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News Tax Cuts vs Government Stimulus

  1. Oct 16, 2012 #1
    In the thread concerning the second Presidential Debate Russ_Watters just posted advocating tax cuts vs stimulus (edit: no longer there).

    I want to see if I can start a debate on this, but I didn't want to sidetrack the original thread. So I'd like to ask this question here, hopefully some people will answer.

    I have not taken an economics class (though I will in college), and therefore I struggle in topics like this because I cannot give first hand reasoning.
    I am a supporter of a stimulus plan because it seems to me that this creates a stronger government to help the people instead of a stronger people. This may not sound preferable, but it seems to me better to have a safety net of a strong government in case individuals fail, rather than putting all the chips in the individual's corner.

    Can anyone weigh in on this? Whether that consists of showing why my logic is false (as I am ready to believe) or counterarguments?

    Thank you.
  2. jcsd
  3. Oct 16, 2012 #2


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    Romney's tax cut

  4. Oct 16, 2012 #3


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    Unless we quantify goals and success (which is extremely difficult), it isn't a question of logic it is a question of values. You value a stronger government and I don't and it really doesn't get much deeper than that.

    I will ask this though: why do you trust government to make the right decisions on matters of market control? Do the recent failures of alternate energy companies chosen by the Obama administration to receive hundreds of millions of dollars in grants/loans shake that trust any?
  5. Oct 16, 2012 #4
    russ, it's important to understand that start ups, particularly in new technological fields, sometimes fail. I don't know if you're here on these boards as a physicist, but if so, one must ask: do all your research projects pan out, or are some just dead sticks? It's not any different in economics. Solyndra is a non-scandal manufactured by the conservative howler monkeys, and is ignorant of even basic business practice.
  6. Oct 16, 2012 #5
    The recent failures of several companies don't really shake that trust much, largely for the reasons Angry Citizen said. However it's not that I stake that much belief in the Obama administration (though I do support many of it's decisions). But rather, as someone who knows they know very little about economics and markets, I trust people who have spent their lives dedicated to that field to know better than I.

    That said, even as a teenager, I think I know far more about markets and finances than most Americans! And I know practically nothing! My support in large government stems largely from the willingness to put elements of my life into the hands of people who are elected based on their ability to judge these things better than me (whether or not those who are elected do this is another issue entirely).

    Large government I believe is rooted around this idea. Small government is rooted around the idea (this is an opinion) that each person manages their lives better than anyone else. It may be cynical of the human race, but I do not believe that notion is correct.
    Last edited: Oct 16, 2012
  7. Oct 17, 2012 #6
    Would we have computers/space explorations without government? There are so many technologies that it just doesn't make sense private companies to invest in because the returns will be so far in the future.

    Under financially weaker government system incapable of funding long term research projects, who will be willing to fund those projects?
  8. Oct 17, 2012 #7


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    I'm an engineer. Again, these are not R&D projects, they are production companies.

    The scandal part of Soylandra comes from whether or not the Obama administration knowingly and therefore illegally violated legal procedure in ramming through the loan. But if the alleged illegality didn't happen, that still makes it a bad business deal, and that's the subject of this thread and my post, not the alleged illegality.
  9. Oct 17, 2012 #8


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    For the third time: This was not R&D.
    This was not R&D.
    This was not R&D.
    This was not R&D.
    This was not R&D.
    This was not R&D.
    This was not R&D.
    This was not R&D.
    This was not R&D.
  10. Oct 17, 2012 #9
    I replied to this part of your post
    What I don't understand how your weaker government can even support R&D.

    But, I do agree that government shouldn't support alternative energy companies. The technology is still not feasible.
  11. Oct 17, 2012 #10
    One thing that many get confused about on the "tax cuts versus stimulus" is that tax cuts are a form of Keynesian fiscal stimulus. Keynesian stimulus is about increasing demand in the economy. This can be tried in a few ways:

    - the government spending money on things like infrastructure projects or military (military Keynesianism)

    - mailing checks out to people

    - subsidizing businesses and industries so that said businesses and industries do not have to lay off employees

    - demand-side tax cuts (to let people keep more of their money)

    Supply-side economics entails supply-side tax cuts, which seek to increase investment, business growth, job creation, etc...all tax cuts and tax increases have both a demand and supply-side effect, just some lean much more one way than another.

    Regarding government as a venture capitalist, one reason not to have government engage in venture capitalism is a more subjective reason, but basically that someone spending someone else's money is never as careful as someone spending their own money. For example, a bureaucrat with $50 million of taxpayer's money to give to a company of their choice probably won't be nearly as careful in their due diligence as they would be if it is their own $50 million.
    Last edited by a moderator: Oct 17, 2012
  12. Oct 17, 2012 #11
    IMO, the difference though is the government engaging in industrial policy where they think they can sort of direct or plan out the future of the economy. It's where bureaucrats who are very smart or who think they are very smart decide what the industries of the future will be and direct funds to companies of those and also direct major companies to create products in said industries (i.e. Chevy Volt). For example, alternative energy such as wind and solar. Repeatedly, we hear from people like President Obama that these are the energy sources of the future. Says who? There's no way to know that right now.

