Isn't it important to first understand what the problem actually is?
I think it's pretty obvious that we have a pretty serious issue with too much supply capability and not enough demand. Corporations have fixed this by laying off workers, which drove up unemployment, allowing corporations to pay their retained and new workers less. All of which has reinforced low demand. I have seen the idea of a "liquidity trap" thrown around, and other than people stating point of fact that it isn't true, I've yet to see a single in-depth critique stating that we are not in a liquidity trap.
In a liquidity trap, it isn't just the unemployed that matter. It's the employed who see their job security worsen, and their wages go down or stagnate. All things that lead to the employed saving a greater proportion of their money, rather than making purchases. It isn't just the rich who are saving!
By lowering unemployment, not only does the government generate greater revenue, they also have substantially lower spending due to less people on government assistance.
When unemployment drops substantially, demand goes up, forcing companies to expand production, and allowing more small businesses to survive. This generates higher job security and higher salaries. Greater job security and higher salaries leads the other 190 million working people to feel more secure in their spending. This drives up demand further, allowing businesses to safely hire substantially more laborers to meet demand. Otherwise they may lose sales to competitors.
This generates substantially higher GDP in the economy, lower government spending, greater government revenue, or a lower government budget deficit, leading to the lowering of the percentage of Debt to GDP.
To put it bluntly: Getting our ~12 million unemployed working is only the tip of the iceberg in a recovering economy. It's when the *entire* 200 million person workforce has enough security to begin demanding higher wages, to begin buying things again, to thereby drive the economy upwards.
Once the economy is in full recovery mode, *THEN* we can raise taxes on everyone and pay down the debt so that the next time we run into a recession, the government has more funds to do something about it.
"The 90 percent figure comes courtesy of Harvard economists Ken Rogoff and Carmen Reinhart in their paper “Growth in a Time of Debt.” They found that debt loads above 90 percent were associated 1 percent lower growth rates. That’s pretty bad. But there are a lot of potential pitfalls in this analysis. “If one reads their paper carefully, it is clear that Reinhart and Rogoff picked the 90% figure almost arbitrarily,” Yale’s Robert Shiller has written. “They chose, without explanation, to divide debt-to-GDP ratios into the following categories: under 30%, 30-60%, 60-90%, and over 90%. And it turns out that growth rates decline in all of these categories as the debt-to-GDP ratio increases, only somewhat more in the last category.”
Shiller, John Irons and Josh Bivens, and Mike Konczal have also noted that’s it’s much more likely that causality runs in the other direction. That is, countries have high debt-to-GDP ratios because they have slow growth, rather than the other way around. This makes sense. Slow growth means lower tax revenue, greater social service payouts, and a whole lot of other factors that contribute to increased deficits and debt. It’s possible to tell a story where high debt hurts growth, but it’s much less intuitive and only holds when interest rates are high and choking off private investment."
The second paragraph is what I found particularly interesting... you would have thought Rogoff & Reinhart would have at least tried to determine what came first, the chicken or the egg. Instead, they just kind of threw a guess out there....Then, as the experts they were, people quoted Rogoff & Reinharts findings without ever looking into how they came up with their findings in the first place!
1) How do you know the country is "at that point"? What is the point, and how did you decide it is the point?
2) Who said anything about only taxing the rich? During a weak economy... sure. They have benefited at a higher proportion than the rest of society during the weak economy. In fact, the weak economy has led to them benefiting more through lower wages, higher efficiency, outsourcing, increased executive pay, etc... The point of stimulus spending is to help our economy recover. Once that comes to pass, who says you can't raise *all* of the tax rates back to pre-Bush levels?
3) The largest increase in our spending is due directly to a weak economy and high unemployment. Erase this high unemployment and the deficit fixes itself. Sure, we're left with a high debt, but if GDP increases at a faster rate than our debt, then it's not a problem.
4) What's the investment difference between one person with $1 billion investing, and two people with $500 million each investing? How about one thousand people with $1 million each investing? How about ten thousand people with $100k each investing? Paying taxes to the government is technically a direct investment back into our economy through public sector jobs, projects and programs. Other investments into the private sector only matters if it helps the overall economy. You tell me, what does buying stock in Apple really do when they already have $130 billion in the bank? It raises the stock price, but that's about it. Without demand for the product, a demand which requires all sectors of the economy to flourish, then Apple will never increase production / hire more workers / throw tons of money into R&D.
When unemployment is low, more people are happy, and more money is moving within our economy. There is more competition for sales, more investment, more startups, more ingenuity. What happens when unemployment is high? Well...you tell me how it's been going the past 4 years with sky high unemployment!
