Where is the US economy headed?

@JPB,

JPB wrote:

First, I would reduce the size of government by 1/4 across the board.

1/4 across the board? Let's go through the federal government programs by size:

Cutting Social Security benefits 25% will have a much greater impact on retirees than the return to Clinton-era capital gains taxes, which you are so concerned about.
Cutting the national defense budget by 25%: Okay, America can do this over the next decade
Cutting interest payments on the national debt by 25%: How do you suggest America should do that? Which of its bonds should the federal government default on?
Cutting Medicare by 25%: Same as with Social Security. The impact on seniors dwarfs the impact of raising the capital gains tax, which was of so much concern to you.
Cutting Medicaid by 25%: Same as with Social Security, except that now you're taking funds away from sick poor people. That's even worse.

And these programs, in normal years, is already 3/4 of the federal budget. (The years 2009 and 2010 weren't normal because of the stimulus program. ) FEMA and the CDC are small fish in the big pond of federal outlays.

May I ask what time frame you envision for your across-the-board 25% spending cut? If you're thinking a generation or two, it could work. But for anything shorter than that---good luck finding a majority of voters for it.

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@Thomas,

None of which even touches the point that cutting government spending at 10% unemployment, when the Fed has no rooms to cut interest rates, will do far more harm than good.

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@Cycloptichorn,

If you're going to hold FEMA out as an example of government working well then we can stop right there. FEMA is an absolute disaster at disaster management. I'm not so sure the CDC has it all together on preventing or handling an epidemic either.

Just like individuals... states/communities should plan for unforeseen costs as best they can. Set aside 3% of all taxes collect into a contingency fund until it can cover 6 to 12 months of all necessary expenditures, just like individuals should. Yes, I think we should raise taxes and have a contingency fund of available moneys that we don't get to write IOUs against to pay for whatever it is someone wants the government to pay for.

1 Reply

@JPB,

JPB wrote:

I guess I can best explain my position like this... Say I have a $!0,000 federal tax bill and I want to know how my money is being spent. I can't do it. It's too big and too complicated for me, (or anyone else) to have any idea on how our tax dollars are being used. If someone want to raise my tax bill to $11,000 because they spent too much money beforehand, there's no way the we can see any possible alternatives because we can't get our heads around the outflows - there are too many of them.

I don't object to paying taxes. I don't even object to paying a lot of taxes, or having my taxes raised. What I object to is waste. I'm frugal in my own life. I want my government to be frugal too.

I understand your frustration... it's just not as simple as you make it out to be. You can't just take an axe to 1/4 of the workforce in the gov't and make the problems go away.

One of the reasons that we are in our current predicament is the foolish Reagan decision to cut the top tax brackets in half. It would be far easier to do what you suggest if we had maintained responsible levels of taxation for the last 30 years; but we haven't, and this has lead to gigantic deficits and debts which must now be addressed. We basically cut out a huge chunk of income but didn't cut any of the spending, and now we're in such a deep hole that normal measures simply won't work to solve the problem.

Cycloptichorn

1 Reply

@JPB,

JPB wrote:

If you're going to hold FEMA out as an example of government working well then we can stop right there. FEMA is an absolute disaster at disaster management. I'm not so sure the CDC has it all together on preventing or handling an epidemic either.

I'm not arguing about their efficiency, I'm stating that they exist and some version of them has to exist. Otherwise disasters are truly going to be disastrous, to the point where we end up losing FAR more money than it costs to try and address them. You can't just do away with them.

Quote:

Just like individuals... states/communities should plan for unforeseen costs as best they can. Set aside 3% of all taxes collect into a contingency fund until it can cover 6 to 12 months of all necessary expenditures, just like individuals should. Yes, I think we should raise taxes and have a contingency fund of available moneys that we don't get to write IOUs against to pay for whatever it is someone wants the government to pay for.

Most states are heavily in debt right now - they can't set aside 3% of anything. We have to get back to a 'normal' financial situation before we can begin to have a rainy-day fund.

Cycloptichorn

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@JPB,

Quote:

First, I would reduce the size of government by 1/4 across the board.

Are you talking just staffing?

