Can the market alone fix the economy?

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In summary, the conversation discusses the current state of the economy and the need for government oversight and deleveraging. It also brings up issues of personal responsibility and the impact of greed and poor decision making on financial stability. The conversation also touches on the corrupt nature of the system and the need for more transparency.
  • #1
DrClapeyron
With numbers being thrown about in the range of $100's of million to $100's of billion, a growing trade deficit, an ever expanding public debt and private debt it looks like the economy is nearing the end of the road. Is it bad, is it good, does it need mending?
 
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  • #2
Looking at the situation from where we were, or where we thought we were, versus now where we are, something needs fixing.

The government needs to adopt more effective, and fair, oversight.


Importantly, the entire (US and global) economy needs to be deleveraged, and people need to live within their means.
 
  • #3
Let's start by adopting uniform usury laws across all states.
 
  • #4
People have learned that you can rack up all the debt you can imagine, then tell your creditors you can't pay... file bankruptcy and all is forgiven. I think it's just an overall death of the idea of personal responsibility and duty.

What's sad is that our system is set up so that the only duty you have is to yourself... and everybody wins that way. Until, that is, people start to see that everyone else will take care of them anyway. Complacency born from the amazing standard of living capitalism has given us. It's a cycle and very well may be the death of our economy. Perhaps a (painful) restart is just what people need to wake up.
 
  • #5
tchitt said:
People have learned that you can rack up all the debt you can imagine, then tell your creditors you can't pay... file bankruptcy and all is forgiven. I think it's just an overall death of the idea of personal responsibility and duty.

What's sad is that our system is set up so that the only duty you have is to yourself... and everybody wins that way. Until, that is, people start to see that everyone else will take care of them anyway. Complacency born from the amazing standard of living capitalism has given us. It's a cycle and very well may be the death of our economy. Perhaps a (painful) restart is just what people need to wake up.

No one should be forgiven for racking up debt that they should pay back, however what if the system is set up such that a person can never pay it back? How is that fair?

Is it fair that some people have to pay 2,3,4, even 5x's their principal in interest and penalty fees that creditors tack on just because that person might have gone slightly over their credit limit or made 1 late payment?

If you are one of the millions of Americans that doesn't have insurance and only makes $40,000 while trying to support a family, how easy is it going to be to pay off $5000 that you racked up on credit card with 30% interest for a trip to the ER at the hospital ?

FYI, new legislation that was passed in 2005 makes is much much more difficult for consumers to file for bankruptcy.
 
  • #6
I understand what you're saying and you're correct to a point. What the credit card companies are getting away with right now by raising people's interest rates to ridiculous levels all of the sudden makes me sick. At the same time, I'm sure you can concede this to me; a large percentage of outstanding credit card debt is unnecessary... the product of peoples greed and inability to wait a few more months to splurge on that new flat-screen TV. And you can't tell me there aren't a LOT of people out there who don't push their income levels to the limits... like accepting new car payments of $600 monthly when they know full well that they only have $700 of disposable income every month. (My mom financed my car for me and it was about $400 dollars monthly over what she could actually afford... hence if I screw up my parents are in a bad way.) Fortunately, unless I can't find a larger source of income than a minimum wage job I can make the payments very comfortably. I only make large purchases when I have a coushin of at least a month's worth of bills AFTER the purchase. I receive medical benefits from my employer and always have. I've never worked a minimum wage job and I didn't go to college... just did enough to get by in high school. I didn't get anybody pregnant because I understood the consequences and took the necessary precautions. I make decent money for my skill level, and yes, I had to relocate in order to do so... but thems the breaks. I don't have a credit card and I don't want one. In my opinion they're nothing more than a clever scam people fall into by going for that big juicy carrot dangling in front of their faces. You might feel sorry for these people... I think they're just stupid and shortsighted.

It's not ALL the fault of corruption and greed on the part of the corporations... just everyone being equally idiotic.

Edit: I'm only calling it like I see it. Every single person I know first hand, without exception, that is in some sort of serious financial trouble bought a new truck or a nice house they could never afford. Paid sixty dollars a month for cable TV when broadcast television or doing something else to occupy their time could have sufficed. You know what I'm saying. Poverty happens when people make bad decisions and they have to live with them.
 
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  • #7
The system is corrupt , financial reporting is corrupt ..

These businesses knew way before the crash that they were up to their necks , non-disclosure of this information encouraged all sorts of foul play

there is far far more corruption in the system than is currently being presented in the media ..

needs a real good clean , open disclosure is likely the only viable option long term .. of course this scares the hector in most of the players because dirty deeds generally are done behind closed doors .
 
