at 2% interest? Right. You know as well as anyone else they're very unlikely to pay it back. If they had a credible plan to get enough money to pay it back the interest rates would be lower.
Sure you can cut your way into prosperity. You don't just cut everything, you cut the stuff that fails. And the surviving businesses become attractive for loans and investment because suddenly there's less competition for their markets and their costs went down. Lower costs and higher profit margins. Even if no one were to loan money, the recession would naturally end.
That would be the so called 'confidence fairy' which has yet not materialized. It might also mean a significant contraction of the economy. It's the estonia example. A 20% drop in the economy followed by a 5% uptick is considered 'growth'. The problem with 'cutting what fails' is that you and I disagree on what fails of course. But right now, what's failing is demand, and it's failing because people keep cutting spending. Businesses are sitting on cash piles because they have no demand to invest in. If they just started spending the money all together at once it would life the economy out of recession. But they won't.
Taxation is not theft. At least not when democratic governments do it. Taxation is the people voting to use their collective bargaining power to buy services.
So it's alright when enough people say its ok? So if a gang of X (X being the number of people when it is ok for the theft to be morally justified) corner you at gunpoint and let you vote with them if they should rob them. Democracy is 2 wolves and a sheep voting on what they want for dinner.
yep. And if you don't like it, go somewhere that lets you choose whether or not you're going to pay taxes at all. Like greece. Or pakistan. Seriously. Pay off the right people and your tax bill will magically disappear.
What sky high tax rates are you talking about? You can't on one hand claim sky high tax rates are murderous and then claim france and germany are strong economies (who are not as highly taxed as the nordic countries, most of whom are doing even better) and then say spain italy (and presumably) greece aren't. there's no strong correlation there. France and germany are both taxed, and spend, more than spain, with italy less than france but more than germany, and greece is way down the list.
I don't mean to correlate the tax rates between the various European countries and their relative prosperity, merely that Europe has higher tax rates than, say, most of Asia, the Caribbean, most of the Americas, etc. Germany and France have thrived mostly because of their previously solid foundation before the adoption of the Euro.
yes actually, you did. France and Germany had solid foundations before the euro in part because they had large tax bases.
The US spends significantly less as a percentage of GDP on total government spending (and taxation) than anyone else and has a massive deficit which it's paying next to nothing in interest on. It also has higher unemployment than Canada or Germany (by quite a lot) despite a significantly lower tax burden, but lower unemployment than france.
Really? Because when you look at it, the US is quite high. Not as high as Europe of course but a lot higher than the places where people are looking to invest their money in such as Hong Kong, Singapore, Chile, etc. When you look at the US tax burden you also have to look at the fact that the US taxes worldwide income if you are a US citizen which most other countries do not.
Yes, really, it's not high at all. http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP France is at 44%, germany at 40, canada at 32, the US at 27. That's total government (so the sub national states/provinces/local governments). The US taxation on all overseas persons is inconsequentially small, as it taxes income only over 90.
Chile, Singapore and Hong Kong have much lower costs than the US, or are much closer to useful markets. The vast majority of countries with any money are higher than the US. The only notable exception is Taiwan, which collects US handouts. Chile I will point out has about 1/4 the per capita income that the US does (1/4 the per capita costs). And HK and Singapore are both cities, so don't really hold up under comparison to a full country. If you count HK as part of China (which it is) china is at 17%, and you know why everyone is moving there, and Singapore would I guess count as part of malaysia but doesn't really.
A situation where the government borrows a crap-ton of money on useless stuff? A situation where the voters expect the nanny-welfare state to take care of them all their life? Etc. The things that led Greece to this crisis isn't because they have a currency they can't control, instead they can't get out of the crisis the easy way by hyperinflating their currency (something Greece has enjoyed doing since ancient times!) and instead actually have to cut spending and get their affairs in ord
War has commercial value. Defending your assets (including your entire country) from being stolen by someone else is valuable. In fact economic value is primarily what people actually fight over. Control of valuable resources, territory etc. are all economically valuable. It's only since WW2 that we've even had a concept of fighting in say libya over the right to self determination, which, itself is a form of economic value (redistribution of libyan wealth), which we hope to profit from eventually.
Your scenario isn't considering the concept of a catalyst. If that logging area is in BC, and they need a road to california, that's a really huge investment for relatively little return given the length of road required. If the government does it, and lets anyone use it, then the timber company can log, a fishing company can set up on the coast etc. And they can all move the goods around, and they can then collectively pay for the road. If then the logging company gets taken over by a lunatic who loots the company for all of its money and runs off to switzerland the road is doesn't go through some ownerless transition period preventing anyone else along it from legal access.
The interstate highway system, telecoms systems, power distribution etc. also prevent the wasteful duplicate provisioning of resources (multiple private roads or lines to the same place), can ensure competitive access or use of the relevant resources rather than a monopoly exploiting it against anyone else, and because well... private companies couldn't afford the investment, because the payoff period is too long to be competitive with other, completely unrelated industries. The nuclear power industry competes with the scissors making industry for capital, since it's completely unrealistic for major long term projects to do that the government has to step in and provide some sort of incentive or direct investment.
Airbus and EADS being a good example, as it took almost 10 years for them to launch their first major product, and a lot longer than that to become a major player in the industry. In this case I wouldn't use profitability but total market/revenue as the metric, as they took about 30 years to catch up to Boeing, but now have a huge number of people employed profitably (albeit barely profitably)
and which reality is that? That effective honest taxation can buffet your society from the worst of economic down turns (as in say sweden, norway, germany) or the fantasy that cutting spending will lure the confidence fairy to spur growth like in Spain and Greece?
You're living in 80 year old long discredited fantasy land. The fact that policy makers in europe are living in the same long discredited fantasy land should tell you that they either are trying to force some other plot (a fiscal union) behind the scenes or that Europe is totally fucked. Because what you want isn't working, hasn't worked, and is just making things worse.
Printing money isn't just because of borrowing. Devaluing your currency makes your economy competitive*, and it's preferable to have inflation to deflation. Since populations are generally growing, as is productivity etc. you need to print enough to keep up with that growth, and you're better to slightly overshoot than under.
Education produces wealth btw, and government healthcare saves wealth. Government can also produce wealth by balancing risk and collectively providing services which would be difficult to manage individually.
Jobs do actually create wealth when they flow money around. That's how you create wealth. I give you 20k to sit on your arse, you spend 20k to buy a house, which creates a house and increases the number of houses by one. The person who make the house buys a software management system for his company, which I sold him. That's what drives the entire economy.
*everyone else that matters either pegs their currency to a fiat currency, or has their own. If they devalue against you that makes them more competitive than you. If you devalue against them it makes you more competitive against them. You can't devalue against each other.