    Government financing of research and development into solar and wind energy is fine, in the hopes that it will pay off at some point, but government supporting solar and wind companies is wrong IMO. If/when the technology becomes viable, the private sector will support such companies. It's like quantum computing. Some say it is the computing of the future, others say it's a pipe dream, but the government supports it because if viable, it will yield massive improvements in computing power.

    Computers and space travel the government financed the R&D for, not the companies themselves.
  13. Oct 17, 2012 #12
    Russ (conservatives in general) appears to favor a weaker government. I ask "weak government" supporters if the weak government will be able to finance R&D.

    It might prove fruitless spending too much money into solar or quantum R&D fields but no one knows as of know. However, what's clear that we advance financing technologies whose potentials are uncertain. That has been the case for last thousands of years and will be for all period we are here to live. Someone has to be there to spend money into things whose potential is unknown at the moment. What I see that under conservatives type of government is we wouldn't have computers or anything. Our future will be determined by short sighted business people.

    Government acting as a venture capitalist is wrong as you already pointed out.
  14. Oct 17, 2012 #13
    I agree that many conservatives are for too limited a government, as they think the economic prosperity of the 20th century was solely due to the private-sector/free market. They don't realize the enormous R&D role played by the government inadverdently for national security purposes, which had an enormous economic effect.
  15. Oct 17, 2012 #14
    I'm against the stimulus or any other program in which the govt, not the free market, is choosing the winners and losers.

    However, ...

    The money lost by investing in those two energy companies that failed was part of a larger program that invested in many companies. What percentage of them failed? What was the total return? No venture capitalist hits 100%. What was Bain's percentage?
  16. Oct 17, 2012 #15
    Jimmy if there were successes don't you think we would hear about them every time a failure is mentioned? I know of none that are growing only some that are not dead yet.

    If anyone can find a victory for the loan program I would like to see it.

    The governemt should do R&D that is what Nasa and half of the pentagon exist for they should not be trying to subsidize third party companies to produce technology that is not even research oriented.

    Weak government versus strong government is the wrong terminology IMO its Large government versus Small. Size and reach of federal government has nothing to do with its ability to do cutting edge research. Its about how involved it is in the aspects of day to day life and how controlling it is of each smaller layer of government.

    We have a hierarchy of governmental responsibility for a reason in this nation that has been corrupted by all the programs that are based on withholding federal funds from smaller level government unless they comply with the will of the fed.

    In a small government federal spending drops dramatically and so do federal taxes, BUT if states/county/city/local governments with the will of the people choose to create similar programs those entities raise taxes to fund them at the appropriate level.

    The beauty is that is how the system was designed so the will of the people makes a choice and if you do not agree it is much easier to move away from the district as a means of expressing your freedoms. If a policy is bad enough the tax base will leave and the policy will fail. See exodus from Cali.

    Until the 16/17 amendments the Federal government could not directly tax the people and it would send a bill to each state each year on its share of federal expenses per capita. Each state would raise those funds in any way it saw fit some used toll roads others had income taxes and fees for various activities most used a mix of many different revenue streams.
    Also until that point state legislatures selected the 2 state senators so lobbyists needed to be in all 50 state capitals to actually make an impact instead of being able to lobby 100 individuals they needed to sway an entire legislature and 50 governors. This was designed to keep the voices of the states strong and allow the governors and state legislature to have a powerful voice on budget and spending bills as well as war. Granted we have not even passed a budget in forever so...
  17. Oct 17, 2012 #16
    So it's 0%. I don't think so. Here is one example that the DOE mentions

    Caithness Energy.

    It was a 1.3 billion dollar loan guarantee. According to the link, the status is closed. Does that mean the loan was paid back or that the guarantee was rescinded? I don't know.
  18. Oct 17, 2012 #17


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    The difference is pretty straightforward since they are separate things, so I don't see a problem. Just support one and not the other.
  19. Oct 17, 2012 #18
    According to the press release I found ti became operational on Sept 22nd I find no reference to a repayment of the loan yet as it has been operational for less then a month. It will be interesting to look in a year and see what its actual power generation numbers are since numerous studies report that wind farms produce on average less then 30% of their designed capacity.



    Even the wind industry itself has been quoted
    Hard to call that a win for the loan program until more data is in for now I will call it a no result. Like I said I can find no success stories.
  20. Oct 17, 2012 #19
    The fact that the average is 30% of the peak doesn't tell me anything about whether it is a failure or a success.
  21. Oct 17, 2012 #20

    Well let me put it this way. A new 800MW natural gas power plant is going to cost 850 Million dollars and actually produce 800 MW of power every day all day.


    This wind farm has a rated capacity just over 800 MW lets say that it produces 40% and be optimistic so that comes to 320 MW of generation that will come at variable rates at variable times for a total cost of 1.9 Billion.

    So that is equivalent to 2 Gas power plants for a total of 1600 MW for the cost of an optimistic 320 MW of wind power. On 30 (60 for 2) acres instead of spread out over 30 square miles.

    I do not know if they will make money or not based on the higher per kWh rate that wind energy gets paid due to subsidy so it may be a "success" we will need to wait and see it is clear though that with out government involvement this project would be a flop.
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