  • #8
tchitt said:
I understand what you're saying and you're correct to a point. What the credit card companies are getting away with right now by raising people's interest rates to ridiculous levels all of the sudden makes me sick. At the same time, I'm sure you can concede this to me; a large percentage of outstanding credit card debt is unnecessary... the product of peoples greed and inability to wait a few more months to splurge on that new flat-screen TV. And you can't tell me there aren't a LOT of people out there who don't push their income levels to the limits... like accepting new car payments of $600 monthly when they know full well that they only have $700 of disposable income every month. (My mom financed my car for me and it was about $400 dollars monthly over what she could actually afford... hence if I screw up my parents are in a bad way.) Fortunately, unless I can't find a larger source of income than a minimum wage job I can make the payments very comfortably. I only make large purchases when I have a coushin of at least a month's worth of bills AFTER the purchase. I receive medical benefits from my employer and always have. I've never worked a minimum wage job and I didn't go to college... just did enough to get by in high school. I didn't get anybody pregnant because I understood the consequences and took the necessary precautions. I make decent money for my skill level, and yes, I had to relocate in order to do so... but thems the breaks. I don't have a credit card and I don't want one. In my opinion they're nothing more than a clever scam people fall into by going for that big juicy carrot dangling in front of their faces. You might feel sorry for these people... I think they're just stupid and shortsighted.

It's not ALL the fault of corruption and greed on the part of the corporations... just everyone being equally idiotic.

Edit: I'm only calling it like I see it. Every single person I know first hand, without exception, that is in some sort of serious financial trouble bought a new truck or a nice house they could never afford. Paid sixty dollars a month for cable TV when broadcast television or doing something else to occupy their time could have sufficed. You know what I'm saying. Poverty happens when people make bad decisions and they have to live with them.
OH don't get me wrong, there are millions of people out there who live well beyond their means and they should face the consequence.

But the way the system is set up now does NOT reward people for saving. Credit banks do NOT make money if people save. For example, if you decide to start being a good consumer and actually save the cash to buy everything your FICO score can go down because you haven't been using your credit card. If you decide to close your credit cards, your credit score can go down.

Why should we absolve predatory lenders who lent people money who obviously shouldn't have gotten it with subprime loans? The lenders knew they could rape those people for tons of money later by increasing interest rates. If they couldn't pay who cares? They could take their home through foreclosure and sell them for profit because housing prices were expected to rise forever. Well guess what, the housing prices crashed and the creditors got what was coming to them. I mean I can't believe we have agreed to give these corporations $700 billion of our tax money for their BLATANT greed that has backfired in their faces.And just so you know, according to a recent Harvard study, medical care costs play a role in half of all bankruptcy filings. The average amount of out of pocket medical debt of those filing for bankruptcy was $12,000. The scariest part is the fact that 68% of those people had health insurance.
 
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  • #9
I'll admit I do have a tendency to be a little insensitive (Hell, I'm insensitive all the way around.) I sometimes forget that there are people who have families and own a home, who then get laid off and can't move to find another job because they have this obligation to pay for this house. At the same time everyone is turning to the government to solve everything. The same government that taxed these companies who laid their workers off in order to save money by moving production off-shore. The same politicians who sold out to union bosses for companies like chrysler and GM. 75 dollars an hour for manufacturing work?! The UAW put a gun to their head and screwed themselves with their greed.

Unions are no longer necessary. Everything that the original unions fought for has been made into law everywhere in the country, now all they serve to do is extort the very people who provide jobs for American citizens in order to continue to get paid regardless of whether or not they're doing any actual work. These poor little blue collar workers aren't blameless... god forbid they should have to work more than eight hours a day or miss out on a days worth of pay when they couldn't make it to work.

I worked for Case IH (formerly International/Case-International... the red equivalent of John Deere. Very large corporation.) as a welder building farm equipment on an assembly line... pay and benefits of about $27/hr all together and I was very happy to do so. (In fact I felt as though I was overpaid for what I was doing... it was a pretty cushy job, and there was no labor union making it that way.) I never felt the need to ask for more, and I understood that in their factory I follow their rules and work the hours that they ask. It's not as though I'm not being paid after-all.

I'm just sayin' this is an extremely multi-dimensional issue and it bothers me how people have the tendency to attack the "big guy" all the time. I fear that sort of militant "DEATH TO CORPORATIONS" attitude is going to cause more problems than it's going to solve.
 
  • #10
tchitt said:
I'm just sayin' this is an extremely multi-dimensional issue and it bothers me how people have the tendency to attack the "big guy" all the time. I fear that sort of militant "DEATH TO CORPORATIONS" attitude is going to cause more problems than it's going to solve.
Now I have to ask why we need the corporate entity, by the same token.
 
  • #11
Why do we need the corporation? A corporation is nothing like a labor union... you're comparing apples and oranges.

The Case corporation employs 1,300+ people in my city. Considering there are only 40,000 people in my city I'd say that's a pretty significant contribution. The benefits and pay are unmatched for hundreds of miles in any direction for that type of work. They build 28 combines per day, every day, and ship them all over the world where they're used to FEED THE WORLD. There are 12 other businesses (many of which are corporations themselves ...albeit much smaller corporations, but they survive because Case survives) of varying sizes that do a lot of work for Case-IH (who subcontracts parts to be built outside the factory because they don't have the capacity to do it all themselves) which employ thousands more people and pay wages and bennies MUCH higher than they'd earn for working at Starbucks or Wal-Mart

Oh, and last year they donated $1,000,000 to the United Way. This year the goal is $1,200,000.

