More economics questions

[Bob The Mercenary]

I figured instead of going around taking other threads off the rails with my questions, I could pool them all here instead. There are also a couple articles I would like to link, so this will avoid some unorganization.

This first article is kind of creepy, if not a complete hyperbole.

June 8 (Bloomberg) -- I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.

Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.

I know, it sounds like an exaggeration. But look at it this way. If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.

Over the top, and I'm not one of those who huddles in his fallout shelter with a gun worrying when Obama Vader will come to take over his stuff, but it's been making too much sense to me lately. The same can be said about nationalizing healthcare. If that ever becomes a reality doesn't that pretty much give the government the opportunity to regulate every aspect of your life under the guise of cutting costs? Example, not allowing your kids to play in the pool for fear they might accidentally hurt themselves or drown (a little extreme I know, just trying to illustrate).

U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.

Whenever I've brought this up I've been shot down by people saying that lowering taxes on businesses would destroy the country. Then, on the flip side I've been told raising taxes on businesses would destroy the country. That's too much pressure! Anyone care to clear this up? I have been rooting through my local B&N for books on economic history and philosophy so I can be more prepared in the future for debates such as this.

The second thing I wanted to ask about is a little more...sketchy. And I apologize for bringing this blight upon the hallowed grounds of the boards, but today I committed the mortal sin of listening to a half hour of Rush Limbaugh. The thing was, it was a very convincing half hour where he talked about the press conference from yesterday, talking about the new unemployment rate. I'll save you from reading the entire transcript by posting snippets here, but I'll link the transcript as well. The reason I'm linking it is because he made it seem like a complete clusterfuck, and reading back on the actual press conference, that's how their answers did sound.

RUSH: Yesterday at the White House, Vice President Biden's chief economic advisor, Jared Bernstein, held a press conference to talk about the new unemployment rate and the economic stimulus package. And during the Q&A, Jake Tapper of ABC says, "In January you and Dr. Romer issued your recommendation for the stimulus. It turned out to be rather optimistic. I think it's fair to say you said without the stimulus the unemployment rate will be just over 8%. Obviously it's 9.4% with your stimulus. How do you explain that?"

BERNSTEIN: That was before we had fourth quarter results on GDP, which we later found out was contracting at an annual rate of 6%, far worse than we expected at that time. Were this plan not to be implemented as I've described and as Dr. Romer and I articulated back then, in the absence of the plan, job losses would have been deeper from whatever level they started, job looses would have been deeper, the unemployment rate would have been, by our estimates by the end of next year, would have been between one-and-a-half and two points higher than it otherwise will be. So those estimates that we are touting today and the estimates that you hear us talk about, that's the difference between what would have happened to the job market, the unemployment rate were this plan not in effect and the actual outcomes of jobs. Now, looking back, it was clearly too optimistic.

RUSH: This is flat-out pap. This is rigmarole. This is BS, plain and simple BS. You just heard Biden's economic guru explain that their estimates on unemployment were wrong because it was Bush's fault, the fourth quarter of 2008 was worse than they thought, and, by the way, it would be worse than ever if we hadn't done what we did, that they were too optimistic. They are not optimistic at all. They talk optimism. They implement plans that are based upon pessimism. They implement plan and plan after plan that is destroying the US economy. It is destroying the opportunity for the American dream for millions of Americans who don't yet realize that their pursuit of the American dream is in the process of being destroyed. They will learn this, sadly, soon enough. This is how it's done. "Hey, we didn't know how bad Bush left it." I knew they were going to do that with Iraq, they were going to do it with Club Gitmo, "Well, we didn't know how bad it was, Bush didn't really tell us. The economy was so bad, we had no clue. Our plan, why, if we hadn't done our plan, it would be even worse."

One more Jared Bernstein, this time the question came from Bloomberg News' Hans Nichols: "Those summer jobs, that 125,000, are you counting that toward the 600,000 jobs you're going to be saving or creating?"

BERNSTEIN: Yes.

NICHOLS: Are you also going to be counting that towards the 3.5 total goal?

BERNSTEIN: That is -- yeah, that -- the 3.5 is the, uh, the 3.5 is an estimate of jobs created or saved by the end of, uh, of next year.

