Raise Taxes or Granny Gets It

[ThisTooShallPass]

Are you really saying that spending on infrastructure in this country is no longer necessary? or not a priority?

No. I'm saying it is not a basis for long-term economic prosperity. You're literally holding up an 80-year old economic model, when this nation was made up mostly of subsistence farmers connected by dirt roads, as a model for how to improve the modern economy. That's absurd, and asking a laundry list of sardonic questions doesn't disguise that fact.

I wish I wrote things as well as others. Here is an excerpt from a progressive blog, but it says what I want to say, and says it better than I can.

"In 1982, at the same point in his Presidency as President Obama is now, but while jobs were still hemorrhaging and unemployment still rising in a recession, Ronald Reagan enacted the largest tax increase in American history–$100B additional taken from individuals and businesses by the Treasury. By January, 1983, Reagan’s approval rating was down to 35%.

Because this was St. Ronald, and not a Democrat in the White House, there were no chicken-littles predicting the tax hike guaranteed the end of civilization, or even arguing that “people know how to spend their money better than the government” (true, of course, for some expenditures, not for others). Less than one year later, the economy began to emerge from its recession, job losses stopped, and unemployment began to recede. Nearly 17 million new jobs were created by the end of Reagan’s term. Incidentally, Reagan raised taxes several more times during his tenure."

First of all, I'm quite alright with tax increases in principle and I have no great love for Reagan, who I view as being as much of an ill-read, jingoistic idiot as most of the political establishment nowadays.

Second, you're seeing causation where none exists. There is no conceivable way for government spending to contribute positively to GDP except when it's financed either by borrowing or deficit spending, since spending financed by tax hikes reduce the amount of money available for consumption (C) and investment (I) in an amount exactly equal to G. Incidentally, Reagan also ran theretofore unprecedented budget deficits, swamping the GDP decrease caused by increased taxes -- that is what boosted the economy.

 

[ProudLefty]

...
Second, you're seeing causation where none exists. There is no conceivable way for government spending to contribute positively to GDP except when it's financed either by borrowing or deficit spending, since spending financed by tax hikes reduce the amount of money available for consumption (C) and investment (I) in an amount exactly equal to G. Incidentally, Reagan also ran theretofore unprecedented budget deficits, swamping the GDP decrease caused by increased taxes -- that is what boosted the economy.

First, all money spent is spent for payroll, and it is payroll dollars that drives demand. No payroll dollars, no demand.

Second, yes, infrastructure builds national wealth and the nation's ability to generate even more wealth. Can you imagine trying to distribute your farm' popcorn to every store in America without a fantastic highway system? Talk with farmers in Russia who can't get their fresh produce to the cities, so it rots in their fields while the cities are yearning for fresh produce. There are stories of farm wives flying on commercial jets to Moscow with a basket of vegetables and selling the vegetables for enough to pay for their round trip ticket, and have money left over. In America, the huge hydro projects throughout the South during the 1930s, 1940s, and 1950s created abundant electricity so that air conditioning became common place. Without air conditioning Dallas, Atlanta, Phoenix, and other large cities of the South would still be poor cities with no viable industrial activities. China has been on an infrastructure building spree for a generation, and China is now a transformed country.

So yes, great infrastructure builds great industry.

 

[ThisTooShallPass]

First, all money spent is spent for payroll, and it is payroll dollars that drives demand. No payroll dollars, no demand.

I don't deny that. I'm saying that government spending (G) that is financed through taxation results in a dollar-for-dollar reduction in consumption (C) and investment (I). It is the equivalent of taking money from your savings account, putting it in your checking account, and claiming that you are wealthier now than you were a moment before.

G's effect on GDP is positively only when there is no equivalent decrease in C and I -- that is, when G is financed either by thin-air money printing (e.g., what the Federal Reserve has been doing constantly for the last six months) or through debt. The former we can do forever, albeit at the expense of outrageous, monstrous, ruinous levels of inflation; the latter depends on willing lenders. And as I've pointed out recently, the lenders are increasingly unwilling.

Second, yes, infrastructure builds national wealth and the nation's ability to generate even more wealth. Can you imagine trying to distribute your farm' popcorn to every store in America without a fantastic highway system? Talk with farmers in Russia who can't get their fresh produce to the cities, so it rots in their fields while the cities are yearning for fresh produce. There are stories of farm wives flying on commercial jets to Moscow with a basket of vegetables and selling the vegetables for enough to pay for their round trip ticket, and have money left over. In America, the huge hydro projects throughout the South during the 1930s, 1940s, and 1950s created abundant electricity so that air conditioning became common place. Without air conditioning Dallas, Atlanta, Phoenix, and other large cities of the South would still be poor cities with no viable industrial activities. China has been on an infrastructure building spree for a generation, and China is now a transformed country.