But yeah, screw them. They pull in five hundred million dollars a year selling 28 combines per day for $350,000 dollars a piece. (Roughly a 13.5% profit) Pure evil, I tell you.
 
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  • #12
I wasn't making a comparison. I'm just looking for another perspective. I hear points from both sides that are hard to argue with. By the same token.
 
  • #13
tchitt said:
Why do we need the corporation? A corporation is nothing like a labor union... you're comparing apples and oranges.

The Case corporation employs 1,300+ people in my city. Considering there are only 40,000 people in my city I'd say that's a pretty significant contribution. The benefits and pay are unmatched for hundreds of miles in any direction for that type of work. They build 28 combines per day, every day, and ship them all over the world where they're used to FEED THE WORLD. There are 12 other businesses (many of which are corporations themselves ...albeit much smaller corporations, but they survive because Case survives) of varying sizes that do a lot of work for Case-IH (who subcontracts parts to be built outside the factory because they don't have the capacity to do it all themselves) which employ thousands more people and pay wages and bennies MUCH higher than they'd earn for working at Starbucks or Wal-Mart

Oh, and last year they donated $1,000,000 to the United Way. This year the goal is $1,200,000.

But yeah, screw them. They pull in five hundred million dollars a year selling 28 combines per day for $350,000 dollars a piece. (Roughly a 13.5% profit) Pure evil, I tell you.




No one is saying do away with corporations. But should corporations abide by business ethics? Why should a corporation have any obligation to the community and country? Don't they solely exist to make as much profit as possible and keep their stock holders happy?

There are good businesses out there as well as greedy ones. The greedy ones simply get all of the press.

How much profit is too much? Does there exist such a thing as too much profit? Is it really ethical that credit banks for years preyed upon people with poor credit histories because they knew they could give them high interest loans and make a killing in profit off of them?

I'll try to find the one WSJ article that I read that was about how credit card banks now almost make 35% of their entire profit from interest rate hikes and penalty fees.
 
  • #14
gravenewworld said:
Don't they solely exist to make as much profit as possible and keep their stock holders happy?

There are good businesses out there as well as greedy ones. The greedy ones simply get all of the press.
Ford is really a stock trading business who incidently make cars on the side, Chrysler is entirely owned by a investment company since being sold by Merc. GE is basically a bank, GE Capital being much larger than any of it's engineering business.

Under the current system a greedy company is a good one - companies have only one moral obligation 'to enhance shareholder value'. This is because you are putting your savings into these companies and you need to trust that they will do the best thing for your money.

Unfortunately the system of reporting and share trading mean that it is only possible to do this a quarter at a time. A director of Ford could legitimately be sued for any investment such as R+D which isn't likely to pay off in an immediate rise in share price. Bonuses and promotions also follow this short term view - which also leads to more fraud, after all you only have to get away with it for long enough for tomorrows opening price to rise.
 
  • #15
OAQfirst said:
Now I have to ask why we need the corporate entity, by the same token.
Corporations were invented to protect the community.
Before corporations you had merchant companies, you pooled your money to fund a trading voyage and if it lost money you lost everything.
The last existing one of these is Lloyds of london, you don't own shares - you own a part of the company. If it loses money you have unlimited liability - you lose everything you own.

Limited liabilty corporations (LTD or LLC) were introduced so that you only lost the money you had put in so they were safe investments for widows and orphans. Alexander Hamilton the first US Treasury sec was against them - he thought the managers would make wild gambles since it wasn't their money on the line.
 
  • #16
mgb_phys said:
Ford is really a stock trading business who incidently make cars on the side, Chrysler is entirely owned by a investment company since being sold by Merc. GE is basically a bank, GE Capital being much larger than any of it's engineering business.

Under the current system a greedy company is a good one - companies have only one moral obligation 'to enhance shareholder value'. This is because you are putting your savings into these companies and you need to trust that they will do the best thing for your money.

Unfortunately the system of reporting and share trading mean that it is only possible to do this a quarter at a time. A director of Ford could legitimately be sued for any investment such as R+D which isn't likely to pay off in an immediate rise in share price. Bonuses and promotions also follow this short term view - which also leads to more fraud, after all you only have to get away with it for long enough for tomorrows opening price to rise.




I completely concur.


The era of unfettered capitalism is over. It is obvious now that the corporate world can not police themselves. We are now seeing the true social cost of what happens when you let capitalism run wild with no restrictions.
 
  • #17
gravenewworld said:
what happens when you let capitalism run wild with no restrictions.
Most restrictions just try and keep up with the latest trick, you need a more fundamental change of attitude to stock.

Make it easier NOT to be a public company. Family and worker owned companies are stable - but because of reporting requirements (to stop Enron type fraud) it is more expensive to file accounts for private companies than public ones. It needs to be possible for these sort of companies to borrow money. We bailed out the savings and loans when they went gambling. But that didn't leave the small town bank industry intact.

