Sebelius for VP, not Hillary

Although, US society still provides fairly unequal economic opportunities, the overall macroeconomic picture is not bad, with growth that is much better than European countries, a decline in unemployment and growing signs of a declining trade deficit.


For the US economy, a surprise growth spurt at end of 2006 | csmonitor.com

Troianii

Really? Cool. So all that we have to work on is the actual budget, and keep the taxes from coming back... I think we need to cut some spending.

Oh, and I disagree that our economic opportunities are bad, but that's besides the point.

Daewoo

Subtract deficit spending and associated flow through from those GDP numbers then reconsider your above stance. If they cut spending, the economy tanks. Every single bit of our GDP growth this year is attributable to government spending. If you look at the (all important) composition of our GDP, you see massive growth in on hand stocks....goods that have been produced that are still sitting in the manufacturers warehouse. the problem with this is that while it adds to your GDP, what it says is "we are having trouble moving our goods".

Our economy expanded based on DEBT. Nothing more. We do not "just" need to work on spending, we need to work on economic growth based on improved output as opposed to increased debt.

This is why the dollar fell 8.6% following the release of this "great news" coupled with dovish language from the FOMC. The composition of our GDP does not support a dovish stance from the fed. Between the release of the GDP report and the feds release many were speculating that the fed may boost interest rates 1-2% in a single push in order to try to save the dollar. Instead we got dovish language, so the dollar went into freefall.

Troianii

No, it didn't. Tax cuts aren't new at all, buddy. Bush has had them, Kennedy had them, we had them in the early 20s, they're not new. They are proven to work. When Kennedy cut the taxes the economic growth soared to over 5%/year. Johnson brought back taxes, and the economic growth rate was barely over 1%/year. And guess what: Johnson brought in heavy spending.

Of course, Johnson has been heralded and given credit for what Kennedy did, just as Clinton has been heralded and given credit for the great economy that Reagan brought.

Daewoo

Your post does not even make sense in relation to mine. Go back, read mine again, and then post something that is actually related.

On what you posted, the idea that Reagan brought the Clinton economy is absolutly idiotic. The clinton economy was the result of the largest equity bubble in history. The reagan economy was the result of massive increases in federal spending. That is why when Bush took office and cut that federal spending, the economy went into recession.

Again, re-read my post, then post somethign pertinent. Quoting me and then posting a bunch of unrelated garbage does not make sense.

Sebelius for VP, not Hillary

While I am not saying I agree with Daewoo, I found a story worth posting:


2006 personal savings fall to 74-yr. low - Yahoo! News

Troianii

Are you telling me that you weren't downplaying that tax cuts don't work? Do you mean to tell me that, in your post, you weren't trying to say that the economy is up because of spending and not the tax cuts?

Daewoo

I am saying that if you take our GDP and subtracts GDP plus a reasonable multiplier, you get negative growth. There is no question about that, it is simple math. Not a debatable point.

Then you went off on a laffer curve tangent. If you want to claim that the economy recieved a boost from the tax cuts, more power to you. The simple fact of the matter is, if you subtract deficit spending and associated flow through from GDP, you get a negative number. That is independant of your misunderstanding of the laffer curve. This means that even if you DO want to argue that the tax cuts gave us a boost, you cannot possibly argue that they boosted us enough to put us into the growth zone.

Before you start arguing the laffer curve at all, you might want to REALLY THINK...I mean really exercise those brain cells...when it comes to how GDP transactions are counted. A $10 transaction is a $10 transaction regardless of who makes it. It does not matter at all whether it is you, your uncle bert, your mon, your aunt flora, your dog, or the government that spends that $10. It is still counted the same when it comes to our GDP...a $10 transaction.

What this means is that what you seem to be hinting towards...that cutting taxes will automatically give our GDP a boost...is impossible. Whether you get to keep an extra $10 in taxes and spend it or whether the government takes that $10 and spends it does not matter as far as our GDP goes. What matters is that $10 got spent. The only real difference there is that governmnet flow through multiplier is slightly higher than you see from consumer spending, so there is slightly more benifit to them spending it than there is to you doing so. It simply does not matter who spends the money as long as it gets spent.