So yes, great infrastructure builds great industry.

I agree that thriving industry demands infrastructure. But we already have an infrastructure system.

This isn't the 1930s: America isn't one vast rural slum. We already have highways, airports, seaports, rail lines, power plants, etc., in place. What do you suggest we do? Expand slightly on this system? Make repairs to it? The U6 unemployment rate in this country is 16.2% -- given a labor force of around 153 million, that's almost 25 million people who are out of work or underemployed. To employ them all at a modest, middle-class wage (say $40,000) would require a trillion dollars... annually! How do you propose to finance this, assuming you could find work to keep them all employed?

This is foolish, anyway: it's not that businesses aren't hiring because they can't ship their goods. (Again, this isn't 1933). They are (or were) hiring, just not here: why should they hire an American high school graduate to work at a factory at $30,000 a year when they can hire a seven-year-old Nigerian for a fiftieth of that and still sell their goods in our market without penalty? Why hire a college-educated systems engineer at $65,000 a year when you can get an H1-b visa and import a similarly-credentialed Pakistani for half that, and threaten him with deportation if he demands a higher salary or better benefits?

 

[ProudLefty]

...
I agree that thriving industry demands infrastructure. But we already have an infrastructure system.

This isn't the 1930s: America isn't one vast rural slum. We already have highways, airports, seaports, rail lines, power plants, etc., in place....

Have you looked at that infrastructure? Recently I was at the gym in the town where I grew up. Way back then it was a new palace, barely 15 years old. People marveled at it. We had a live floor for basketball, great bleachers for the fans, a nice balcony, press booths for the media and broadcasters. It was a glorious place. As I walked through it, remembering way-back-when, I realized the place is a 75 year old relic with a great live floor for basketball, and nothing else worth keeping. This stuff wears out. The Eisenhower Interstate System was built 50 years ago. Has there been new rail laid in the US in the last 80 years? Our airports are crowded and approaching dangerous, our sidewalks are cracked and overgrown with weeds, our water in many places is unsafe, and I shudder to think of our country's underground services, like gray and black water drainage systems. This is to say nothing of our electric grid that is running on 100 year old technology.

I suspect every county commissioner in America can name 8 unsafe and dangerous infrastructure conditions is his/her county. I am betting you can name 5 dangerous structures within 30 miles of your house.

The idea that we have no need for infrastructure is just false.

As to your comment about paying for it... I have no desire to go through a couple of economics courses for you. This is stuff you will have to learn on your own. Please stay away from the discredited schools, like the Austrian School. Their crackpot ideas were exposed as foolish more than a hundred years ago. The simple truth is that yes, we can afford it. In fact we probably can not afford to put much of this work off much longer if we wish to remain a top tier country.

 

[ThisTooShallPass]

Have you looked at that infrastructure? Recently I was at the gym in the town where I grew up. Way back then it was a new palace, barely 15 years old. People marveled at it. We had a live floor for basketball, great bleachers for the fans, a nice balcony, press booths for the media and broadcasters. It was a glorious place. As I walked through it, remembering way-back-when, I realized the place is a 75 year old relic with a great live floor for basketball, and nothing else worth keeping. This stuff wears out. The Eisenhower Interstate System was built 50 years ago. Has there been new rail laid in the US in the last 80 years? Our airports are crowded and approaching dangerous, our sidewalks are cracked and overgrown with weeds, our water in many places is unsafe, and I shudder to think of our country's underground services, like gray and black water drainage systems. This is to say nothing of our electric grid that is running on 100 year old technology.

I suspect every county commissioner in America can name 8 unsafe and dangerous infrastructure conditions is his/her county. I am betting you can name 5 dangerous structures within 30 miles of your house.

The idea that we have no need for infrastructure is just false.

As to your comment about paying for it... I have no desire to go through a couple of economics courses for you. This is stuff you will have to learn on your own. Please stay away from the discredited schools, like the Austrian School. Their crackpot ideas were exposed as foolish more than a hundred years ago. The simple truth is that yes, we can afford it. In fact we probably can not afford to put much of this work off much longer if we wish to remain a top tier country.

I don't think you're following me.

The infrastructure is already in place. This was not true 80 years ago.

Repairing an infrastructure system in modern times, with tremendous technology available to us, is not the same thing as building a new one from scratch with manual labor. Today, one guy on a bulldozer can do the work that 30 guys with shovels used to have to do.