If you do need money it is now very difficult for small companies to go public - even before the crash there had only been one major IPO in 08. Again SOX reporting requirements mean that it costs so much to meet the compliance requirements it isn't worth it for companies less than $100M - so instead they just get quietly sold to big corporations.
The point of a stock market was supposed to be an open and fair market that could set the price of a company. Now it's a closed shop to new entrants and with all the existing ones held by the same few pension funds and insurance companies, if you do get in it's the end most companies.

Don't know what you can do to fix this (other than put all the merchant bankers up against a wall)
Perhaps make it easier for small companies to enter the market - with a limited cap investment market (like NASDAQ used to be)?
Have a minimum holding time for shares so there isn't day trading?
 
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  • #18
gravenewworld said:
No one is saying do away with corporations. But should corporations abide by business ethics? Why should a corporation have any obligation to the community and country? Don't they solely exist to make as much profit as possible and keep their stock holders happy?

There are good businesses out there as well as greedy ones. The greedy ones simply get all of the press.

How much profit is too much? Does there exist such a thing as too much profit? Is it really ethical that credit banks for years preyed upon people with poor credit histories because they knew they could give them high interest loans and make a killing in profit off of them?
...
Why the focus on financial corporations and CEOs? Do not the government and, say, major league baseball players warrant the same description - greedy? What about their ethics? California alone took in http://www.capitolweekly.net/article.php?xid=xlblt7pmk2pult" [Broken] (good seats for four - $1,248). How's that for predatory.
 
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  • #19
gravenewworld said:
I completely concur.


The era of unfettered capitalism is over.
That ended, if it ever occurred, in the 1800s/1920s.
It is obvious now that the corporate world can not police themselves. We are now seeing the true social cost of what happens when you let capitalism run wild with no restrictions.
No restrictions? Where does that occur? Anyway, a big part of the news this week is that government can not police itself.
http://online.wsj.com/article/SB122912965021703363.html"
 
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  • #20
gravenewworld said:
No one is saying do away with corporations. But should corporations abide by business ethics? Why should a corporation have any obligation to the community and country? Don't they solely exist to make as much profit as possible and keep their stock holders happy?

There are good businesses out there as well as greedy ones. The greedy ones simply get all of the press.

How much profit is too much? Does there exist such a thing as too much profit? Is it really ethical that credit banks for years preyed upon people with poor credit histories because they knew they could give them high interest loans and make a killing in profit off of them?

I'll try to find the one WSJ article that I read that was about how credit card banks now almost make 35% of their entire profit from interest rate hikes and penalty fees.

I didn't say a corporation should have any obligation to the community or the country... it just so happens that their existence benefits both the community and the country. Capitalism is built on mutually beneficial arrangements. I don't believe ANYONE (outside of elected officials, of course) should feel any sort of obligation to their community or their country. Yes, they exist solely to make as much profit as possible and keep their stock holders happy.

There does not exist a thing as too much profit. These people with poor credit histories made their own bed... by destroying their own credit! If you don't have the credit... RENT! If you don't want to pay ridiculous interest rates... or if you can't COMFORTABLY afford the payments DON'T SIGN THE CONTRACT! There's no shame in renting a home and I don't think the urge to "play house" justifies taking on debt you can't handle. I don't care if you're approved or not, anyone with half a brain knows that you can get financed beyond your means... it's always been that way. Think before you act. Ignorance is not an excuse.

My problem is that so many people think that the government can do a better job. Let's face it... the federal government has the opposite of the Midas touch. Instead of gold it all turns to rust. The postal service is one of the few programs that isn't a complete and utter failure, and even then, UPS and FedEx completely outshine them. Our socialized school system has created generation upon generation of dependent ignorant retards. Social Security/Medicare are a joke. (And my paycheck suffers HORRIBLY for it.)

Now they want politicians "over-seeing" everything from cars to health care. Why on Earth would some senator have a better idea on how to run a corporation than someone whose entire life has been dedicated to running corporations?! Because he's a senator? Because, well, it's the government and if anyone knows what they're doing... it's obviously them?

That's the kind of thinking that's caused so many parents to send their children off to their local public school just "knowing" that they're going to get a good education.

I'm tired of watching all these super-dependent, lazy people demand that the government steps in and makes it all better. It won't work.
 
  • #21
To fix the economy, I think they should do the following:

Cut the corporate tax rate

Make the Bush tax cuts permanent and cut the income tax rates down, making the top rate 28%

Eliminate Sarbannes-Oxley, maybe replace it with something more light and efficient.

Clamp down on government expenditures as much as possible, basically work to bring fiscal conservatism back to the government.

The tax cuts they will run a deficit of course at first, but they are running a larger deficit anyhow with these so-called stimulus programs and planned infrastructure spending.

But the U.S. has one of the highest corporate tax rates as is, so cutting it, in theory, should allow business activity to increase to create more jobs.

For small businesses that file as individuals, they can create more jobs by benefitting from a tax cut as well, as small business is the engine of the U.S. economy.
 