What would you propose it be backed by then? Gold? Land? Because if you want to know how much gold you'd need you're in for a problem. And when someone asks for gold you don't have... well. That's why you're not on the gold standard isn't it?
Money is a representation of wealth. If you actually had to have all that wealth hanging around in reserve to back up the notes it wouldn't be circulating. And someone would just find whatever your currency is backed by (or based on) and manipulate that. A gold mine in south africa would literally be making US money. And when they sell to the chinese in exchange for cell phones, shoes and computers the chinese can then flood the market with cheap worthless gold and your money is worth more being based on paper.
And you're living in a fantasy land thinking there's any other good solution than fiat currency. Taxation is not theft. At least not when democratic governments do it. Taxation is the people voting to use their collective bargaining power to buy services.
What sky high tax rates are you talking about? You can't on one hand claim sky high tax rates are murderous and then claim france and germany are strong economies (who are not as highly taxed as the nordic countries, most of whom are doing even better) and then say spain italy (and presumably) greece aren't. there's no strong correlation there. France and germany are both taxed, and spend, more than spain, with italy less than france but more than germany, and greece is way down the list.
The US spends significantly less as a percentage of GDP on total government spending (and taxation) than anyone else and has a massive deficit which it's paying next to nothing in interest on. It also has higher unemployment than Canada or Germany (by quite a lot) despite a significantly lower tax burden, but lower unemployment than france.
Indefinite borrowing is only unsustainable if you are borrowing faster than GDP growth for an extended period, and when the economy is doing well so you're never trying to balance the books (which relatively pays off debt). Japan has over 200% of GDP in debt and is paying 0.8% as it's 10 year rate, France is paying 2.6% even though they're at like 90% of GDP in debt. Right now in Europe and the US the economy is doing badly... so now is when you want to use the ability to borrow to get the economy going again and get employment back up to fuel demand, or devalue against a large economy to drive exports. The problem with this plan is that you can't devalue easily against the chinese, and they won't import anyway, and you can't devalue against each other.
If your alternative to a fiat currency is 'real' fake money, like gold, then you end up trapping everyone in a situation like greece. Not that gold, or well... any physical thing doesn't have all sorts of its own problems with inflation, deflation, manipulation etc.
The whole point is that short term sacrifice has destroyed greece
Lying their way into the Euro and then following a borrow-and-spend policy has destroyed Greece. For years their economy was based on easy credit which has now gone away, and the Euro doesn't allow them to devalue their currency the way they always used to.
caused a double dip recession in the UK
The British economy has been a joke for years. For a decade or so it's been based on borrowing more and more money to sell houses to each other while exporting factories to Eastern Europe. And it's going into a recession despite the very borrow and spend policies you promote, because there's no real economy left.
All true. So what do you do about it now? In the UK they need to invest in industries that will create jobs. Waiting for someone with money to come in and start a new industry in the UK could take a very long time. In greece it's the same problem, but if the solution to everything was just kicking them out of the euro that would have happened already. Kicking greece out won't help spain, italy, ireland, portugal etc.
and left all of europe wallowing in a debt crisis they can't get out of because austerity is shrinking economies and leaving them no path to growth.
That's like complaining that you borrowed $100k on your credit cards and now you're having to cut spending to pay it back. The solution is not to get another credit card and borrow more money on that to pay the interest on the existing cards.
It's also destroying 'confidence' in their ability to recover, because everyone with money to lend realizes you can't cut your way into prosperity in bad economic times.
Europe has no 'ability to recover' without massively slashing regulation and taxation. Which won't happen before a catastrophic collapse.
Personal finance is not economics. Please don't confuse the two. But since you need a personal finance type analogy I'll give you one. Lets say you have a business with 100k in debt. At high interest. And the bank wants its money. Are you going to slash inventory, and reduce operating hours in the hopes of getting a positive balance? The bank won't go along with that plan and will foreclose on you because you can't make the money back. If you go to them and say "look, with 20k more I can expand into these new markets that will make me money I might actually be able to pay you back properly" they might go for it. They all need to spend, to get people working and spending, to create private spending to supply the demand they should have.
Slashing regulation I might agree with. Taxation.... er... not really, but kinda. Depends where you are. That's part of the problem. Rich greeks can just move to somewhere with lower taxes within the EU (more importantly so can spaniards and italians who can simply move one country to the east sort of thing), which reduces the tax base they have to work with. It's like slashing spending in california so schools suck so rich people move to Oregon so their kids get decent schooling but commute to california, robbing the tax base making them cut money on schools further. The eurozone needs a political union or a trans-national social insurance system (say health care, pensions, education and defence, they already have agriculture) if it wants to remain a currency union. That's essentially what the US government spends its money on (health, defence, pensions are about half of the US federal government). On the whole europe needs more taxes (just as the US does) obviously, they're running deficits while the wealth gaps are widening and businesses are sitting on large piles of cash, but trying to raise taxes piecemeal would be utterly pointless if it wasn't across the whole eurozone. That's, incidentally, significantly harder in the eurozone than the US since the spread of wealt
Yep, that is exactly it. Seriously. This isn't 1850. We understand a great deal more about economies than we used to, and *now* is definitely the time for massive government spending. Otherwise we'll keep wallowing around waiting for someone to try massive government spending to kick up demand. And I don't know about you but waiting for the chinese to spend their pile of 2 trillion dollars, and hoping they spend it on stuff we make, at some unknown abstract point in the future doesn't seem like a good economic plan.
It's not actually a fallacy. For an example, see Japan, because of the Tsunami their economy grew year on year about 4.7% (http://www.washingtonpost.com/business/economy/japan-raises-january-march-economic-growth-estimate-to-12-percent-amid-disaster-recovery/2012/06/07/gJQAQASYMV_story.html) Spending is spending. Considering the tsunami cost them about 2.3% of GDP, and they've seen 2.9 percent net growth mostly from reconstruction they are net ahead, and reconstruction isn't over yet. The new windows are better than the old ones so to speak. Education, health care, roads etc. have no more commercial value than that which we place on them. Space exploration is absolutely no different. EADS was largely organized and funded by government because as a commercial enterprise all of the precursor companies were wholly uncompetitive. That *investment*, which was made on the backs of taxpayers, notably rich ones, kept 100 000 direct jobs in europe, + all the spinoff jobs that would have otherwise gone to the US and boeing etc. Investing in space exploration now is probably not the most efficient stimulus plan available to europe, but it wouldn't be all that big of a stimulus plan anyway. 100 billion euros a year is probably less than a 10th of the spending they need.