That will save you a few billion perhaps. Not much more than that.

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@Thomas,

Thomas wrote:

May I ask what time frame you envision for your across-the-board 25% spending cut? If you're thinking a generation or two, it could work. But for anything shorter than that---good luck finding a majority of voters for it.

It's a deal! Let's cut back 1%/year for the next 25 years.

1 Reply

@JPB,

It would have been a deal if we'd had this conversation at the 2007 New Orleans Jazz Fest. It's still a deal if we start the cutting in three years. But In the short run, America's shortfall of aggregate demand dwarfs every other problem the American economy has.

1 Reply

@Thomas,

Wait a minute Thomas...

Are you actually saying that when government spending makes up X% of GDP and if we cut government spending by 25% of X that we would have negative GDP growth?

Interesting side note - I seem to recall hearing the increased deficit spending added about 2% to GDP last year. I'll have to try to confirm that. If only we hadn't spent that, think how much better off we would be in some people's minds.

1 Reply

I recall running into an internet game months ago where players could make cuts in government spending (eg: eliminate the Department of Education) or increase revenues (eg: tax increases). Push a button and a player could see how much (or more often how little) impact there would be on our annual deficits. Mainly because interest on our debt and obligations under SSAE etc already make up a large portion of our budget.
It was an amusing exercise but I had my doubts about how accurate it was.

I get a nearly daily email letter from an investment research company with stock picks. I can't cut and paste that or even quote them directly. It is against their rules*. But here is the gist of the one from today.
INITIAL jobless claims last week rose by 37K to 464K. A more meaningful number is the 4 week average which shows 456K per week.
A year ago the number was 569K.
After 26 weeks of unemployment, the EXTENDED benefits would kick in. That was the big debate in Congress during this past week, finally getting approved after contentious debate.
This private investment research outfit contends that "most economists" agree that this is one of the "most effective" ways to stimulate the economy, because that money gets spent immediately.

*PM me if you want to know the name. I think I have accurately reported on this, though.

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@realjohnboy,

Quote:

This private investment research outfit contends that "most economists" agree that this is one of the "most effective" ways to stimulate the economy, because that money gets spent immediately.

I think they mean "stimulate quickly" as in the weeks before an election. It used to be months but they have refined their techniques. In 50 years I see government handing out cash on election day.

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@realjohnboy,

realjohnboy wrote:

After 26 weeks of unemployment, the EXTENDED benefits would kick in. That was the big debate in Congress during this past week, finally getting approved after contentious debate.
This private investment research outfit contends that "most economists" agree that this is one of the "most effective" ways to stimulate the economy, because that money gets spent immediately.

Interesting theory, but in practice it means taking money from one group that can not now spend it, and transfering it to another group that can. In terms of stimulus, it sounds like a neutral, or zero sum game.

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@roger,

It depends roger on the number of voters in each of your categories. If the group that "can not now spend it" is derisory in the polling booths compared to the group "that can" you don't need to have seen a photograph of Einstein's cat to know the outcome.

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@spendius,

Un huh, I know how it works. I was only addressing the stimulus effect.

1 Reply

@roger,

roger wrote:

realjohnboy wrote:

After 26 weeks of unemployment, the EXTENDED benefits would kick in. That was the big debate in Congress during this past week, finally getting approved after contentious debate.
This private investment research outfit contends that "most economists" agree that this is one of the "most effective" ways to stimulate the economy, because that money gets spent immediately.

Interesting theory, but in practice it means taking money from one group that can not now spend it, and transfering it to another group that can. In terms of stimulus, it sounds like a neutral, or zero sum game.

This isn't strictly true - since we're in a deficit situation, additional funding for unemployment benefits comes from loans to the US government, to be repaid later. In terms of stimulus, it isn't a zero-sum game in the slightest - it stimulates the economy right now at a cost to be paid at some future time.

Cycloptichorn

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@roger,

Well- the stimulus effect is all about timing. So if all goes to plan there will be a minor stimulus in about late Sept. this year and a bigger one at about the same time of year in 2012.

You don't think Mr Obama is all that bothered about the Congress do you?