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  • #22
WheelsRCool said:
To fix the economy, I think they should do the following:

Cut the corporate tax rate

Make the Bush tax cuts permanent and cut the income tax rates down, making the top rate 28%

Eliminate Sarbannes-Oxley, maybe replace it with something more light and efficient.

Clamp down on government expenditures as much as possible, basically work to bring fiscal conservatism back to the government.

The tax cuts they will run a deficit of course at first, but they are running a larger deficit anyhow with these so-called stimulus programs and planned infrastructure spending.

But the U.S. has one of the highest corporate tax rates as is, so cutting it, in theory, should allow business activity to increase to create more jobs.

For small businesses that file as individuals, they can create more jobs by benefitting from a tax cut as well, as small business is the engine of the U.S. economy.




Dollar for dollar, government spending has a more potent effect than tax cutting. Since we are already in a recession, the government should NOT be cutting spending right now. It should be increasing it. The government is a consumer just like you and me. Will it increase the deficit? Yes. But so do tax cuts. Why not get the most bang for your buck?

The biggest reason we got out of the Great Depression was because of a massive increases in government spending, not tax cuts. In fact, there are economists out there that will argue that tax cuts simply have no effects at all.
 
  • #23
WheelsRCool said:
Cut the corporate tax rate
The 250 largest corporations paid on average 2.5%, Toys “R” Us, AT&T, Boeing, Eli Lilly, Merrill Lynch paid no tax at.

Make the Bush tax cuts permanent and cut the income tax rates down, making the top rate 28%
What about all the unemployed accountants.

Eliminate Sarbannes-Oxley, maybe replace it with something more light and efficient.
So international investors will stay out of the US market - since they have no way of knowing if the financial statements of the companies they are investing in are fake.

Clamp down on government expenditures as much as possible, basically work to bring fiscal conservatism back to the government.
Except military of course - people who say this never want to cut spending on wars.

The tax cuts they will run a deficit of course at first, but they are running a larger deficit anyhow with these so-called stimulus programs and planned infrastructure spending.
Most of the 'so-called stimulus programs' are to banks where the fed is backing the savings anyway. You could stop fed deposit insurance but then nobody would put their money in banks - so a totally cash economy - so no taxes for anyone.

But the U.S. has one of the highest corporate tax rates as is, so cutting it, in theory, should allow business activity to increase to create more jobs.
The US has one of the lowest corporate tax rates, especially when you take into account that nobody pays it.
 
  • #24
gravenewworld said:
Dollar for dollar, government spending has a more potent effect than tax cutting.
A reference to the Keynesian multiplier? What do you reckon is the real size of the multiplier when making this statement? There are certain temporary conditions that must be present for that to hold true. Do you believe they are in effect (i.e. liquidity traps)?

The biggest reason we got out of the Great Depression was because of a massive increases in government spending, not tax cuts.
There are certainly some contrary views:
Morganthau said:
"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"
Henry Morganthau, FDR's Treasury Secretary, 1939
Burton Folsom, Jr., New Deal or Raw Deal? (New York: Simon & Schuster, 2008), p. 2.

I am more inclined to the view that the revocation of the Smoot Hawley trade tariffs in '34 started some recovery.

In fact, there are economists out there that will argue that tax cuts simply have no effects at all.
Without some qualifiers on that statement, I am not aware of any Economists that have made such a statement?
 
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  • #25
mgb_phys said:
Clamp down on government expenditures as much as possible, basically work to bring fiscal conservatism back to the government.
Except military of course - people who say this never want to cut spending on wars.

I want to clamp down on government expenditures, especially military spending -- I think the DoD is extremely wasteful. So surely not 'everyone who says this' wants to exempt the military. Perhaps WheelsRCool feels as you say, perhaps WheelsRCool feels as I do; how could we possibly say?
 
  • #26
I think of asking the government to cut DoD spending as sort of a lost cause. We The People don't matter anymore. Our representatives shoot down the bail-out bill... the President turns around and does it anyway with a different pile of our money.
 
  • #27
tchitt said:
I think of asking the government to cut DoD spending as sort of a lost cause. We The People don't matter anymore. Our representatives shoot down the bail-out bill... the President turns around and does it anyway with a different pile of our money.

We The People clearly do want a bailout, though, as much as I personally would prefer otherwise. And in the end, all the money goes through Congress -- loopholes and such only succeed in changing how it is spent.
 
  • #28
What are you talking about? The senate didn't pass the auto bailout bill, so the white house decided to use the original financial system bailout money to save them anyway. The majority of americans don't support that bailout.
 
  • #29
The point may have been that in both the House and the Senate the majority vote was for the auto bail out, which regardless turned out not to be sufficient in the Senate.
 
  • #30
I want to clamp down on government expenditures, especially military spending -- I think the DoD is extremely wasteful.
Sorry wasn't meant personally! Anyone who hasn't been involved in building military kit wouldn't believe the amount of waste of time and money involved.

There will be an auto bailout - you just won't be able to spot it.
It will either come in section 119b of some tax code, a $20B order for an armored vehicle from a Ford/GM subsidiary, a clunker tax rebate to get old cars off the road, a tax break for hybrids or a bunch of state subsidies, or the fed taking over the auto union pension liability.
 