Most of europe isn't drowning in debt. Quite the contrary, the only country drowning in debt is really greece, with italy a distant and not particularly serious second. Greece's debt problem is compounded because as they make cuts to government spending they're driving down the ability of those workers to spend, which is reducing private sector demand, contracting the economy, making their debt proportionally larger. They're fucked because the thing to do in this situation is either be Florida, and have a large portion of your spending be buffeted by the 'federal' (european) government, think medicare, social security etc, which wouldn't devalue just because one local area is having a bad time, or to devalue their currency to encourage a growth in exports. Europe won't go along with a federal union, and they can't devalue their currency... so they're boned. They are effectively trapped on a gold standard.
When you're drowning in debt you need to either shrink the value of that debt relative to your foreign holdings (devalue your currency), or grow your economy, or both, since one will naturally lead to the other. Since every country in the world cannot devalue against each other, and we've all devalued quite a bit against china there's not much to be done there.
When times are good and the economy is booming, that's when the government needs to lay people off. Right now, paying them to scratch their butts (lets call it unemployment) would be better than what they're currently doing. When the economy needs jobs you need to start laying them off from the public sector. When the private sector won't hire the public sector needs to, or else you start contracting the economy in a spiral.
To use another example of the broken window not actually a fallacy is how WW2 spending pulled economies out of recession. The new deal and so on in the US were essentially the same thing, a start if you will. Building a huge amount of stuff that was of no commercial value created jobs for the better part of 7 or 8 years (depending on where exactly you where), and that boom continued on well after because you had a demobilizing of public sector workers (soldiers) into the private sector as the economy grew.
Borrowing money isn't fraud, and raising taxes isn't fraud. Nor is taxation theft. Taxation is agreeing that some things are best for the state to manage and paying for those from everyone.
You need to focus more on jobs, which will create wealth. Cutting spending is creating a spiral of destruction in its wake that is destroying wealth left right and centre. Without jobs there's no demand, without demand there's no production and no innovation, without which there's less demand, and less wealth.
Because it's cutting peoples jobs and income, which is making them less prosperous, which is reducing spending, which is making everyone else less prosperous, which is, in turn reducing government revenue, leaving them less money to pay people and having to cut more, making the economic future look bleaker, and less prosperous.
The whole point is that short term sacrifice has destroyed greece, caused a double dip recession in the UK, and left all of europe wallowing in a debt crisis they can't get out of because austerity is shrinking economies and leaving them no path to growth. It's also destroying 'confidence' in their ability to recover, because everyone with money to lend realizes you can't cut your way into prosperity in bad economic times.
Slashdot Mirror
Erm... not really no.
The US standard of living and most of europe track pretty nicely from the late 50's until reagan yes. Then the Europeans start to 'fall behind' as their societies stayed relatively equal while the US become more unequal.
But none of the rest of what you wrote is particularly accurate. Yes, germany was a wreck until about 56, and italy was about the same wreck it was before the war until about 1970. But the UK and France were humming along quite well within a decade of the war being over. Their whole invading egypt in the suez crisis didn't exactly do them any favours however.
Um... 15 years you say? Were you in public school in 15 years? Were you *ever* in public school? The fact that the rest of the public can read this post because *they* were in public school means you benefit because you can communicate with them.
Ever had to call the police? No? Good. Because much of government is a giant insurance system. If you don't have to use it that means nothing has gone horribly wrong. Ever been invaded or bombed by a foreign power? In 15 years. Why yes, yes you have. And your military has seen fit to convey the point to anyone else that gets the same idea just what will happen to them. If someone happens to steal your stuff and run it across state lines you *can* call the police.
Lets go down the list shall we:
Parking: And you got to the parking lot how? On who's roads? Ever had to park in a different city. How did you get there?
Food: You're still alive. This means the department of agriculture is doing its job limiting the amount of toxic shit that gets in your food. Ever bought beef? How do you know it's beef? What counts as beef that can be labeled beef? Right. Government inspections and labeling. That doesn't mean they don't make some spectacular mistakes, but most of the time the system hums along.
Petrol (what you called 'gas'): And where exactly did those oil supplies come from, who had the facilities to try and clean up the mess from the deepwater horizon oil spill and where did the first round of disaster aid come from. Not BP.
Lawyers: Ooh ooh, I'm a lawyer I'll charge you 500 dollars an hour for my advice on how to get rid of your citizenship so you don't have to pay taxes. Except i'm not actually a lawyer. Who makes sure that a lawyer is actually a lawyer, and prosecutes people who fraudulently represent themselves.
Education: We covered this one already. But at a federal level education spending, paltry as it is, is mostly for backing student loans to keep interest rates down. Sure you have to pay, but you pay less under this scheme than if you were going through banks. On the other hand, this way you can get a degree in english at the same interest rate as a degree in engineering.
Medical care: Sure, you're an american. If you can live to 65 you get decent healthcare, or if you get a government job or have a spouse with a government job. If not you're fucked. Because for they money the US government spends on healthcare every civilized country in the world provides healthcare to everyone. But if you're between the ages of 18 and 65 and not a government worker, go fuck yourself. Doesn't make any sense to me either. Of course if you land in an emergency room and *can't* pay because you go bankrupt from the expense the government will have paid the bill for you through an insurance system. Otherwise all medical care would be 'cash upfront'.
Public transport: Can you sit anywhere you want on the bus? Define 'cheap'? A single ride one way on the New York subway is 2.50. Which is about 20 minutes of work at minimum wage.
Who gets the 'goodies'?
Old people... yep. they paid into the same insurance system you pay into. Live to 65 to collect.
People with children. Erm... how about children? Are you *ever* going to have kids? On average everyone has 1.005 children in the US (2.01/woman is the fertility rate). So sure, the government is subsiding that investment in the future for everyone who has a kid. Which is on average everyone.
Yep, Corporations buy their way into preferential laws. In the UK rich people have their own part of government, it's called the house of Lords. However you do it, rich people will *always* collectively influence government to their benefit, and always have.
Disabled people. yes, those poor people who had some tragic accident befall them. Feel free to get hit by a bus to collect disability. Remember that part about government being a giant insurance system, and when you don't collect it means nothing went horribly wrong? Ya, disabilit
Honest taxation is actually what the US has and Sweden has. Greece and pakistan have dishonest taxation.
Honest taxation means that if the tax rate is 15%, you, me, and everyone else pay 15%. Dishonest taxation is if the tax rate is 15%, and you pay 15%, but I pay 0, because I bribed an official to look the other way or forget about the purchase. The fact that I paid 5% as the value of the bribe doesn't matter, because it's not gone into government coffers.
And sure, the US is not *as* honest as some places. But it is actually one of the most honest, despite a self reporting income tax system.