Interesting point... one of the more inventive companies to ramp up production lately, Tesla, was backed by the government rather than purely private investors. (whom likely only came along due to that government investment).
As you can see, revenue only got back to the point that it was in 2000, when pre-Bush tax rates were in effect. You'll also notice from this graph that federal revenue didn't increase at the rate of state and local revenue. To me this coincides with a few things.
1) The housing bubble sent home prices through the roof, which would have generated vast sums of local/state taxes. 2) The government was spending loads of money. Not only were they committing to two wars, they were also spending on public sector workers and other projects. This means more money was paid to private businesses, who in turn paid higher taxes. 3) Tech boom. Cell phones were selling like hotcakes. 4) Unemployment rates dropped, which equated to higher overall tax revenue.
Just goes to show you, Correlation does not imply causation. You'll also notice that government spending was going through the roof at this point in time. In turn, the deficit substantially increased each year. Meaning, much of this new revenue was money that the government paid out, but never completely got back.
It makes you wonder, if all of the above had occurred, except that taxes hadn't been cut, would the debt have doubled during Bush's term? It seems like all of the above stimulus measures would have still been wildly successful with or without tax cuts.
http://www.usgovernmentrevenue.com/revenue_history
As you can see, revenue only got back to the point that it was in 2000, when pre-Bush tax rates were in effect. You'll also notice from this graph that federal revenue didn't increase at the rate of state and local revenue. To me this coincides with a few things.
1) The housing bubble sent home prices through the roof, which would have generated vast sums of local/state taxes.
2) The government was spending loads of money. Not only were they committing to two wars, they were also spending on public sector workers and other projects. This means more money was paid to private businesses, who in turn paid higher taxes.
3) Tech boom. Cell phones were selling like hotcakes.
4) Unemployment rates dropped, which equated to higher overall tax revenue.
Just goes to show you, Correlation does not imply causation. You'll also notice that government spending was going through the roof at this point in time. In turn, the deficit substantially increased each year. Meaning, much of this new revenue was money that the government paid out, but never completely got back.
It makes you wonder, if all of the above had occurred, except that taxes hadn't been cut, would the debt have doubled during Bush's term? It seems like all of the above stimulus measures would have still been wildly successful with or without tax cuts.
Slashdot Mirror
"That will solve all our problems right?!"
Isn't it important to first understand what the problem actually is?
I think it's pretty obvious that we have a pretty serious issue with too much supply capability and not enough demand. Corporations have fixed this by laying off workers, which drove up unemployment, allowing corporations to pay their retained and new workers less. All of which has reinforced low demand. I have seen the idea of a "liquidity trap" thrown around, and other than people stating point of fact that it isn't true, I've yet to see a single in-depth critique stating that we are not in a liquidity trap.
In a liquidity trap, it isn't just the unemployed that matter. It's the employed who see their job security worsen, and their wages go down or stagnate. All things that lead to the employed saving a greater proportion of their money, rather than making purchases. It isn't just the rich who are saving!
By lowering unemployment, not only does the government generate greater revenue, they also have substantially lower spending due to less people on government assistance.
When unemployment drops substantially, demand goes up, forcing companies to expand production, and allowing more small businesses to survive. This generates higher job security and higher salaries. Greater job security and higher salaries leads the other 190 million working people to feel more secure in their spending. This drives up demand further, allowing businesses to safely hire substantially more laborers to meet demand. Otherwise they may lose sales to competitors.
This generates substantially higher GDP in the economy, lower government spending, greater government revenue, or a lower government budget deficit, leading to the lowering of the percentage of Debt to GDP.
To put it bluntly: Getting our ~12 million unemployed working is only the tip of the iceberg in a recovering economy. It's when the *entire* 200 million person workforce has enough security to begin demanding higher wages, to begin buying things again, to thereby drive the economy upwards.
Once the economy is in full recovery mode, *THEN* we can raise taxes on everyone and pay down the debt so that the next time we run into a recession, the government has more funds to do something about it.
Actually, that 90% number seems to have been pulled out of thin air. From the article:
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/08/why-do-people-hate-deficits/
"The 90 percent figure comes courtesy of Harvard economists Ken Rogoff and Carmen Reinhart in their paper “Growth in a Time of Debt.” They found that debt loads above 90 percent were associated 1 percent lower growth rates. That’s pretty bad. But there are a lot of potential pitfalls in this analysis. “If one reads their paper carefully, it is clear that Reinhart and Rogoff picked the 90% figure almost arbitrarily,” Yale’s Robert Shiller has written. “They chose, without explanation, to divide debt-to-GDP ratios into the following categories: under 30%, 30-60%, 60-90%, and over 90%. And it turns out that growth rates decline in all of these categories as the debt-to-GDP ratio increases, only somewhat more in the last category.”
