Obama's Candidacy

CAC1001

Yes, but it's still ultimately government taking money out of the economy in one form and injecting it back in in another form. That isn't going to create economic growth.

There is nothing nonsense about it. True demand only comes from the private sector. The government cannot create any demand, because it's "demand" is demand that it must take out of the private sector in one form and injected back in. As for creating value, maybe in a very few limited circumstances, but for the most part, government is absolutely awful at this. If government could actually create value, then socialism would work.

Government can employ labor only in that it must first take wealth from the private-sector and use that wealth to pay its labor. Government doing scientific research could be a form of value creation, but even then, it's still the private-sector that will determine whether that research is of actual commercial value, and if so, will adopt that research and use it to create new products and services.

And all of those people are funded with wealth taken out of the private-sector in some form.

Government in every form is always a leech on society. That is why it requires taxes to operate. Of course societies with democratic governments and strong institutions do better than weak governments. Weak governments means lots more corruption, lack of law and order, and thus a chaotically functioning economy.

I think you're missing my point. It's like the different between a person using credit-card debt to fund a lifestyle versus using credit card debt to make actual investments. As I said, longer term, government borrowing money or taxing money to repair and/or build new infrastructure could be seen as an investment in that the infrastructure can facilitate additional economic growth that will then generate additional tax revenue, so that it pays for itself (and this is assuming that the infrastructure does this in the longer-term). But in the short-term, borrowing or taxing to build infrastructure is not unto itself any creation of wealth. All of the companies and workers that would get lots of money from such infrastructure projects, that isn't wealth that was created, it's just a redistribution of money from one sector of the private economy to another.

The arguments for stimulus are never that said stimulus will result in infrastructure that will then pay for itself down the line by generating additional economic growth, it's that the actual infrastructure programs themselves are economic stimulus, which is not true. It would be like saying the government should build a bunch of shopping malls in the Nevada desert. If those malls will generate income down the line, then it can be an investment. But the stimulus argument is that just the act of constructing the shopping malls, irregardless of whether or not they will be used, is stimulative of the economy. One other thing to keep in mind is that even with regards to trying to pursue legitimate investments, the government is extraordinarily inept at doing this sort of thing, because politics play a role and it's the old "a person spending someone else's money is never as careful as someone spending their own money."

There's nothing obvious about it. If anything, it can have a large negative drag on the economy, because if people see the debt being increased by a very large amount, it can cause them to behave in ways that make the attempt at stimulus counter-productive. For example, people may fear inflation in the near-future as a result of the debt, and cut back on their spending. If that happens, then the attempt to increase demand in the economy actually decreased it. It depends on how much is being spent and how large the debt already is. People also may hoard the money. The other thing you're ignoring is that there is not going to be any net economic growth from such spending. If you take on a bunch of debt to inject a bunch of money into the current economy, yes it could increase consumer spending now, but at the expense of what spending will be in the future economy. It also can hamstring the current economy due to the debt being increased.

For example, if the debt was low, and the government sent all 300 million Americans a check for $20,000 (equivalent ot a $6 trillion stimulus), that could make the current economy boom, because everyone gets a lot of money to spend and the debt isn't high enough where adding an extra $6 trillion hamstrings it. BUT, that $6 trillion isn't any free lunch. It is money that is just being spent NOW as opposed to later, and it won't be there to spend later, as we shorted the future economy of it. Yes, if "invested" it could yield true economic growth, but good luck at getting the government to properly invest $6 trillion, as the government is notoriously bad at allocating capital.

Another problem that can occur is that if the taking on of debt to spend money in the current economy is stimulative, you might end up preventing the actual private economy from recovering because you are replacing the private-demand with an artificial government demand that is funded by shorting the future private economy. So if for example the private economy is in a recession that it will naturally cycle out of and recover, and then the government decides to inject $6 trillion into it, that is an artificial demand and can stall the private economy from recovering.

ParticleGrl

But empirically, historically, it can. Read Milton Friedman on the money base. If Milton was right, stimulus works, as does expanding the money base.

Are courts valuable? How about national labs? Are laws valuable? Is the enforcement of contracts valuable?

When you say "take demand from the private sector" what you mean is that people working in government aren't working in the private sector. The question is- are courts valuable enough that its worth taking some smart people out of the private sector to keep a legal sector working . Is fundamental research valuable enough that its worth taking people out of the private sector, etc. In many cases, I contend the answer is yes. There is nothing artificial about this.