NICHOLS: What you're obviously acknowledging are temporary jobs over the summer which won't last three months --

BERNSTEIN: Oh, that's a good question, right.

NICHOLS: How that's being counted in the 3.5?

BERNSTEIN: Thank you. Now, that's a good question. The 3.5 million jobs are what economists call full-time equivalent jobs. So those 125 would not count as a full 125. Two part-time jobs count as one full-time equivalent job.

I want to stress that I didn't create this thread to argue any points, only to get answers. I know approximately dick about economics. Is there something about this I'm missing or does none of this actually make any sense? I have a mean habit of missing the big picture.

With so many objections I have to the President's policies, it would be nice to know if I'm basing my opinions off of faulty "facts".

[01d55]

The same can be said about nationalizing healthcare. If that ever becomes a reality doesn't that pretty much give the government the opportunity to regulate every aspect of your life under the guise of cutting costs? Example, not allowing your kids to play in the pool for fear they might accidentally hurt themselves or drown (a little extreme I know, just trying to illustrate).

Healthcare has been nationalized in Canada and every nation in Europe. We know exactly what things happen when healthcare is nationalized and government prohibiting children from playing in pools is not one of them.

[bluestarultor]

Last quote seems sensible to me. Second to last quote is Rush, and honestly, the man is full of shit. He's spewing bile like usual, and he's not even making sense while doing it. The estimates make some amount of mathematical sense to me, and you'll notice how Rush doesn't mention any numbers or really try to refute anything. He just spews bile and cries anti-Bush and attacks things he clearly can't get whoever is listening to disbelieve with idle threats.

[Kepor]

To quote from TVTropes:

The nice thing about Mathematics and other Hard Sciences is that there is no question that 2 + 2 = 4.

The complicated thing about Sociology and other Social Sciences is that there's room for interpretation and debate.

The horrifying thing about Economics is that both of these are true.

I actually caught most of that session on CSPAN, and what happened was that Bernstein, an economist, was trying to talk to reporters, who are not economists. Although economics uses mathematical analysis to determine hard numbers, it is going off of a social issue, money. So those numbers are going to be uncertain. Reporters do not like uncertain.

I only have basic knowledge about economics, so I can't say much about how they reached these numbers. I can say that uncertainty is basically a part of dealing with economics, so get ready for some confusion.

[Bob The Mercenary]

Originally Posted by Kepor

To quote from TVTropes:



I actually caught most of that session on CSPAN, and what happened was that Bernstein, an economist, was trying to talk to reporters, who are not economists. Although economics uses mathematical analysis to determine hard numbers, it is going off of a social issue, money. So those numbers are going to be uncertain. Reporters do not like uncertain.

I only have basic knowledge about economics, so I can't say much about how they reached these numbers. I can say that uncertainty is basically a part of dealing with economics, so get ready for some confusion.

Actually, that's a very nice explanation that I've never heard before.

Last quote seems sensible to me. Second to last quote is Rush, and honestly, the man is full of shit. He's spewing bile like usual, and he's not even making sense while doing it. The estimates make some amount of mathematical sense to me, and you'll notice how Rush doesn't mention any numbers or really try to refute anything. He just spews bile and cries anti-Bush and attacks things he clearly can't get whoever is listening to disbelieve with idle threats.

Par for the course. I still don't get how they calculate "saved" jobs, though. This whole "create or save" notion feels like a copout, just in case no jobs are actually created.

[Kepor]

Yeah. In order for this to make sense, you're gonna have a lot of reading ahead. If it's something you find interesting, though, it'll be worth it.

Found the transcript of the briefing from yesterday. Bernstein's section is right at the beginning and goes until about halfway through.

[Jagos]

Par for the course. I still don't get how they calculate "saved" jobs, though. This whole "create or save" notion feels like a copout, just in case no jobs are actually created.

I agree on this one. The private sector begins to lose jobs and magically the government intervenes, causing chain reactions that we don't necessarily see. While they save a job in one section twenty jobs might be lost in another. It's just more horsepuckey that makes people feel better.

Whenever I've brought this up I've been shot down by people saying that lowering taxes on businesses would destroy the country. Then, on the flip side I've been told raising taxes on businesses would destroy the country. That's too much pressure! Anyone care to clear this up? I have been rooting through my local B&N for books on economic history and philosophy so I can be more prepared in the future for debates such as this.