What worked 80 years ago, when America was a roadless rural slum, is not going to work today for two reasons: one, the task is far less monumental (ripping old wiring out of a house and replacing it is considerably less labor-intensive than building a new house from scratch); and two, technological advance has made large numbers of workers unnecessary (why take 100 men to build a house when 20 with some heavy machinery will do?).

And no, the money is not there. This isn't any kind of partisan observation but a simple statement of fact. To meaningfully employ the number of people you're talking about would require something on the order of half a billion to a trillion dollars annually -- and that money would have to be borrowed to make a meaningful contribution to the economy; otherwise, we're just taking money out of one pocket and putting it into the other (printing it is just a tax of a different type). We're having trouble financing our current $1.7 trillion deficits; how are we to increase that by a third or more when Portugal's 2-year interest rates (Portugal, recall, has a debt-to-GDP ratio similar to ours) are approaching 30%?

 

[ProudLefty]

I am following you.

We have 80+ year old infrastructure and if we paint it with bright and sunny colors that will make us competitive with Asia. Is that pretty much your position?

 

[Dr.Who]

Really. Who gets to decide? Can Obama just say "Social Security checks to everyone who lives in a Democratic District, and we'll let the TEA Partiers worry about their own districts"? Can Obama just say "OK, we won't be paying legislators or their staffs"? Can Obama say "We will pay in alphabetical order" or "We will pay Pell Grants but not flood relief"
]

I don't know who gets to decide. It is pretty safe to assume that it is some combination of congress and the executive branch. The rehtoric I have heard implies that it is the executive branch.

President Obama's constituents have already been getting the money unevenly. Why would now be any different. I doubt he could do it as blatantly as deciding that some districts get it and some don't.

But certainly the federal dept of education could be cut to zero along with a bunch of others.

Politicians always promise to cut and then never do. That is why they created the debt limit - it is doing what it is supposed to do. I say no increase in the debt limit until AFTER the cuts have been made.

 

[Dr.Who]

There will not be a "shutdown." We're talking about government's operations being forcefully suspended because of the absence of a budget resolution. We're simply talking about an inability to finance operations with debt.

Why wouldn't Republicans want this? They want a balanced budget, and hitting the debt limit will give them one immediately.

I agree that there does not need to be a shutdown. All that has to happen is that a budget is made (that has not been done for years despite the fact that they are legally bound to make a budget) and then they follow the budget. The real problem is that the dems want to spend like drunken soldiers on leave and the pubs want to look like they are fiscally sound but also want to spend like not-so-drunken soldiers on leave when they get their turn.

 

[Dr.Who]

Do you actually believe Republicans when they say they want a balanced budget?

If they do, why didn't they pass one when they were in power?

Because balanced budgets limit government and both dems and pubs want more power when they are in power and less power for the others when they are not.

 

[Dr.Who]

Exactly. But, those solutions do not fit BO's plan. BO wants a default or shut down. He is not negotiating fairly. He thinks this is his moment for getting re-elected like BJ Bubba's deal back in the 90s.

And, the media is carrying his water like they always do.

He wants power and the ability to grow government and the welfare state. He wants to be able to blame anything bad on the pubs (He tries just about every time he opens his mouth). Yes the msm does carry his water. So we will all see just how much he can get away with pinning on the pubs. There are limits to how much the msm can hide his actions. We all knew he was socialistic for a long time but it wasn't until Joe the Plumber that it made sense for the media to get on board and say what we all knew. Will there be a Joe the Plumber moment to expose the negotiations.

 

[Dr.Who]

If that were true than there would be no need to raise the debt limit would there. After all, we would be in surplus and paying the debt down.

In other words, the people telling you there is enough money are being less than truthful with you, and you want to believe them, so you believe them.

However, the facts are quite clearly different.

it is a fact that the gov does not take in enough money to keep spending at current levels.

pres obama would prefer not to have any debt limit at all but since there is one he wants to blame problems with hitting it on the pubs. Of course the pubs would do the same thing if they were in office.

 

[BigRob]

See, I like what you just said: "we realize we do not have unlimited money."

Now that we agree that money is finite. . .
Can you see my point about the fact that, the wealthy getting wealthier at the expense of the middle class and the poor is not sustainable for ANYONE?

Why do you say that the wealthy are getting richer at the "expense" of the middle class? Who is it that creates the jobs that allow these people to be middle class? It is not the poor.

Since money is finite. . .any time money accumulates in the top 2% of the population, that money is coming from the bottom 98%. . .mostly the bottom 50% though!

I should be clear...we can create more wealth (through mining, agriculture whatever), but we do have a finite amount of cash on hand. That is not to say that cash on hand is all the money we will ever have.