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  • #31
Dollar for dollar, government spending has a more potent effect than tax cutting.

Every dollar the government spends first has to be taxed out of the economy, or borrowed from somewhere else.

Since we are already in a recession, the government should NOT be cutting spending right now. It should be increasing it. The government is a consumer just like you and me. Will it increase the deficit? Yes. But so do tax cuts. Why not get the most bang for your buck?

Government spending takes away capital that could better be spent in the private sector. I would say tax cuts give us a bigger bang for the buck (if they're the proper tax cuts).

The biggest reason we got out of the Great Depression was because of a massive increases in government spending, not tax cuts.

Would have to disagree here. The massive increases in government spending likely only helped prolong the Great Depression. The massive government spending took capital that otherwise could have been spent in the private sector to actually create jobs.

The problem is government can "create jobs" but it cannot create wealth which is what counts. For example, in simple theory, the government could employ 50% of the unemployed digging graves, and the other 50% filling them back in. Are those jobs? Yes. Is there any wealth creation? Nope. Thus you can alleviate the pain of a depression or recession somewhat, but not create any recovery. Sort of like how the government can print money, but without wealth creation, this won't work in the long term.

However, a side effect of this spending is that it took away capital that otherwise could have been spent in the private sector by individuals and businesses, which likely helped contribute to prolonging the depression. The Japanese tried repairing their economy after the 1989 real-estate bubble burst with lots of infrastructure spending as well and nevertheless experienced a ten year long recession.

By 1938 the unemployment rate was still at about 8% and the stock market crashed a second time. FDR was actually very close to losing re-election because he had failed to fix the economy.

World War II is what pulled us out of the economy because of the massive military builup. This is also how Hitler instantly "fixed" the German economy from the depression.

In fact, there are economists out there that will argue that tax cuts simply have no effects at all.

Tax cuts most definitely have affects, the argument is what affects, which depends if you are a supply-sider or a Keynesian; IMO, the effects are usually positive as long as they are done right, such as when they were cut under Calvin Coolidge, JFK, Ronald Reagan, when the capital gains tax rate was cut under Bill Clinton, and the Bush tax cuts (the deficits under President Bush and the Republicans soared as a result of the massive increase in government spending they did; had they kept fiscally conservative, we likely would have seen a surplus come 2007, as the deficit started shrinking then).

The 250 largest corporations paid on average 2.5%, Toys “R” Us, AT&T, Boeing, Eli Lilly, Merrill Lynch paid no tax at.

No corporations really pay tax, or not to the extent one would think; the corporate tax is just another way to tax citizens for the most part. Corporations pass the cost of their taxes onto their shareholders through lower dividends or stock prices, their employees through lower pay and/or less benefits, their customers through higher prices, or some combination of these.

However, a corporation can offer things such as lower prices or higher dividends or better benefits with a lower corporate tax rate, and many corporations thus have relocated to countries with lower corporate tax rates such as Ireland, Switzerland, Dubai, etc...the EU hates Ireland and Switzerland for their low corporate tax rates.

So international investors will stay out of the US market - since they have no way of knowing if the financial statements of the companies they are investing in are fake.

They will stay out of it more because of the increased compliance costs which make it harder to grow businesses and create IPOs. However, like I said, find a lighter, more efficient way to regulate that does the job Sarbannes-Oxley is supposed to do.

Except military of course - people who say this never want to cut spending on wars.

Not true. Maintaining a strong national defense is important, but there is wasteful spending within the military as well that needs to be watched for.

And spending on the military is separate from spending on wars.

The US has one of the lowest corporate tax rates, especially when you take into account that nobody pays it.

America has one of the highest corporate tax rates, 35%, and it drives other companies overseas. This isn't to say there aren't loopholes, but the solution then would be to cut the corporate rate and close the loopholes IMO.
 
  • #32
tchitt said:
People have learned that you can rack up all the debt you can imagine, then tell your creditors you can't pay... file bankruptcy and all is forgiven. I think it's just an overall death of the idea of personal responsibility and duty.

What's sad is that our system is set up so that the only duty you have is to yourself... and everybody wins that way. Until, that is, people start to see that everyone else will take care of them anyway. Complacency born from the amazing standard of living capitalism has given us. It's a cycle and very well may be the death of our economy. Perhaps a (painful) restart is just what people need to wake up.

i think the real problem is credit itself. somehow, the people, and even the leadership, have been lulled into this trance that spending is good, whether you've got the money or not. problem is, we're in debt up to our eyeballs. that makes it kind of hard to spend more. and to make things worse, interest and fees eat up a considerable amount of our income.

interest and fees are the real monster. how many people do you suppose would have 20% more "disposable income" if it weren't for credit cards? where does all that money go? it certainly doesn't do anything useful except enslave us. start encouraging people to save instead of spend, and i think you'll see a much healthier economy in a few years.
 