Sure, the US system it's easy to legally avoid taxes, by paying off politicians to give you a lower tax rate, and by following rules to your advantage. But you can't bribe an IRS official out of your tax bill, and on the whole it seems like americans are pretty good about honestly disclosing how much money they make when it comes to tax time.
(http://images.businessweek.com/mz/10/32/1032_econtaxes16.pdf, although the bottom graphic doesn't actually have numbers on it, it conveys the point. The first chart is useless, as it is looking at total underground economic activity, not per capita)
Devaluing isn't defaulting*. But yes, if they could simply pay back .96^n where n is the number of years in future times the value of their current debt that would contribute to solving the problem as well.
Since they're being asked for 28% interest rates or something crazy they would actually be better off to devalue by like 26% and pay (1.02)^n back. Which is essentially what the bailouts are. Other countries are lending them money to pay off their expensive debt with cheaper debt. Like getting a 5% loan from the bank to pay off your 22% credit cards. Banks go along with this (even when they also own the credit cards) because they'd rather get some money they know they can get than have you go bankrupt. European countries are going along with this because they'll be on the hook if greece can't pay back their banks and the banks need to be bailed out.
Keep in mind inflation helps anyone who has debt in that currency as well. If you have a mortgage for 300k and you can lock in at a say 5% interest rate 4% inflation means your net interest rate is only 1%, whereas 0% inflation means your net interest is 5%.
*Keep in mind that devaluing still pays the face value. That's a guaranteed investment. In any investment portfolio you want some in government bonds because in the vast uncertainty that is the private market you know you'll at least get this much in government bonds. That creates a degree of stability and safe savings. Losing 1% on government bonds is better than losing 10%. The Dow peaked at 13.9k and is now 12.5k. Sure, in the extremely long average the DOW will always outperform inflation, but it depends *when* you need money where you want it saved.
Honestly, I'm not sure. http://en.wikipedia.org/wiki/Government_spending gives a good comparison. Actually that's probably a better metric than taxation, because tax bases plummeted due to the economic downturn.
The US, Canada, most of europe, japan are all in and around the 35-45% range as total government spending as a percent of GDP. France being an outlier up around 52 and taiwan being down at like 20. Where exactly the taxation comes from to pay for it is secondary, and the gap between receipts and spending is the deficit (including the non federal level).
Cutting out some rent seekers and other parasites so that there are more jobs and income collectively for society.
Jobs are jobs. People who don't have jobs don't spend. People who don't spend don't have demand, no demand means no hiring and no spending.
And yes, dumping greece from the Euro would help them were it not for the challenges involved in exiting the euro and the fact that they have debt in euros owed to banks in the rest of europe they'd never be able to pay in that scenario. But their problem is the same as everyone else in the euro, balance of payments problems and local economic problems they can't address by devaluing a currency which would be the least painful way out of the mess.
They're in the process of finding jobs that don't involve them sucking wealth from their fellow citizens by force. This is the short term sacrifice.
They're not in the process of finding other jobs. I don't know where you're getting that idea from. Unemployment is rising, and the overall economic base of greece is contracting. It's short term in the sense that they will be in a death spiral for decades like this, but sure, on a centuries long scale this might be short term.
The thing is recessions will end on their own anyway. The demand, the supply, or whatever happens to be lacking, will come back. There's no evidence that government borrowing and spending improve that outcome. That's just the sorry state of modern economics.
that's the state of 19th century economics and long discredited. Recessions won't just magically end on their own (and by what mechanism exactly?) Governments *can* and *have* demonstrably created demand. For the most extreme example feel free to look at WW2. Now the trick is someone will start the ball rolling, probably not greece. If demand picks up in the US for example because they stop with austerity that demand will eventually, and potentially quickly, cascade into europe. And the chinese won't spend it on anything european or american for the moment. The most obvious example of this is germany in the early 50's. Their economy, having been flattened was in a bad state. Then demand picked up around the world for goods as everyone else was fighting the korean war. German labour was available and cheap, so guess what, they got money and jobs and had huge growth. That was government spending, just not their government.
Japan is actually an example of extreme levels of debt helping quite a lot. They have 200% of GDP in debt, paying 0.8% interest as their 10 year rate. They have almost no unemployment relatively and they are actually kicking up a bit of growth now that they borrowed enough money to get things going again rebuilding from the tsunami. Japan is an example of how if you chronically undershoot a stimulus you can at least not end up in a massive economic death spiral. They are a strong case for 'spend more, a LOT more' because spending just a little at a time prevents disaster but it never really kicks things back into gear. Greece is different, in that they are bound to the euro. If they were never in the euro we wouldn't even need to be having this conversation because they would have devalued their currency boosted exports (and tourism) and moved on by now.
Sure.
the money would need to be borrowed or taxed from people who have money but aren't spending it. Seriously. It's not complicated. Business have big piles of cash, the wealth gap is increasing there are places to borrow money from. A space programme is probably a better plan for the US than europe, in that the US has people with relevant expertise who are unemployed and can borrow money from itself at next to nothing. Europe as a whole could borrow money, or france and germany could borrow money relatively cheaply, but greece and spain could not.
Although you're wrong in the "your debt can only go so high before the credit rating is degraded". Credit rating don't matter. Interest rates matter. Those two should be related. But aren't. If you can borrow money like Japan with 200% of GDP in debt at 0.8% interest for 10 years, and 1% inflation well.. the debt will actually be worth less when you go to pay it off.
If they could create jobs that would spur demand by borrowing money that would be sufficient. That would pick up demand, get the private sector spending again to meet that demand, and you end up with the so called virtuous cycle going, which would increase the tax base etc. Then when the economy isn't in the toilet is the time to start making cuts. Governments have been doing the exact opposite of what they should be doing, which is spending in a downturn and cutting spending in an upswing. Instead they were spending when times were good and and cutting when times are bad.
That's not a conspiracy theory. Those are literally the only two choices for the euro. Fiscal union, or start kicking out countries that are weak. Which will quickly be all of them except france germany and the benelux countries, and in that situation they'd be better to split back up entirely.
Germany kept inflation low, but could also devalue the mark against the dollar to keep boosting exports. Their exports are competitive at the current rate. The greeks aren't. Devaluing the euro would be good, except there's no one to devalue against. If the euro devalues against the dollar the dollar will have to try and devalue against he euro. You can't devalue against each other.
It's actually a balance of payments problem. Within the eurozone other countries really should be devaluing against the mark. But they can't, because it's the same currency. During the pre euro and early euro eras money flowed to the periphery, overvaluing those economies. Now they're stuck at that over valuation and can't get out of it. Germany could keep inflation low because as they devalued against the dollar everyone else devalued against the mark, keep their prices low etc. That would be fine now. But isn't possible. So given the non option, basically the only option is for the whole eurozone to devalue its debt through inflation (which again, doesn't need to be radical 3-4% a year isn't all that much), and form some broader political union which glues all the budgets together, or to break apart.