Economics is always confusing. I can't simplify everything but it basically goes in how some people believe in supply-side economics and others believe in demand economics.

Make it easier for business to conduct, subsidies and easing of taxes, everyone benefits. They charge lower prices, imports become cheaper, etc. This view is usually held by Republicans.

There's a belief in tampering with the demand curve as well. This goes to Democrats mostly. If you can convince people to spend, it drives prices down. Think about how Obama wants the entire US to go green, thereby making it all cheaper than the alternative of coal. If EVERYONE is using it, it'll make the price go down.

One word of caution, if you mess with the supply side of business (taxing business) those taxes do come back to consumers. Usually in the form of higher prices. Think how Obama took away the subsidy for offshore drilling, which stopped Chevron (or whomever) to stop drilling when it was too pricey.

Not that I'm for or against either way of thinking, but the results from an economist's POV will be right there.

Oddly, I was looking to link that article myself because though it's an opinion, it does have some good points, such as:

The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.

You begin to tax too much and businesses move to newer places. It just happens. And who would invest if the laws don't allow it?

[AnonCastillo]

Here's a basic model for how government interaction in the economy works:

Government spending both takes money out of the economy and puts money back into the economy.

There are two main forms of government spending (assuming I haven't forgotten any): Direct spending and subsidizing. Direct spending is when the government purchases something the same way a consumer would (ie. the government buys a tank from GM, or whoever makes tanks), and has the same basic effect as any spending by consumers: some is given money in exchange for production. (it should be noted that, if economics were a philosophy, money would be a representation of how much more you have produced for society than society has produced for you, at least in a perfect capitalist society) Subsidies sometimes pay a company or industry not to do something, ie. paying farmers to leave a portion of their land fallow to insure that we don't get droughts, sometimes they are there to support a company or industry that the government wants to encourage, ie. less developed countries subsidizing industries that they think will help modernize them, or help a company or industry that is not as successful as the government wants it to be, ie. "corporate welfare" and the recent bailouts. Unlike direct spending, subsidies do not pay anyone for being productive: at best, they are an investment or insurance policy, at worst, they are the rich robbing the poor through taxation.

The government has three main ways of making money: taxes, borrowed money, and printed money. Taxes take money directly out of the economy, ie. they remove money that would otherwise be spent on production. Borrowed money can come from a few different sources, including foreign countries, banks, selling savings bonds/war bonds/etc., generally in the US it is borrowed from banks and wealthy investors, so either way it is tying up money that would otherwise be invested in the economy. Printing money causes inflation. Inflation is the phenomena where a certain amount of money loses value over time, ie. $5 today doesn't buy nearly as much as it did 20 years ago. When you increase the amount of money in the money supply (or, at least, when you do so faster than the relative increase in the amount of productivity going on in the economy), each dollar printed causes each other dollar that already exists to become worth slightly less than it was.

So the basic equation here is that in order for the government to spend money, it has to take money out of the economy somehow, and despite the dubious claims of some guy named Keynes, taking money out of the economy for the sake of government spending generally leads to inefficiency, or less production, and therefore less actual worth in the economy. Sometimes, in the case of farm subsidies to maintain the long term health of our farmlands or helping an industry get off the ground, it can be argued that you have a short term loss in exchange for long term gain/savings, although in the case of corporate welfare and industry bailouts such claims are very shaky.

In the case of direct spending, the government can arguably do a better job than the private sector in spending on some areas, ie. we would most likely not have nearly as effective a national defense if left up to the private sector, and although I've read some arguments in favor of privatizing the roads I haven't seen a free market system suggested that would work for anything but major highways, and I'm not convinced it would be more efficient. Nationalized health care could be far more efficient than the current US system, especially if competition among doctors and hospitals were encouraged the way the British system does it, but that's largely because the US system is not a capitalist one, it's a corporatist one, and corporatism is the reason that a significant portion of government spending is so inefficient.