  • #33
gravenewworld said:
Does there exist such a thing as too much profit?
Yes if the result of so much wealth redistribution is that a significant part of the economy suffers for the benefit of a much smaller part. Both times that gasoline prices rapidly and greately increased in the USA, the USA auto industry suffered, and eventually the rest of the economy. This last time, we were already in a recession, the first time it started part of the recession process.

WheelsRCool said:
Every dollar the government spends first has to be taxed out of the economy, or borrowed from somewhere else. Government spending takes away capital that could better be spent in the private sector. I would say tax cuts give us a bigger bang for the buck (if they're the proper tax cuts). The problem is government can "create jobs" but it cannot create wealth which is what counts.

World War II is what pulled us out of the economy because of the massive military builup. This is also how Hitler instantly "fixed" the German economy from the depression.
So in the case of World War II, the massive military build-up is an example of government created jobs that worked very well, and continued on into a relatively prosperous era through the 1950's when the middle income class, suburbs, and a transition from a rural economy to a urban economy. The issue here is that money, like anything, has a perceived value, and generally, gun based economies work better than gold based ones.

consumer economy, perceived value
This is the real problem in my opinion. Only a fraction of the USA workforce is required to provide the basic essentials, food, clothing, shelter, energy, government, and education. Most people in the USA have jobs that involve non-essentital consumer related goods or services. Credit debt is also used to increase the supply of money being spent on all goods or services. This drives up the perceived value of goods and services.

One example of how credit effected the economy was a law passed back in 1974 that allowed the income of both married people to be used to qualify for a loan. The result was that home builders simply raised prices to take advantage of this, a case of wealth distribution from the many to the few. Prior to this, a typical family could own a modest home, a car, and a TV off the income of one person. Now in the USA, this situation is a relative rarity, most moms are working moms, leaving the kids to be raised by day care or glorified maids.

The other issue is that a consumer economy is based on perceived value. Anything that changes the behavior of a significant number of consumers can have great consequences, both good and bad. This was big part of the USA 1950's culture, sort of the beginning of consumerism. First dad bought a car because the family bought a home in a suburb, with an infrastructure based on car ownership. Then car companies convinced the public that mom should have a car also while dad was away at work. Back then the relative pricing was such that a single income was enough to pay for all of this. As other consumer goods and services came into existence, the economy continued to grow, sort of a self-fufilling prophecy. At the same time, anything that would cause consumers to stop spending could send such an economy into a downwards spiral. During Nixon's era, the government stopped spending money on general scientific research, with the greatest impact on aerospace companies. The so called multiplier effect was evident even back then.

As previously mentioned, when gas companies quickly and greatly raised prices in the 1970's, there was less money to spend on consumer goods overall. The USA auto industry was hurt the most, as until then, USA consumers were happy with their perceived value of their land barges called cars. Initially the Japanese imports were bought because of the better gas milage, but then consumers found out that maintenance on these cars were much less than USA cars. In hindsight back in the late 1970's the gas company executive stated that they underestimated their impact on the overall economy caused by the sudden price increases. The guy running Texaco at the time (I don't remember his name) was the most forth coming about this assessment of the impact on the economy.

However we never seem to learn. Gas guzzing SUV's and pickup trucks increased in perceived value and became the cash cows of automakers both USA and "foreign". The USA corportations (the big 3) were more dependent on this, because their market share of the econobox segment was small, mostly due to perceived value. In a repeat of the 1970's, but with worse consequences was the sudden jump in gas prices, and the sudden decline in perceived value of the SUV's and pickups. Consumers are a bit smarter now though, even though gas prices are now back below $2 per gallon in the USA, the perceived value of SUV's and trucks remains low.

On top of this, the constant negative news about the financial industry has crept into the mindset of USA consumers. Even though most consumers aren't immediately affected, the decrease in value of retirement funds has had a large effect, and USA consumers have simply reduced spending, which is having the expected negative multiplier impact on the consumer based economy. The recovery will take very long now, because the perceived value of consumer goods has undergone a significant change during this recession as the mindset of the general USA public has changed.

how to fix the economy
I'm not sure that there is any good way to fix a consumer based economy. To me all the non-essential stuff is simply play money with perceived but no intrinsic value. How do you distribute wealth when only a small fraction of the population is required to provide the basic essentials? For all the non-essential stuff, how do you control their perceived value? How many jobs, if any, should the government create, other than police, military, and governing? Should government fund research projects at universities? Should government fund space projects, environmental projects? Where do you draw the line?
 
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  • #34
People have learned that you can rack up all the debt you can imagine, then tell your creditors you can't pay... file bankruptcy and all is forgiven. I think it's just an overall death of the idea of personal responsibility and duty.

What's sad is that our system is set up so that the only duty you have is to yourself... and everybody wins that way. Until, that is, people start to see that everyone else will take care of them anyway. Complacency born from the amazing standard of living capitalism has given us. It's a cycle and very well may be the death of our economy. Perhaps a (painful) restart is just what people need to wake up.

This is how Joseph Schumpeter claimed capitalism would eventually kill itself off, that because of the incredible standard of living it gives to the people of the nation, complacency is born, laziness, and a hostility to capitalism begins to be born from those who do not understand it and take it for granted, particularly among the intellectual class.