Your definition of stupid and mine vary. It depends how credible the plan is. If you have nothing to take of value, or if your business plan is good it could be worth more investment. If your plan is "I'm going to take 20k and buy gold" well... the bank could buy gold itself. It doesn't need you.
I'll just point out that in the real world, such plans tend far more often to the incredible than the credible. And any borrower who says they just need borrow more and then they'll be able to pay you back, is just an invitation for the bank to lose more money than it already has. Just saying that's how it usually plays out.
Sure, which is why people get foreclosed on. And in the real world austerity is shrinking economies, which is why they are on the verge of getting foreclosed on.
Does social security have value? Do pensions?
So do sport cars. Should the state buy me one? Social security is a very affordable, selfish interest. You already have the means to buy it with your income. If you choose not to, then I see absolutely no reason for society to take up that role. In other words, your lack of planning is not my responsibility. If you want a much smaller safety net for extreme bad luck, then that's a different story. But you'd be spending a lot less on it.
Social security is a relatively small amount of spending for small safety net. Government pension plans are not actually a safety net, in that they're earned pensions. Medical care is a massive safety net for a big cost in absolute terms, but because it's aggregated over a large area it's not so bad. And yes, if a car becomes cheap enough and transportation critical enough the government can and will provide you a car essentially. It provides you unemployment and welfare and that will eventually be enough to cover a cheap car. As it is it's enough to cover a bus pass which is functionally the same thing. In fact they provide public transportation for just this sort of thing. Because not everyone can afford a car yet, and collectively buying into the infrastructure for trains is valuable. The public also generally build and own the road the sports car would drive on already.
My view is that you are justifying the EU on the basis of dubious social programs. If the individual states really can't afford such programs, or if such programs make them completely uncompetitive compared to other states, then that's a solid indication to me that the programs in question shouldn't exist. I think it's the height of folly to instead attempt to create a superstate merely so that one can create an oligopoly for providing social programs. Where's the control on that superstate?
What's to control the power of any federal government? The fact that you ignore evidence of the effectiveness of social programmes I can't help you with. They're a giant insurance system, and you can't do better than a government guarantee. You can (and should) supplement them where appropriate, but you can never personally be prepared for an aircraft crashing into the world trade centre and wiping out hundreds of billions in value in airlines and destroying a number of companies housed there. Social insurance is just that, insurance, it provides a guarantee of a baseline of income which is enough to not starve to death on, and enough to cover medical care that will save your life if you get cancer twice by the time you're 30, and will keep paying until you're 80, where a private insurer will run and hide from that if they can.
You're exactly wrong on 'if they can't afford it individually they shouldn't exist'. Should arizona and texas be handed back to mexico because they couldn't defend themselves in a fight against mexico alone? Same problem. Seriously. Exactly the same problem. Should florida be denied social security because of a housing bubble there? Should louisiana because they got hit by
Devaluing your currecy only makes it competitive in the short term, until you have an inflow of capital that causes your currency to appreciate again. Your relative buying power within the country does diminish, it's only foreign buying that's affected buy a currency devaluation. When you're the US this is basically everything, because everything is made somewhere else, except houses, cars and airplanes, you know, small stuff.
If the 20k is used to build a house (or more like 200k) then it has created wealth. It created a house. I could have created the house myself. But if I already have a house I don't need another one sort of thing. And yes, that's exactly the argument you made about the tomato and chicken farmer. I added a middle man to help me distribute the wealth I have that isn't isn't being used. Governments can tax this money away from people who aren't spending it (the growing wealth gap) or they can borrow it from those same people. Either way, the net effect is a new house created, and more people working. Jobs *do* create wealth. The argument you made illustrates how. If the private sector won't create the job and is sitting on un used cash then it's not generating wealth.
Um... you realize that to lower the minimum wage you've just moved jobs to china right? The minimum wage has actually gone down in real buying power, quite a lot. How much has that helped? Right. It hasn't. It's just reduced the wealth of the people in the bottom quartile, and left them without the means to be mobile.
Government healthcare seems to produce better outcomes in the short and long term. Compare the US healthcare system to france, the UK, canada etc. The US spends a lot of money on ineffective innovations in healthcare. All of the countries with healthcare have different approaches and do quit a lot of research. They just refuse to actually use it unless it can be proved beneficial. Naturally, like all science, the US has a big economic advantage here. But that's not because of healthcare spending.
I don't know why we're rehashing an 80 year old debate were your long since discredited positions keep coming up honestly. it's not like this is new. The great depression had the same arguments, and it was people on the side of government spending and national healthcare that eventually dragged the economies out of that mess. Much of that was forced government spending due to wars, but government spending none the less. All of that spending gave soldiers and workers piles of money for defending things, not actually producing anything of long term value (your misguided definition of wealth) which in turn meant they created demand for things which had longer term value when the war was over.
Also, the euro can be inflated. Germany is strongly resisting that plan, probably because they're trying to force through a fiscal union or to get greece to leave the euro. But 3-4% inflation in the eurozone would do wonders for the debt problems.
Theoretically that would work, as long as you could guarantee and indefinite demand for lunar or martian colonies. Actually you could do that, it wouldn't solve all the economic problems, but if you could guarantee funding for space research for say, the next 30 years (insofar as governments ever make guarantees), you would create jobs, spur demand which would create more jobs. Naturally the problem with this plan is that the payoff from all of that investment may never match the investment, directly or indirectly. Certainly not colonies anyway.
10 billion dollars a year though (or 10 billion euros). Or even 100. That could be reasonably guaranteed, and would put a million people to work at least, and their demand would then create a couple of million ancillary jobs (in retail, construction, automotive etc.). Granted, the Eurozone has 35 million unemployed people, 2 or 3 million would help, but they need more like a 300 or 400 billion euros in spending. 100 billion euros bailing out spanish banks would have been better spent over the last 2 years putting a half a million people per year to work in spain.
Kicking greece out won't help spain, italy, ireland, portugal etc.
Kicking out countries that can't cut it would sure help the rest. I think the mistake here was attempting full integration with weak economies and societies. If they had stopped at dropping most trade barriers, they wouldn't have a problem with Greece. But integrating all those disparate societies together just didn't work.