Shiller, John Irons and Josh Bivens, and Mike Konczal have also noted that’s it’s much more likely that causality runs in the other direction. That is, countries have high debt-to-GDP ratios because they have slow growth, rather than the other way around. This makes sense. Slow growth means lower tax revenue, greater social service payouts, and a whole lot of other factors that contribute to increased deficits and debt. It’s possible to tell a story where high debt hurts growth, but it’s much less intuitive and only holds when interest rates are high and choking off private investment."
The second paragraph is what I found particularly interesting... you would have thought Rogoff & Reinhart would have at least tried to determine what came first, the chicken or the egg. Instead, they just kind of threw a guess out there....Then, as the experts they were, people quoted Rogoff & Reinharts findings without ever looking into how they came up with their findings in the first place!
*face palm*
1) How do you know the country is "at that point"? What is the point, and how did you decide it is the point?
2) Who said anything about only taxing the rich? During a weak economy... sure. They have benefited at a higher proportion than the rest of society during the weak economy. In fact, the weak economy has led to them benefiting more through lower wages, higher efficiency, outsourcing, increased executive pay, etc... The point of stimulus spending is to help our economy recover. Once that comes to pass, who says you can't raise *all* of the tax rates back to pre-Bush levels?
3) The largest increase in our spending is due directly to a weak economy and high unemployment. Erase this high unemployment and the deficit fixes itself. Sure, we're left with a high debt, but if GDP increases at a faster rate than our debt, then it's not a problem.
4) What's the investment difference between one person with $1 billion investing, and two people with $500 million each investing? How about one thousand people with $1 million each investing? How about ten thousand people with $100k each investing? Paying taxes to the government is technically a direct investment back into our economy through public sector jobs, projects and programs. Other investments into the private sector only matters if it helps the overall economy. You tell me, what does buying stock in Apple really do when they already have $130 billion in the bank? It raises the stock price, but that's about it. Without demand for the product, a demand which requires all sectors of the economy to flourish, then Apple will never increase production / hire more workers / throw tons of money into R&D.
When unemployment is low, more people are happy, and more money is moving within our economy. There is more competition for sales, more investment, more startups, more ingenuity. What happens when unemployment is high? Well...you tell me how it's been going the past 4 years with sky high unemployment!
Interesting point... one of the more inventive companies to ramp up production lately, Tesla, was backed by the government rather than purely private investors. (whom likely only came along due to that government investment).
http://www.usgovernmentrevenue.com/revenue_history
As you can see, revenue only got back to the point that it was in 2000, when pre-Bush tax rates were in effect. You'll also notice from this graph that federal revenue didn't increase at the rate of state and local revenue. To me this coincides with a few things.
1) The housing bubble sent home prices through the roof, which would have generated vast sums of local/state taxes.
2) The government was spending loads of money. Not only were they committing to two wars, they were also spending on public sector workers and other projects. This means more money was paid to private businesses, who in turn paid higher taxes.
3) Tech boom. Cell phones were selling like hotcakes.
4) Unemployment rates dropped, which equated to higher overall tax revenue.
Just goes to show you, Correlation does not imply causation. You'll also notice that government spending was going through the roof at this point in time. In turn, the deficit substantially increased each year. Meaning, much of this new revenue was money that the government paid out, but never completely got back.
It makes you wonder, if all of the above had occurred, except that taxes hadn't been cut, would the debt have doubled during Bush's term? It seems like all of the above stimulus measures would have still been wildly successful with or without tax cuts.
http://www.usgovernmentrevenue.com/revenue_history As you can see, revenue only got back to the point that it was in 2000, when pre-Bush tax rates were in effect. You'll also notice from this graph that federal revenue didn't increase at the rate of state and local revenue. To me this coincides with a few things. 1) The housing bubble sent home prices through the roof, which would have generated vast sums of local/state taxes. 2) The government was spending loads of money. Not only were they committing to two wars, they were also spending on public sector workers and other projects. This means more money was paid to private businesses, who in turn paid higher taxes. 3) Tech boom. Cell phones were selling like hotcakes. 4) Unemployment rates dropped, which equated to higher overall tax revenue. Just goes to show you, Correlation does not imply causation. You'll also notice that government spending was going through the roof at this point in time. In turn, the deficit substantially increased each year. Meaning, much of this new revenue was money that the government paid out, but never completely got back. It makes you wonder, if all of the above had occurred, except that taxes hadn't been cut, would the debt have doubled during Bush's term? It seems like all of the above stimulus measures would have still been wildly successful with or without tax cuts.