It would gradually be replaced by a quasi-socialist, corporatist state as government expands more and more. I believe it was Schumpeter who said that when socialism comes to America it will not be called socialism.

Yes if the result of so much wealth redistribution is that a significant part of the economy suffers for the benefit of a much smaller part. Both times that gasoline prices rapidly and greately increased in the USA, the USA auto industry suffered, and eventually the rest of the economy. This last time, we were already in a recession, the first time it started part of the recession process.

The only time there can really be too much profit is if one company has a monopoly or a group of companies have an oligopoly. The oil companies tend to operate on a small profit margin, and their profits tend to cycle through good times then bad times, up and down.

So in the case of World War II, the massive military build-up is an example of government created jobs that worked very well, and continued on into a relatively prosperous era through the 1950's when the middle income class, suburbs, and a transition from a rural economy to a urban economy. The issue here is that money, like anything, has a perceived value, and generally, gun based economies work better than gold based ones.

Yes, I think it's that a massive military build-up employs so much of the population is the thing. I believe this only works temporarily though because you are talking about a variant of central planning and socialism.

One thing to keep in mind about the 1950s is that the U.S. economy came out of the war relatively unscathed, with a massive industrial base built up, while the rest of the industrialized world had been bombed out. So the U.S. economy had virtually no real competition throughout the 1950s, and thus was able to thrive even with a top marginal income tax rate of 90%. However, once the 1960s and foreign competition arrived, the U.S. economy stalled again.
 
  • #35
WheelsRCool said:
One thing to keep in mind about the 1950s is that the U.S. economy came out of the war relatively unscathed, with a massive industrial base built up, while the rest of the industrialized world had been bombed out.
Well bombing Japan and Germany is a novel way of helping Detroit.
 
<h2>1. Can the market alone fix the economy?</h2><p>This is a complex question with no simple answer. The market, or the free market system, is a fundamental aspect of the economy and plays a significant role in its functioning. However, there are also other factors that can influence the economy, such as government policies, consumer behavior, and global events. So while the market can have a significant impact on the economy, it is not the only factor at play.</p><h2>2. How does the market influence the economy?</h2><p>The market influences the economy in several ways. It determines the prices of goods and services, which can affect consumer spending and business profits. It also creates competition among businesses, which can drive innovation and efficiency. Additionally, the market can impact employment rates and overall economic growth.</p><h2>3. What are the limitations of the market in fixing the economy?</h2><p>The market is not a perfect system and has its limitations. For example, it may not always allocate resources efficiently, leading to market failures. It can also create income inequality, as some individuals and businesses may have more power and influence in the market than others. Additionally, the market may not always prioritize social or environmental concerns, which can have negative impacts on society.</p><h2>4. Can government intervention help fix the economy?</h2><p>Yes, government intervention can play an essential role in fixing the economy. In times of economic crisis, governments can implement policies such as fiscal stimulus and monetary policies to boost economic growth and stability. They can also regulate the market to prevent market failures and promote fairness and equality. However, government intervention must be carefully balanced to avoid negative consequences.</p><h2>5. What role do consumers play in the market's impact on the economy?</h2><p>Consumers are a crucial part of the market and can significantly influence the economy. Their spending habits and behavior can impact the demand for goods and services, which, in turn, affects the market and businesses. Consumer confidence can also play a role in economic stability, as it can affect investment and employment rates. Therefore, understanding consumer behavior is essential in analyzing the market's impact on the economy.</p>

1. Can the market alone fix the economy?

This is a complex question with no simple answer. The market, or the free market system, is a fundamental aspect of the economy and plays a significant role in its functioning. However, there are also other factors that can influence the economy, such as government policies, consumer behavior, and global events. So while the market can have a significant impact on the economy, it is not the only factor at play.

2. How does the market influence the economy?

The market influences the economy in several ways. It determines the prices of goods and services, which can affect consumer spending and business profits. It also creates competition among businesses, which can drive innovation and efficiency. Additionally, the market can impact employment rates and overall economic growth.

3. What are the limitations of the market in fixing the economy?

The market is not a perfect system and has its limitations. For example, it may not always allocate resources efficiently, leading to market failures. It can also create income inequality, as some individuals and businesses may have more power and influence in the market than others. Additionally, the market may not always prioritize social or environmental concerns, which can have negative impacts on society.

4. Can government intervention help fix the economy?

Yes, government intervention can play an essential role in fixing the economy. In times of economic crisis, governments can implement policies such as fiscal stimulus and monetary policies to boost economic growth and stability. They can also regulate the market to prevent market failures and promote fairness and equality. However, government intervention must be carefully balanced to avoid negative consequences.

5. What role do consumers play in the market's impact on the economy?

Consumers are a crucial part of the market and can significantly influence the economy. Their spending habits and behavior can impact the demand for goods and services, which, in turn, affects the market and businesses. Consumer confidence can also play a role in economic stability, as it can affect investment and employment rates. Therefore, understanding consumer behavior is essential in analyzing the market's impact on the economy.

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