Lets say you have a business with 100k in debt. At high interest. And the bank wants its money. Are you going to slash inventory, and reduce operating hours in the hopes of getting a positive balance? The bank won't go along with that plan and will foreclose on you because you can't make the money back. If you go to them and say "look, with 20k more I can expand into these new markets that will make me money I might actually be able to pay you back properly" they might go for it. They all need to spend, to get people working and spending, to create private spending to supply the demand they should have.
Now, if the bank is pretty stupid, sure they might go with plan B, "doubling down" on a bad investment in you. You have high interest rates because you are a huge risk. Adding another 20k of debt onto that risk is throwing good money after bad.
Let me introduce a variation of plan A. You tell the bank that you can't pay them back. You're going to slash inventory and reduce operating hours in the hopes of getting a positive balance. Now, they can foreclose on your business and get cents on the dollar. Or they can forgive a significant fraction of the loan, own a good sized, but non-controlling piece of the business and get a better return overall. Their choice.
They choose right? Then you trim the business and you have less debt weighing you down. Good position for when the recovery happens. They choose wrong? Then you walk away from the business and let the bank foreclose on it. That's a real plan.
The eurozone needs a political union or a trans-national social insurance system (say health care, pensions, education and defence, they already have agriculture) if it wants to remain a currency union.
Suuuure. I think the problem here is the erroneous assumption that political unions, trans-nationa social insurance, etc has positive value. This mess wouldn't exist if these things really were beneficial.
Sure, kicking all of the countries out of the Euro except france germany and the benelux countries would work. That's whats going to happen because of austerity anyway.
Your definition of stupid and mine vary. It depends how credible the plan is. If you have nothing to take of value, or if your business plan is good it could be worth more investment. If your plan is "I'm going to take 20k and buy gold" well... the bank could buy gold itself. It doesn't need you.
Does social security have value? Do pensions? The reason florida hasn't exploded but greece and spain have is because people who benefit from medicare and social security in florida aren't suddenly on much contracted incomes because the housing bubble burst. In any single currency area except the Eurozone money is transfered from regions doing well to regions doing badly, not necessarily directly. The military base pays soldiers the same just because the local car factory shut down for example. One option (not necessarily a good option, but an option) for Europe is to federalize into a single megastate like the US, with certain things insured at a federal level, so local economic problems only damage an area and not wreck it completely. Think about federal disaster aid from the oil spill as another example.
Whether or not they are beneficial is hard to say. Is any country better off being a country or would they be better off broken apart? How small do you want to make places. Certainly from the outside delaware, new york, california texas would all appear to be better off separately. The
That's an interesting assertion. You have evidence that that's going to happen?
Uh... what exactly do you think austerity is? We can't have our own facts here. Cutting spending means slashing salaries and laying people off. It doesn't mean anything else. It's not *going* to happen, that *is happening* that's what austerity is. If you cancel and order for a ship then the people who were going to make the ship don't have a job anymore. If you lay off a teacher they aren't a teacher anymore. In good economic times they transition to the private sector. In bad economic times they are unemployed. Which is what they are.
I see instead that some pretty dumb policies have borne fruit in Greece as well as elsewhere. All I can say is that if a little short term sacrifice can destroy Greece, then I don't see the point of the country. Just end it and come up with something better.
Um... What about this is short term? There's no 'short term sacrifice' that will fix this. That's the problem.
The double dip recession is a classic sign of what happens when you bail out banks and other failed businesses rather than end them. Often they fail again (the second dip) because the problems that led to the recession never went away.
You're basing this on what exactly? http://en.wikipedia.org/wiki/Greek_government-debt_crisis specifically the section on counter measures talks about how much the greek government has cut. What do you think happened to those people? They stopped spending because they have no income. That contracted the overall economy.
It's also destroying 'confidence' in their ability to recover, because everyone with money to lend realizes you can't cut your way into prosperity in bad economic times.
I'd call that a "talking point" for spending more public funds on pork not an actual belief held by most people with money.
Fair enough. If you came to me for a plan to start a business asking for 30k when every other similar business was asking for 300k I'd think you were lying. Investors charge higher interest rates because they don't think they will get their money back. That's 'confidence'. Cutting spending hasn't produced the oft discussed 'confidence' that will drive interest rates down. In fact it needs to be the other way around. Would you put your money in greece at 2% interest? Right. You know as well as anyone else they're very unlikely to pay it back. If they had a credible plan to get enough money to pay it back the interest rates would be lower.
Sure you can cut your way into prosperity. You don't just cut everything, you cut the stuff that fails. And the surviving businesses become attractive for loans and investment because suddenly there's less competition for their markets and their costs went down. Lower costs and higher profit margins. Even if no one were to loan money, the recession would naturally end.
That would be the so called 'confidence fairy' which has yet not materialized. It might also mean a significant contraction of the economy. It's the estonia example. A 20% drop in the economy followed by a 5% uptick is considered 'growth'. The problem with 'cutting what fails' is that you and I disagree on what fails of course. But right now, what's failing is demand, and it's failing because people keep cutting spending. Businesses are sitting on cash piles because they have no demand to invest in. If they just started spending the money all together at once it would life the economy out of recession. But they won't.
Taxation is not theft. At least not when democratic governments do it. Taxation is the people voting to use their collective bargaining power to buy services.
So it's alright when enough people say its ok? So if a gang of X (X being the number of people when it is ok for the theft to be morally justified) corner you at gunpoint and let you vote with them if they should rob them. Democracy is 2 wolves and a sheep voting on what they want for dinner.
yep. And if you don't like it, go somewhere that lets you choose whether or not you're going to pay taxes at all. Like greece. Or pakistan. Seriously. Pay off the right people and your tax bill will magically disappear.
What sky high tax rates are you talking about? You can't on one hand claim sky high tax rates are murderous and then claim france and germany are strong economies (who are not as highly taxed as the nordic countries, most of whom are doing even better) and then say spain italy (and presumably) greece aren't. there's no strong correlation there. France and germany are both taxed, and spend, more than spain, with italy less than france but more than germany, and greece is way down the list.
I don't mean to correlate the tax rates between the various European countries and their relative prosperity, merely that Europe has higher tax rates than, say, most of Asia, the Caribbean, most of the Americas, etc. Germany and France have thrived mostly because of their previously solid foundation before the adoption of the Euro.
yes actually, you did. France and Germany had solid foundations before the euro in part because they had large tax bases.
The US spends significantly less as a percentage of GDP on total government spending (and taxation) than anyone else and has a massive deficit which it's paying next to nothing in interest on. It also has higher unemployment than Canada or Germany (by quite a lot) despite a significantly lower tax burden, but lower unemployment than france.
Really? Because when you look at it, the US is quite high. Not as high as Europe of course but a lot higher than the places where people are looking to invest their money in such as Hong Kong, Singapore, Chile, etc. When you look at the US tax burden you also have to look at the fact that the US taxes worldwide income if you are a US citizen which most other countries do not.