Therefore- government is valuable and the existence of government creates value. You agree.

Lets say I have lots of unemployed workers and a broken road. Now, lets say I have few unemployed workers and a road being fixed. In which situation is society wealthier?

Money is just a way to allocate stuff,its a shared delusion. You shouldn't get too hung up on national debt. It doesn't make the private sector richer or poorer in the long term- every dollar owed is owed TO SOMEONE. It just redistributes claims in the private sector.

Try and remember the economy is things, and people building things. Ultimately, your argument should come down to things, and the people building them. Government debt is a policy tool, its not debt in the same way credit card debt is.

Government investment has been responsible for most of the high tech products in your home. Without government funded research, there would be no internet, no ipad, no google. To say that this is 'extraordinarily inept' is just silly.

CAC1001

No it can't because it defies economics. That's part of why stimulus has never worked anywhere. The only exception would be if the government managed to legitimately invest the money it was borrowing or using debt to spend, which has happened (such as the New Deal infrastructure which lead to economic growth later on), but really only in cases where there was no infrastructure but a lot of economic growth potential existed if only the infrastructure would be built. Once you have said infrastructure in place, building more infrastructure isn't necessarilly any investment.

Milton Friedman was very skeptical of Keynesian stimulus. He was one of the main people to call it into question and point out its faults (he pointed out that you could "create jobs" by hiring one group of people to dig holes and another group to fill them back in; you could create even more jobs by equipping everyone with spoons as opposed to shovels). He also called into question the Keynesian idea that expanding the money supply leads to economic growth. He pointed out that expanding the money supply can lead to inflation.

Maybe we are having a difference of opinion on the term "value." By value, I mean commercial value, wealth. Functions of government that are valuable are not wealth, they take wealth in order to fund their existence. For example, having a strong military is valuable, but it costs money, it doesn't make money.

They are valuable enough in the sense of being valuable to the existence of society, but in terms of wealth or commercial value, they are a drag. All government in this sense is a drag. Government itself is an evil, but it's a necessary evil.

Government is "valuable" in the sense of facilitating a functioning society so that people can live their lives and wealth can be created. But government is not valuable in terms of having any commercial value and government doesn't create commercial value, it provides the functions that facilitate wealth creation (rule of law, protection of private property, infrastructure development, etc...).

The road costs money to be repaired which has to come from somewhere. It could facilitate wealth creation in the future maybe, in which case then it could pay for itself, but unless it's a toll road, it isn't valuable in a commercial sense (wealth). If the government is fixing it, then it is just re-distributing private-sector money for a project that may well not generate any money down the line. The road is valuable in the way law and order is valuable, not in the sense of wealth value.

Yes, money is the medium of exchange. But it is representative of the amount of goods and services being produced in society. The government takes, by force, some of all of the goods and services everyone produces by taking away some of their money. The national debt is concerning because with a large debt, if the interest rates go up, it can take up a lot more of the federal budget to continue to service the debt. And most nations do not do well with large amounts of debt on the economy.

Nothing silly about it. Ask government bureaucrats to start investing in companies and industries and see the results. Government is horrible at allocating capital. Don't make the mistake of confusing government-funded research with government successfully investing. Yes, government funded a lot of research that led to the development of lots of various electronic and computer technologies, but it was the private-sector that adopted those technologies and made them into the various products and services. Companies formed like Intel, Microsoft, Google, Dell, Apple, etc...(those are the most infamous) along with others. And various private-sector venture capital firms are who financed them. The U.S. government didn't run any venture-capital agency that decided to pick and choose what the companies and industries of the future would be.

Most of the research and development the government funded relating to these technologies was for purposes of national defense, not as a form of industrial policy to drive the economy. The economic growth was a byproduct of it. What is valuable to national defense is not necessarilly valuable in a commercial sense. Developing a new battle tank or fighter plane has no private-sector demand, it's demand from the government, which buys it with wealth taken out of the private-sector. Since electronics and computer technologies were so crucial to the national defense, the government funded research into them, but this also yielded great technology that the private-sector adopted. Also the Internet and GPS facilitated new goods and services.