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@realjohnboy,

realjohnboy wrote:

This private investment research outfit contends that "most economists" agree that this is one of the "most effective" ways to stimulate the economy, because that money gets spent immediately.

Reminds me of many of the TARP jobs we saw here last summer. Lots of federally funded create-a-job programs within local government and the retail sector targeted to seasonal workers (teenagers). Who better to give cash to to stimulate the economy than a bunch of teenagers?

But, yes, on a more serious note, I do think that unemployment benefit extensions are 1) necessary and 2) will support the economy more than some other ways that government can find to spend money. I would prefer they find ways to cut back in other spending to compensate (go ahead... pull it out of FEMA's budget), but cutting off unemployment benefits isn't the place to cut back.

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Ok you guys... help me parse this out.

Quote:

Obama wants to make the tax cuts permanent for middle- and lower-income taxpayers, allowing the top rates to increase next year for individuals making more than $200,000 and couples making more than $250,000.

Obama's plan would cost $2.5 trillion over the next decade, including the cost of an annual fix that spares the middle class from being hit with the Alternative Minimum — a hit of about $3,700 a year.

It would cost $2.9 trillion over the next decade to extend all the tax cuts, including AMT relief, according to estimates from the Tax Policy Center, a Washington think tank.
[So... that's 0.5 trillion (or $500 billion dollars) over a decade or $50 billion dollars/year. What does one get in the grand scheme of things for $50 billion? -jpb]

<snip>

Republican leaders have opposed much smaller spending bills that would add to the national debt — most recently a $34 billion extension of unemployment benefits for millions of people who have been laid off for long stretches. But they endorse more federal borrowing to make all the tax cuts permanent. [I'm sniffing some non-neutral reporting here, but I'm just trying to focus on the numbers-jpb]

The debate is playing out as lawmakers move toward an election that will determine whether Democrats keep their majorities in the House and Senate.

Democratic leaders believe they have a winning message of fiscal responsibility while making the rich pay more after years of relative prosperity. GOP lawmakers say it's a familiar debate: Democrats favor tax increases while Republicans oppose them. [HA! Anyone who thinks Congress has a winning message of fiscal responsibility is smoking something - jpb]

<snip>

Only 3 percent of taxpayers who report business income on their individual tax returns would face a tax increase under Obama's plan. Those taxpayers, however, account for half the business income reported on individual returns, according to the nonpartisan Joint Committee on Taxation. [I have a degree in math and my eyes are spinning - jpb]

<snip>

Some Democrats like the idea of forcing Republicans to vote on a bill that would extend tax cuts for middle- and low-income families while leaving the tax rates to increase for high earners.

GOP lawmakers say they will try to amend the bills to extend all the tax cuts. But if they are unsuccessful, would Republicans vote against tax cuts for the middle class?

"It's kind of a conundrum," Grassley said. "I'm not sure I can answer your question."

Camp said it would be difficult to block a bill extending middle class tax cuts, even if it doesn't stop tax rates from increasing for high earners.

"I'll probably vote for it myself," Camp said. Source

So.... $50 billion/year if we allow the tax credits to expire for the top income earners. $34 billion for a 6 month extension for unemployment benefits. Unemployment numbers aren't expected to improve much for another year or two. All coupled with politics as usual in an election year. And people wonder why I want to pull the plug on the federal government?

1 Reply

@JPB,

Quote:

Only 3 percent of taxpayers who report business income on their individual tax returns would face a tax increase under Obama's plan. Those taxpayers, however, account for half the business income reported on individual returns, according to the nonpartisan Joint Committee on Taxation. [I have a degree in math and my eyes are spinning - jpb]

Really? It's just a fancy way of saying that restoring previous tax levels on those who make more than 250k will only hit 3% of people, but will raise a lot of money. 50 billion a year is a lot!

Quote:

And people wonder why I want to pull the plug on the federal government?

Yes, we do wonder why. Because no viable replacement plan exists.

Cycloptichorn

2 Replies

@Cycloptichorn,

And that's why I think we've already jumped into the toilet. It's just a matter of when it's going to get flushed.

1 Reply

Where is the US economy headed?

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