And you still want the "deficit reduction" and "budget balancing" to be done ONLY on the back of the bottom 50%, the elderly, the veterans, and the disable?

I never said that. I simply said it is illogical and mathematically impossible to do it solely on the backs of the "rich."

Can't you see that, somehow, part of that "great plan" must include some "reduction in wealth" through "additional taxing" among those people who hold an ever increasing amount of the wealth?

Why is it that Democrats think the only solution to a money crisis is to raise taxes?

 

[BigRob]

I agree that there does not need to be a shutdown. All that has to happen is that a budget is made (that has not been done for years despite the fact that they are legally bound to make a budget) and then they follow the budget. The real problem is that the dems want to spend like drunken soldiers on leave and the pubs want to look like they are fiscally sound but also want to spend like not-so-drunken soldiers on leave when they get their turn.

Well, House Republicans have passed a budget, it is dead of course in the Senate.

 

[ThisTooShallPass]

I am following you.

We have 80+ year old infrastructure and if we paint it with bright and sunny colors that will make us competitive with Asia. Is that pretty much your position?

Asia is only "competitive" because we deliberately subsidize the transfer of jobs there. Their infrastructure is worse than ours. Ever hear of the Beijing traffic jam that's lasted for months? Or the Chinese water crisis? Or the catastrophic Chinese property bubble that's on the verge of bursting?

You are being foolish, deflecting the issue with deliberate misrepresentations of what I'm saying. Infrastructure construction is not and cannot be a basis for economic recovery because repairing existing infrastructure with modern technology is considerably less gargantuan a task than building an entirely new one with manual labor, like we did 80 years ago (and even the effects of that were overstated, since it was the war, not the New Deal, that ended the depression); there simply isn't enough to do to put 25 million people to work, much less keep them employed for years, even if there were money enough to finance this undertaking -- and there isn't. And even if you could inject a trillion dollars a year into the economy (and, again, you can't, even if you could find some flimsy labor-intensive pretext to rationalize it), that capital would eventually all leak back out the boat through our trade deficit, anyway!

I don't know who gets to decide. It is pretty safe to assume that it is some combination of congress and the executive branch. The rehtoric I have heard implies that it is the executive branch.

President Obama's constituents have already been getting the money unevenly. Why would now be any different. I doubt he could do it as blatantly as deciding that some districts get it and some don't.

But certainly the federal dept of education could be cut to zero along with a bunch of others.

Politicians always promise to cut and then never do. That is why they created the debt limit - it is doing what it is supposed to do. I say no increase in the debt limit until AFTER the cuts have been made.

Congress has ultimate authority over how money is spent, but if they provide no direction, then I believe it falls to the Treasury to decide what payments get prioritized and what do not.

 

[Openmind]

Why do you say that the wealthy are getting richer at the "expense" of the middle class? Who is it that creates the jobs that allow these people to be middle class? It is not the poor. [!UOTE]

Wrong, more jobs are created by small businesses than by big businesses. More jobs are loss because of big business wanting their stock to go up.
I trust middle class people starting a business a lot more than big corporations, especially in the U.S.

And you are wrong again about the poor not creating jobs: Have you ever heard of the "grey economy?" That is a huge part of the economy that deals and is basically kept alive by poor people, or lower middle class people. It includes all the second hand stores, the second hand cars, the cheap fast food, the "trailer home" industry. . .

ONE poor person may not hire 10 people to begin a new business. . . but poor people are CONSUMERS who create a demand. . . which creates jobs. Okay, they won't create a demand for Mercedes or Lexus, they won't create a demand for Broadway shows or for 5 stars hotels or restaurants, but they do create a demand for fast food, for Motel 6 types, for used cars.

I should be clear...we can create more wealth (through mining, agriculture whatever), but we do have a finite amount of cash on hand. That is not to say that cash on hand is all the money we will ever have.

You're correct, unfortunately, big businesses prefer to take their investment money abroad. . .where they create jobs for another economy!

I never said that. I simply said it is illogical and mathematically impossible to do it solely on the backs of the "rich."

And I never suggested it should be done solely on the back of the "rich," although most of the drama we are facing today is due to the Bush tax cuts and the huge profits made by the defense industry because of Bush's ridiculous, illegal war in Iraq. And, you can't poor juice out of a dry turnip!
And, Obama has volunteered $2.00 (even $3.00) cuts for every $1.00 in tax increase! Not exactly doing it "solely" on the backs of the "rich!"

Why is it that Democrats think the only solution to a money crisis is to raise taxes?

And why is it that Republicans think that it is blasphemy to go back to a level of taxation that PROVED to be beneficial for every one and for the economy?