JonDE

This doesn't really make a lot of sense for several reasons. First, if inflation is high, it makes people WANT to spend there money, not hoard it. If housing prices are skyrocketing, you buy a house as fast as possible, while you can still afford it, and it could be a good investment, as your loan would, in real dollars, would depreciate in value. Further, government debt is a very small factor in the overall economy. A 1 trillion stimulus might seem like a lot, but when you compare it to 74 trillion in assets, and 14 trillion in GDP, the number looks much smaller. Also when you compare it to the massive decrease in new private debt, that 1 trillion means nothing. Also you can't look at government debt in a vaccuum. That is not the sole driver of the monetary base, nor is it even the largest.

ParticleGrl

Crack open Mankiw's book, or Romer's (the only two I have on my shelf, or I'd reference others). I'm willing to be literally any economics macro book will side with me, so clearly it doesn't 'defy economics'- in facts its LITERALLY textbook economics. Do you know what an IS-LM model is? Some economists might not like the model, but it doesn't "defy economics."

Show me any study of multipliers that suggests they have NEVER worked. This claim is just ludicrous.

Have you actually read Friedman's academic work? Friedman believed that failure to print money was THE prime mover behind the great depression. He didn't disagree with Keynes that stimulus could help the economy- he argued that the manipulating the money supply was a better lever! Instead of spend in a recession you increase the monetary base. Instead of tax in a boom, you tighten the money base. Friedman was the original monetarist!

But most importantly, wealth is not money. Wealth is capital, goods, etc. When we say "X creates wealth" we don't mean money, we mean stuff. A new process for building widgets creates wealth if it lets you make more widgets for a given set of inputs. If moving workers around lets you make more widgets and distribute them to a larger portion of society, then that shift of workers creates wealth.

We can measure stuff we have in money, though the results aren't perfect. Do we expect GDP per capita to be higher win countries with stronger institutions or weaker ones? Do we expect strengthening institutions increases GDP per capita? Then we expect government creates wealth.

My argument is that without functioning government institutions, our country would build a lot less widgets. Therefore, government creates wealth.

Facilitating a functioning society = letting society build more widgets = creating wealth. Wealth is not money!

NO! Money is not wealth! The government takes "wealth" out of society by taking WORKERS and WIDGETS. The most scarce asset the government takes out of the private society is labor- but if taking that labor leads to more widgets for all, then its adding to the private sector.

If the government raised more taxes and used them to pay on bonds, where did the money go? It went from a taxpayer to a bond holder- which might not be ideal but it isn't pulling resources from the private sector, its just juggling things around in the private sector.

Half of silicon valley, including google. Such a terrible job....

Then the government created wealth, and an abundance of it. I'm not saying it did it in a vacuum, of course the private sector helped.

If I build an amazing device, and you market and sell the device, which of us created the wealth? Obviously, BOTH of us.

Google, as one example, was directly funded at startup from a government grant.

Purpose doesn't matter wealth is wealth. If having a GPS or an Ipad makes you more wealthy, than the government creates wealth. It does it in partnership with the private sector, sure, but that doesn't mean the government doesn't create wealth.

I think a chunk of your analysis is confused by your strange theory of value.

CAC1001

Saying that you are creating wealth by taking money out of the economy and injecting it back in defies the basic principles of economics, with the exception of something that is actual investment (such as infrastructure in certain circumstances or financing research that yields results (note these are all long-term stimulative measures)).

Nothing ludicrous about it. There is a reason why economists became skeptical of fiscal stimulus in the first place, which is that it wasn't working. If it worked so well, then there'd be no debate about it the way there is. We'd have an enormous body of evidence that it works. Things like socialism or raising interest rates in a recession, we know from experience that these do not work. They as a result aren't really debated anymore. But with fiscal stimulus, it is far less certain, although the evidence really leans against it. Look at Japan, which spent $2 trillion (half their GDP) on fiscal stimulus, and it still didn't stimulate economic growth. One could argue the limited growth they've had is a result of all that spending, but then how much spending is required for healthy growth? 100% of the GDP? (I wouldn't say a stimulus is "working" if one must spend over half the GDP to get miniscule economic growth).