Yes, really, it's not high at all. http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP France is at 44%, germany at 40, canada at 32, the US at 27. That's total government (so the sub national states/provinces/local governments). The US taxation on all overseas persons is inconsequentially small, as it taxes income only over 90.
Chile, Singapore and Hong Kong have much lower costs than the US, or are much closer to useful markets. The vast majority of countries with any money are higher than the US. The only notable exception is Taiwan, which collects US handouts. Chile I will point out has about 1/4 the per capita income that the US does (1/4 the per capita costs). And HK and Singapore are both cities, so don't really hold up under comparison to a full country. If you count HK as part of China (which it is) china is at 17%, and you know why everyone is moving there, and Singapore would I guess count as part of malaysia but doesn't really.
A situation where the government borrows a crap-ton of money on useless stuff? A situation where the voters expect the nanny-welfare state to take care of them all their life? Etc. The things that led Greece to this crisis isn't because they have a currency they can't control, instead they can't get out of the crisis the easy way by hyperinflating their currency (something Greece has enjoyed doing since ancient times!) and instead actually have to cut spending and get their affairs in ord
And if someone else plays games with the thing you use as a currency you also end up like greece. And there's bugger all you can do about it.
War has commercial value. Defending your assets (including your entire country) from being stolen by someone else is valuable. In fact economic value is primarily what people actually fight over. Control of valuable resources, territory etc. are all economically valuable. It's only since WW2 that we've even had a concept of fighting in say libya over the right to self determination, which, itself is a form of economic value (redistribution of libyan wealth), which we hope to profit from eventually.
Your scenario isn't considering the concept of a catalyst. If that logging area is in BC, and they need a road to california, that's a really huge investment for relatively little return given the length of road required. If the government does it, and lets anyone use it, then the timber company can log, a fishing company can set up on the coast etc. And they can all move the goods around, and they can then collectively pay for the road. If then the logging company gets taken over by a lunatic who loots the company for all of its money and runs off to switzerland the road is doesn't go through some ownerless transition period preventing anyone else along it from legal access.
The interstate highway system, telecoms systems, power distribution etc. also prevent the wasteful duplicate provisioning of resources (multiple private roads or lines to the same place), can ensure competitive access or use of the relevant resources rather than a monopoly exploiting it against anyone else, and because well... private companies couldn't afford the investment, because the payoff period is too long to be competitive with other, completely unrelated industries. The nuclear power industry competes with the scissors making industry for capital, since it's completely unrealistic for major long term projects to do that the government has to step in and provide some sort of incentive or direct investment.
Airbus and EADS being a good example, as it took almost 10 years for them to launch their first major product, and a lot longer than that to become a major player in the industry. In this case I wouldn't use profitability but total market/revenue as the metric, as they took about 30 years to catch up to Boeing, but now have a huge number of people employed profitably (albeit barely profitably)
and which reality is that? That effective honest taxation can buffet your society from the worst of economic down turns (as in say sweden, norway, germany) or the fantasy that cutting spending will lure the confidence fairy to spur growth like in Spain and Greece?
You're living in 80 year old long discredited fantasy land. The fact that policy makers in europe are living in the same long discredited fantasy land should tell you that they either are trying to force some other plot (a fiscal union) behind the scenes or that Europe is totally fucked. Because what you want isn't working, hasn't worked, and is just making things worse.
Printing money isn't just because of borrowing. Devaluing your currency makes your economy competitive*, and it's preferable to have inflation to deflation. Since populations are generally growing, as is productivity etc. you need to print enough to keep up with that growth, and you're better to slightly overshoot than under.
Education produces wealth btw, and government healthcare saves wealth. Government can also produce wealth by balancing risk and collectively providing services which would be difficult to manage individually.
Jobs do actually create wealth when they flow money around. That's how you create wealth. I give you 20k to sit on your arse, you spend 20k to buy a house, which creates a house and increases the number of houses by one. The person who make the house buys a software management system for his company, which I sold him. That's what drives the entire economy.
*everyone else that matters either pegs their currency to a fiat currency, or has their own. If they devalue against you that makes them more competitive than you. If you devalue against them it makes you more competitive against them. You can't devalue against each other.
What would you propose it be backed by then? Gold? Land? Because if you want to know how much gold you'd need you're in for a problem. And when someone asks for gold you don't have... well. That's why you're not on the gold standard isn't it?
Money is a representation of wealth. If you actually had to have all that wealth hanging around in reserve to back up the notes it wouldn't be circulating. And someone would just find whatever your currency is backed by (or based on) and manipulate that. A gold mine in south africa would literally be making US money. And when they sell to the chinese in exchange for cell phones, shoes and computers the chinese can then flood the market with cheap worthless gold and your money is worth more being based on paper.
And you're living in a fantasy land thinking there's any other good solution than fiat currency. Taxation is not theft. At least not when democratic governments do it. Taxation is the people voting to use their collective bargaining power to buy services.
What sky high tax rates are you talking about? You can't on one hand claim sky high tax rates are murderous and then claim france and germany are strong economies (who are not as highly taxed as the nordic countries, most of whom are doing even better) and then say spain italy (and presumably) greece aren't. there's no strong correlation there. France and germany are both taxed, and spend, more than spain, with italy less than france but more than germany, and greece is way down the list.
The US spends significantly less as a percentage of GDP on total government spending (and taxation) than anyone else and has a massive deficit which it's paying next to nothing in interest on. It also has higher unemployment than Canada or Germany (by quite a lot) despite a significantly lower tax burden, but lower unemployment than france.
Indefinite borrowing is only unsustainable if you are borrowing faster than GDP growth for an extended period, and when the economy is doing well so you're never trying to balance the books (which relatively pays off debt). Japan has over 200% of GDP in debt and is paying 0.8% as it's 10 year rate, France is paying 2.6% even though they're at like 90% of GDP in debt. Right now in Europe and the US the economy is doing badly... so now is when you want to use the ability to borrow to get the economy going again and get employment back up to fuel demand, or devalue against a large economy to drive exports. The problem with this plan is that you can't devalue easily against the chinese, and they won't import anyway, and you can't devalue against each other.
If your alternative to a fiat currency is 'real' fake money, like gold, then you end up trapping everyone in a situation like greece. Not that gold, or well... any physical thing doesn't have all sorts of its own problems with inflation, deflation, manipulation etc.