Under a capitalist system, which is what the US claims to have (our health care system hasn't been capitalist since 1971, btw) but doesn't really, is a system where businesses make a profit solely by producing a good/product or service that consumers desire and by selling that product at a price that is affordable enough that consumers will buy their product over a competitor (or, if you can't make it cheaper, make it better so consumers consider themselves to be getting a better deal for their money), with no regulations on price and no regulations restricting entry into the market (ie. anyone with enough money can start a business to sell anything it's legal to sell). A corporatist system is much more heavily regulated, with the catch that industry leaders have a heavy hand in the formation of the regulations that govern their industry. Our health care system is an example of corporatism; if you've seen Michael Moore's Sicko, he talks about a law Nixon signed in 1971 that created HMOs and took a significant amount of choice and power away from consumers/patients and producers/hospitals and placed that power in the hands of HMOs and insurance companies, basically forcing a middle man on the majority of consumers and taking decisions of what treatment would be given away from producers and giving it to the middle man making money off of it. In addition, most decisions on what companies the government should purchase from/give contracts to are made by politicians who take massive campaign donations from the top officials of the companies bidding on them, which often leads to spending decisions being made for reasons other than efficiency.

Without corporatist influence, even a more socialized/nationalized economy would be much more efficient, although in my opinion capitalism would be even more efficient.

[Eldezar]

Over the top, and I'm not one of those who huddles in his fallout shelter with a gun worrying when Obama Vader will come to take over his stuff, but it's been making too much sense to me lately.

This particular scare tactic has been said about just about every President. However, regardless of whether I like a President or not, you really do want to have your guns just in case. That's what the right to bear arms is all about.

The same can be said about nationalizing healthcare. If that ever becomes a reality doesn't that pretty much give the government the opportunity to regulate every aspect of your life under the guise of cutting costs? Example, not allowing your kids to play in the pool for fear they might accidentally hurt themselves or drown (a little extreme I know, just trying to illustrate).

My answers to this are the same as every question about government run businesses. First off, Americans own very little of America. At least 90% of our ports are owned by other countries, most of our toll roads are owned by other countries, China owns a good number of our banks and businesses; so I say, if a government is going to own our businesses, wouldn't you rather it be your own government?

I find it very strange how everyone complains about the U.S. government bailing out and nationalizing everything, and yet hardly anyone ever complains when another country comes in and buys something.

Lastly, I am all for Socialism, but only if the people control the government. People control the government, government controls businesses, therefore people control the businesses. Again this goes back to the U.S. Constitution; Power to The People. At this point in time, The People have very little power.

Whenever I've brought this up I've been shot down by people saying that lowering taxes on businesses would destroy the country. Then, on the flip side I've been told raising taxes on businesses would destroy the country. That's too much pressure! Anyone care to clear this up? I have been rooting through my local B&N for books on economic history and philosophy so I can be more prepared in the future for debates such as this.

History-wise I can't say too much about. I can say this; Business owners are greedy. If we lower taxes on the businesses, most of the money saved is going to go into bonuses for the fat cats. If we raise taxes on the businesses, most of the money lost is going to be transferred upon the consumer with higher prices along with decreased wages for the employees, just so that the board of directors can keep their outrageous salaries. This is only the black and white statement, there is much more to it than that, but my facts on the rest of it are not together at the moment.

I am all for higher taxes on the businesses, and here is part of the reason. Liberals also push for an increase in minimum wage. Requiring businesses to pay their employees more is similar to increasing their taxes; either way that is more money that the company does not have. It HAS been proven that keeping minimum wage at a decent rate is very good for the economy, and many businesses that pay their employees more thrive much better than those that pay less.

Similar to how minimum wage means more money in people's hands, therefore more money to spend at these businesses, therefore more profit; higher taxes on the businesses do the same thing. Somehow, that money goes into the hands of consumers (or is supposed to) by way of government jobs.

Some of the 'facts' that you be missing is corruption and greed from all sides. Big companies donate to both left- and right-wing, so that together they will vote on the middle ground that best suits the businesses. Either they vote for lower taxes so they can horde more money, or they may vote higher taxes but less regulation so that the cost can be negated in some way.

[Jagos]

It HAS been proven that keeping minimum wage at a decent rate is very good for the economy, and many businesses that pay their employees more thrive much better than those that pay less.

I'm to believe there's a big difference between an efficiency wage (which a business does) versus a government mandated wage...