If the world worked the way you seem to be suggesting, we would all be rich and have a tax rate of 1% because our politicians would obviously cut taxes to the bone to spur the economy and the government would still take in the same revenue because the economy woudl be booming. Fortunatly our politicians apparently have better economists than you. The one thing that is in common to all those times that you listed where increased GDP followed decreased taxes is that spending either increased, or remained static. This means that the deficit rose, which essentially amounts to pumping money into the economy. The government took the Ben Bernanke approach. They pulled money out of thin air and threw it out of a figurative helicopter. When Johnson was the president, he increased both spending and taxes. The tax increase was nowhere near enough to have a detrimental effect on availability of expansion capital, which is what the laffer curve is all about (and frankly any claim that tax cuts boost the economy without discussion of the availability of expansion capital are pretty clearly being advanced by somebody who does not understand the subject matter). What Johnson DID do is pull less money out of thin air to toss from the figurative helicopters. Amazingly enough, with smaller influxes of magic money, the economy did not grow as quickly. Who would have thought???

Troianii

Yes, it is. You are saying that we have negative economic growth - we have the highest economic growth in the industrialized world. Not a debatable point.


No, that is not negative economic growth. What you are trying to say is that if the national GDP grows by 1 trillion and the debt grows by 1 trillion then there is no economic growth. First mistake - debt is not negative economic growth. Second mistake - interest on economic growth is far greater than interest on debt.


Oh really? Then countries with control government should work just as well, if not better right?

No. The problem is that you're looking at transactions, not investments. Transactions are handovers of money, you can do that a million times with no real growth at all. But investments grow - really grow.

Now I can give you 10 dollars, and you can give it back, and we could do this 1000 times and get nothing done.

Business is more than a transaction, it's an investment. The government making "transactions" does nothing. People investing their money grows AND there is a much greater strength inherent - they really, really, really give a shit about what happens with that. The success or failure of that investment is very personal. THAT is why growth is greater when there is a greater possibility for personal gains.


No, I am not hinting that cutting taxes will "automatically cause the GDP to grow". It's interesting that you have to change what I'm saying and try to make me look idiotic. Is it so that you can think that you're "winning" the debate? It's not working. What you fail to realize is that economic growth is not about spending money. If what you are suggesting is true than a control economy should be as successful as a free economy, if not even more successful. The facts are quite the opposite, and until you understand why you will never understand why tax cuts work.



You know what the problem is? You think I'm talking about the laffer curve. I'm not.

Now, again, I have to point out, and I might just as well consider it as a success in meaning that my argument is so good that you have to take it and pretend like it's something it isn't in order to think that you're "winning." I am not saying that if we had a 1% tax rate we would all be rich, please, find the quote that even so much as infers that. What I said is that tax cuts spur on economic growth. Now you might want to REALLY THINK...I mean really exercise those brain cells... does "economic growth" mean "we're all rich"?

Daewoo

No offence or anything, but you REALLY need to work on your reading comprehension becuase it sucks. What I have said MULTIPLE times now, in NO uncertain terms, is that if you subtract out deficit spending and associated flow through, we have negative economic growth.

Again, I did not say that we haev negative economic growth. I said that if you subtract our deficit spending and associated flow flow through from GDP, you get a negative number. Go back, read it again SLOWLY, one word at a time, stopping to look up the words that you don't understand.