The whole point is that short term sacrifice has destroyed greece
Lying their way into the Euro and then following a borrow-and-spend policy has destroyed Greece. For years their economy was based on easy credit which has now gone away, and the Euro doesn't allow them to devalue their currency the way they always used to.
caused a double dip recession in the UK
The British economy has been a joke for years. For a decade or so it's been based on borrowing more and more money to sell houses to each other while exporting factories to Eastern Europe. And it's going into a recession despite the very borrow and spend policies you promote, because there's no real economy left.
All true. So what do you do about it now? In the UK they need to invest in industries that will create jobs. Waiting for someone with money to come in and start a new industry in the UK could take a very long time. In greece it's the same problem, but if the solution to everything was just kicking them out of the euro that would have happened already. Kicking greece out won't help spain, italy, ireland, portugal etc.
and left all of europe wallowing in a debt crisis they can't get out of because austerity is shrinking economies and leaving them no path to growth.
That's like complaining that you borrowed $100k on your credit cards and now you're having to cut spending to pay it back. The solution is not to get another credit card and borrow more money on that to pay the interest on the existing cards.
It's also destroying 'confidence' in their ability to recover, because everyone with money to lend realizes you can't cut your way into prosperity in bad economic times.
Europe has no 'ability to recover' without massively slashing regulation and taxation. Which won't happen before a catastrophic collapse.
Personal finance is not economics. Please don't confuse the two. But since you need a personal finance type analogy I'll give you one. Lets say you have a business with 100k in debt. At high interest. And the bank wants its money. Are you going to slash inventory, and reduce operating hours in the hopes of getting a positive balance? The bank won't go along with that plan and will foreclose on you because you can't make the money back. If you go to them and say "look, with 20k more I can expand into these new markets that will make me money I might actually be able to pay you back properly" they might go for it. They all need to spend, to get people working and spending, to create private spending to supply the demand they should have.
Slashing regulation I might agree with. Taxation.... er... not really, but kinda. Depends where you are. That's part of the problem. Rich greeks can just move to somewhere with lower taxes within the EU (more importantly so can spaniards and italians who can simply move one country to the east sort of thing), which reduces the tax base they have to work with. It's like slashing spending in california so schools suck so rich people move to Oregon so their kids get decent schooling but commute to california, robbing the tax base making them cut money on schools further. The eurozone needs a political union or a trans-national social insurance system (say health care, pensions, education and defence, they already have agriculture) if it wants to remain a currency union. That's essentially what the US government spends its money on (health, defence, pensions are about half of the US federal government). On the whole europe needs more taxes (just as the US does) obviously, they're running deficits while the wealth gaps are widening and businesses are sitting on large piles of cash, but trying to raise taxes piecemeal would be utterly pointless if it wasn't across the whole eurozone. That's, incidentally, significantly harder in the eurozone than the US since the spread of wealt
Yep, that is exactly it. Seriously. This isn't 1850. We understand a great deal more about economies than we used to, and *now* is definitely the time for massive government spending. Otherwise we'll keep wallowing around waiting for someone to try massive government spending to kick up demand. And I don't know about you but waiting for the chinese to spend their pile of 2 trillion dollars, and hoping they spend it on stuff we make, at some unknown abstract point in the future doesn't seem like a good economic plan.
It's not actually a fallacy. For an example, see Japan, because of the Tsunami their economy grew year on year about 4.7% (http://www.washingtonpost.com/business/economy/japan-raises-january-march-economic-growth-estimate-to-12-percent-amid-disaster-recovery/2012/06/07/gJQAQASYMV_story.html) Spending is spending. Considering the tsunami cost them about 2.3% of GDP, and they've seen 2.9 percent net growth mostly from reconstruction they are net ahead, and reconstruction isn't over yet. The new windows are better than the old ones so to speak. Education, health care, roads etc. have no more commercial value than that which we place on them. Space exploration is absolutely no different. EADS was largely organized and funded by government because as a commercial enterprise all of the precursor companies were wholly uncompetitive. That *investment*, which was made on the backs of taxpayers, notably rich ones, kept 100 000 direct jobs in europe, + all the spinoff jobs that would have otherwise gone to the US and boeing etc. Investing in space exploration now is probably not the most efficient stimulus plan available to europe, but it wouldn't be all that big of a stimulus plan anyway. 100 billion euros a year is probably less than a 10th of the spending they need.
Most of europe isn't drowning in debt. Quite the contrary, the only country drowning in debt is really greece, with italy a distant and not particularly serious second. Greece's debt problem is compounded because as they make cuts to government spending they're driving down the ability of those workers to spend, which is reducing private sector demand, contracting the economy, making their debt proportionally larger. They're fucked because the thing to do in this situation is either be Florida, and have a large portion of your spending be buffeted by the 'federal' (european) government, think medicare, social security etc, which wouldn't devalue just because one local area is having a bad time, or to devalue their currency to encourage a growth in exports. Europe won't go along with a federal union, and they can't devalue their currency... so they're boned. They are effectively trapped on a gold standard.
When you're drowning in debt you need to either shrink the value of that debt relative to your foreign holdings (devalue your currency), or grow your economy, or both, since one will naturally lead to the other. Since every country in the world cannot devalue against each other, and we've all devalued quite a bit against china there's not much to be done there.
When times are good and the economy is booming, that's when the government needs to lay people off. Right now, paying them to scratch their butts (lets call it unemployment) would be better than what they're currently doing. When the economy needs jobs you need to start laying them off from the public sector. When the private sector won't hire the public sector needs to, or else you start contracting the economy in a spiral.
To use another example of the broken window not actually a fallacy is how WW2 spending pulled economies out of recession. The new deal and so on in the US were essentially the same thing, a start if you will. Building a huge amount of stuff that was of no commercial value created jobs for the better part of 7 or 8 years (depending on where exactly you where), and that boom continued on well after because you had a demobilizing of public sector workers (soldiers) into the private sector as the economy grew.
Part
Borrowing money isn't fraud, and raising taxes isn't fraud. Nor is taxation theft. Taxation is agreeing that some things are best for the state to manage and paying for those from everyone.
You need to focus more on jobs, which will create wealth. Cutting spending is creating a spiral of destruction in its wake that is destroying wealth left right and centre. Without jobs there's no demand, without demand there's no production and no innovation, without which there's less demand, and less wealth.
Because it's cutting peoples jobs and income, which is making them less prosperous, which is reducing spending, which is making everyone else less prosperous, which is, in turn reducing government revenue, leaving them less money to pay people and having to cut more, making the economic future look bleaker, and less prosperous.
The whole point is that short term sacrifice has destroyed greece, caused a double dip recession in the UK, and left all of europe wallowing in a debt crisis they can't get out of because austerity is shrinking economies and leaving them no path to growth. It's also destroying 'confidence' in their ability to recover, because everyone with money to lend realizes you can't cut your way into prosperity in bad economic times.