Every economist who has won the Nobel Prize in Economics for work in macreconomics after 1981 (Robert Lucas, Robert Mundell, Fynn Kydland, Edward Prescott, Edmund Phelps) has either completely dismissed or seriously questioned the Keynesian policy of fiscal expansion to increase economic activity and reduce unemployment. All of them won by building on the work of Friedman and how he pointed out the flaws with fiscal stimulus.

Friedman disagreed about fiscal stimulus in the form of government spending being able to help the economy. In his Capitalism and Freedom he devotes an entire chapter to debunking this claim even. If anything, he was one of the primary critics of it at the time. In terms of monetary stimulus, he understood as you are saying (about failure to keep the banking system solvent and reducing the money supply caused the Depression). But that doesn't change the fact that he also recognized that increasing the monetary base is not necessarilly going to increase economic growth. He was one of the first to recognize that inflation is tied to the government printing too much money. To quote him:

Inflation is always and everywhere a monetary phenomenon.

The conventional Keynesian belief had been that you could increase economic growth by increasing the money supply. The belief was you could have high unemployment and low inflation or high inflation and low unemployment, because the two are supposedly inversely-related (the classic Phillips curve). So economists sought to balance the two. They were thrown completely off-balance in the 1970s when stagflation hit.

Those extra widgets though are worthless unless there's private-sector demand for them. Moving workers around that are being paid by the government isn't real demand.

Government doesn't create wealth in this sense, it just facilitates the environment that leads to wealth creation. I am not arguing that good government isn't necessary for wealth creation, it is, but the government itself doesn't actually create the wealth, that's the private-sector.

Any my argument is that while good functioning government institutions are necessary, unto itself, government does not create wealth.

Wealth isn't money, but money is representative of wealth.

Not sure I am understanding you here. Money, in the right supply in the economy, represents the wealth in the economy. The government doesn't take workers and widgets, it takes money from people, through taxes. It uses that money (wealth) it takes by force in order to pay its various workers.

That depends on who holds the bonds. If it's going to a foreign country, then it's taking wealth out of the U.S.'s private sector and sending it to another country. And how much of the federal revenues go towards servicing the interest on the debt is one of the things the credit-rating agencies look at when rating the nation's debt.

Silicon Valley is a private-sector phenomenon. None of the major companies to come out of it came into being due to government bureaucrats making the calls in the way private-sector venture capital firms and banks do.

The government didn't create the devices though. The private-sector did that. The government just funded the initial research and development that led to the technologies which the private-sector adopted. It was government-financed research that led to the development of the transistor. But it was Intel corporation that developed the microprocessor.

Government can only do things that can facilitate wealth creation, such as provide for law and order, protect property rights, lay the groundwork for a sound financial and banking system, build infrastructure, finance research into different areas, etc...but the actual wealth creation must be done by the private-sector.

This is different then government investing money. A company must apply for a grant if it wants one. The grant doesn't mean the government is taking partial ownership of the company in exchange for capital.

Nope, it means that the private-sector has created wealth via the various things put in place by the government.

There are different types of value. Personally, I would value a computer scientist or a medical doctor as being of more value to society than a movie star. But society has decided that it values the entertainment provided by movie stars far more than it values the skills of a computer scientist or medical doctor, so movie stars get paid a lot more. Economic value, versus the other forms of value, are different.

CAC1001

Inflation acts as a tax on people, and a tax can decrease demand, not increase it, so it would depend. A $1 trillion stimulus is very large when you already are dealing with a very large amount of debt. And the real debt level faced by the U.S. government is likely far greater than the current $15.5 trillion, because the federal government is on the hook for the social welfare state and for the individual states and all their obligations, which drives the real debt load possibly up to $50 or $60 some trillion.

JonDE

If you want to look at inflation as a tax, you have to view it as a tax on savings, not on material goods. Material goods prices should increase with inflation while your savings doesn't. This discourages saving. It drives demand up. In the opposite view, deflation has been one of the things that all economist fear most, as it decreases demand. Why buy a house if that house is going to be cheaper tomorrow?
Also you can't look at future obligations as how it would effect today. First future debt is hugely related to GDP growth which is extremely hard to predict and has continuosly proven the bears wrong on that aspect. Second, it has no effect on today. It is a tool to help plan for the future. Monetary base effects inflation, i.e. real dollars being spent in the economy right now. Not future dollars possibly being spent in the future effecting today.