What this indicates is that our economic growth last year was primarily based on deficit spending, Your argument that interest in economic growth is greater than interest on debt is frankly assinine and completly unsupportable. That would depend SOLELY on circumstances. In order for that to be true last year, GDP growth would have to be GREATER than 4.5%, which is the composite interest rate paid on our debt. Was GDP growth greater than 4.5%? If not, your statement above is simply incorrect. Keep in mind that 4.5% is compounded bi-annually. Not only would GDP growth have to outstrip the intrest on THIS years debt, it would also have to outrun the interest on last years debt for your argument to be correct, since by subtracting LAST years deficit spending and associated flow through ALSO gave you a negative number. In fact, that little trick has worked for the last FIVE years. Figure that if we had GDP growth of around 8-9% yearly you MIGHT be able to argue that the GDP growth was outstripping debt costs. Otherwise your statement is just plain bizarre.


That is because we are discussing GDP and GDP is a count of transactions...nothing more, nothing less. It has nothign to do with investments. I would be the first to agree that it is a pretty piss poor yardstick of the state of your economy, which is why I pointed out that you HAVE to look at composition in order to get anything at all from GDP numbers, and the composition of our GDP sucks, which is why the dollar dropped over 8% in roughly 3 hours.

If you want to talk investment, we need to look at our current account deficit and our gross capital inflows. Trust me, you do not want to go there because frankly, both suck.

Again, if you want to talk real economic growth, that is fine. We can do that. If that is what you want to discuss, we need to start talking composition of our GDP, which is not good.

I am not making you look like an idiot. Any assumption regarding your intelligence that anybody makes is based soley on your posts and their accuracy, or lack thereof. I have no control over that whatsoever.

You are right and wrong. By definition, modern "economic growth" refers to GDP grwoth, which is nothing more than a count of transactions...the great adding machine with no subtraction button. You are the one that was trying to prove that tax cuts spur the economy and using GDP as a milestone, not me. Maybe if I refresh your memory:

Now, suddenly those 5% and 1% numbers don't mean anything??



To be technical, what you are talking about is the theory of taxable income elasticity. The incorrect ideas you have been advancing here were made popular in the 80's by the Reagan administration who misunderstood the concept. That is when the term "laffer curve" came into being, as it was introduced to the Reagan crown by Aurthur Laffer. Despite the fact that Reagans OWN PEOPLE admit, and tried to explain to him that his people did not understand the concept, the incorrect reganized version was essentially sold to the world.

The theory of taxable income elasticity is hundreds of years old (IIRC first references are form the 13th or 14th century) and essentially states that cutting taxes will spur the economy IF the taxes are high enough that they infringe on the availability of expansion capital. IF that is the case (that they infringe on the availability of investment capital), by cutting taxes you free up capital for investment, allowing your businesses to expand, which strngthens and expands your economy. The theory further states that IF you cut taxes, freeing up expansion capital, tax revenue will not suffer and may even INCREASE due to the increased economic activity.

The problem with the way you are trying to apply it is that you do not take into account demand for expansion capital and whether that demand is being met. IF demand for expansion capital is flat, as it has been in the US for a few decades now, it is virtually impossible for tax cuts to have the desired effect since growth will remain the same whether the tax cuts occur or not. In that case, whether the american people spend their money on goods and services, or the US government spends that money on goods and services is immaterial. It is not being invested as expansion capital because there is no demadn for expansion capital.

Lacking that demand, the only way tax cuts can actually provide an economic boost is as a means to inject liquidity...free capital...into the economy. This is why we typically see econoomic boosts accompany tax cuts. We have never, ever seen a tax cut coupled with a reduction in the deficit. We have seen tax cuts with increased deficits, we have seen tax cuts with static deficits. We have never seen tax cuts with decreased deficits. If you cut taxes and your deficit remains static or increases, you are pumping liquidity into your economy. In that situation, the economy HAS TO expand. There is no other possible outcome. The cost of that expansion goes beyond the interest costs of the deficit spending. In the long term, that also leads to inflation. It is axiomatic.

Obviously if tax cuts were some kind of magic wand that you could wave to boost the economy at will, we would cut taxes to the bone, which would spur the economy to new and greater heights, which would benifit us all. Unfortunatly that is simply not the way the world works. The very idea is illogical.