CAC1001

Inflation on material goods can be a tax as well, because the prices of everything are increasing. If the price of food and gasoline are increasing for example, then it can be a tax.

The debt can very much have an effect on today because it can change people's behavior about the economy. High amounts of debt also create a drag on the economy.

turbo

This thread is getting derailed badly. It's supposed to be about Obama's candidacy. If one wants to discuss the the history of the Fed (which IMO shovels free money at Wall Street to keep the banks happy) please start another thread. Obama isn't responsible for the past ~30 years of collusion between the Fed and Wall Street, nor is he able to change that without a Congress that is not bought and paid for.

ParticleGrl

CAC, all I can suggest is that you read some economics textbooks, or take some economics classes. You have very strange views of economics. You are making claims that various things are "against 'basic principles of economics'" despite those same things being in literally every macro-economics textbook. If your argument rests on textbook 101 level economics being 'against the principles of economics' than surely you must agree something is wrong with your argument?

You are also using a very non-standard (and highly ideological) definition of value/value-added (everything the government creates = not 'wealth', everything the private sector creates = 'wealth').

CAC1001

Are you referring to graduate or undergraduate-level economics texts? Because graduate-level economics texts point out most of the flaws with policies such as fiscal stimulus. At the undergraduate-level, things like the IS-LM models and fiscal stimulus and much Keynesianism are taught as standard economic policy. At the graduate level, much of what is taught at the undergraduate level is rejected entirely. So much so that some economists even suggest that if one wants to study economics at the graduate level to not even major in economics as an undergraduate, but to skip it entirely and major in something mathematically-intensive, such as physics or electrical engineering or mathematics. So yes, I would say that, if you are referring to undergraduate macroeconomics texts, much of what is taught in those is wrong.

What I was saying goes against the basic principles of economics is that government taking money out of the economy and injecting it back into the economy (via debt or taxes) is not going to stimulate the economy because it's only moving wealth around. Using taxes or debt to build infrastructure is not going to stimulate the economy. The only exception would be if the infrastructure leads to further economic growth down the line by facilitating business growth and so forth. If you spend $1 trillion to build pyramids, that is just re-distributing wealth to pyramid-building. If those pyramids will somehow lead to massive economic growth in the future, then such building could be an investment.

What is ideological about it? There are different types of value. A police force or a road or a court are not valuable in the same way a business is valuable. A government doesn't make money off of the police force or court or road (with some exceptions if a toll road). If government could create actual wealth, then it wouldn't need to tax. It could be self-funding. But it isn't. In order to build the road or provide the police and court, it must use wealth it takes by force out of the private-sector. It can lay the groundwork so that the private-sector can create more wealth, and it can even aid the private-sector in some ways, but unto itself, government doesn't create wealth.

JonDE

I have to agree with turbo here. We need to focus to get this thread back on topic and off of economic theory.
So back on subject, Obama, great president? Or greatest?

Char. Limit

He's certainly not the greatest president, and I personally wouldn't even call him great, but he's definitely an acceptable president. He inherited some hard times and is pulling through them, albeit slowly.

phoenix:\\

Great?

In my opinion you'd have to compare presidents by the ability to take care of the country s/he is currently leading as opposed to comparing president against other president in a previous era/time. Different factors cause for different approaches. With that said, although different factors cause for different approaches, a certain ideology must be upheld and if one contends against it with a rather unjust law, s/he leading should fight against it and not support it under any provisional conditions it may have, even if it is to be passed eventually. Obama didn't do that with the newest version of the NDAA bill. So, no, he is not a great president. Some things should be fundamentally stood against and his, "well, we will make sure we look into cases where citizens of the United States have been detained under suspicion and make sure they are treated fairly and justly tried under these cases" doesn't help. Unless he was participating in game theory and some psychology that in the event he signs this bill, he may garner some support from his opposition in time of his election, only speaks of the character and is more disgusting and should be against any person's ideology. But that sort of thinking (my thinking) may be archaic and impractical, but that is a value I hold up for myself and I don't like people leading me that have values I disagree with fundamentally.

JonDE

It was intended as a joke. I think I have failed once again to convey humor across the internet.

Astronuc

White House Opens Door to Big Donors, and Lobbyists Slip In
http://www.nytimes.com/2012/04/15/us...ig-donors.html




One of the many things that have surely not changed.