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Steve is NOT clueless.

 

I suspect that he is using different models and different assumptions than your own, and perhaps you would like to argue why your models and assumptions are better than the ones he chooses, but I see no reason to say that he is clueless.

 

 

C:

 

As Scotty has so succinctly noted there is no free lunch in running deficits on the magnitude of 12% of the GDP which must be paid for by selling $Ts of US government debt at interest rates high enough to attract foreign investors (well above the current 3% rate of return) which will require higher debt service, increasing tax rates on all taxpayers to levels not seen since the 91% tax rates of World War II which will reduce the ability of Americans to spend and save, or printing more $ which will bring back the double digit inflation of the Carter years when Treasury bonds were paying 14% interest and a 30 year mortgage was 15%.

 

If you have a better alternative to such deficit spending let us know.

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C:

 

As Scotty has so succinctly noted there is no free lunch in running deficits on the magnitude of 12% of the GDP which must be paid for by selling $Ts of US government debt at interest rates high enough to attract foreign investors (well above the current 3% rate of return) which will require higher debt service, increasing tax rates on all taxpayers to levels not seen since the 91% tax rates of World War II which will reduce the ability of Americans to spend and save, or printing more $ which will bring back the double digit inflation of the Carter years when Treasury bonds were paying 14% interest and a 30 year mortgage was 15%.

 

If you have a better alternative to such deficit spending let us know.

 

May I also add that Congress should CUT FEDERAL SPENDING. For Pete's sake, do we have to go back to Ross Perot's flip charts to remind us of something so elementary?

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C:

 

As Scotty has so succinctly noted there is no free lunch in running deficits on the magnitude of 12% of the GDP which must be paid for by selling $Ts of US government debt at interest rates high enough to attract foreign investors (well above the current 3% rate of return) which will require higher debt service, increasing tax rates on all taxpayers to levels not seen since the 91% tax rates of World War II which will reduce the ability of Americans to spend and save, or printing more $ which will bring back the double digit inflation of the Carter years when Treasury bonds were paying 14% interest and a 30 year mortgage was 15%.

 

If you have a better alternative to such deficit spending let us know.

 

May I also add that Congress should CUT FEDERAL SPENDING. For Pete's sake, do we have to go back to Ross Perot's flip charts to remind us of something so elementary?

 

 

LOL 2X

 

Reduction of spending is as likely as Congress cutting their salaries and pension.

 

 

 

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LOL 2X

 

Reduction of spending is as likely as Congress cutting their salaries and pension.

 

Agreed. But merely because it is unlikely does not mean that it is not necessary.

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Steve is NOT clueless.

 

I suspect that he is using different models and different assumptions than your own, and perhaps you would like to argue why your models and assumptions are better than the ones he chooses, but I see no reason to say that he is clueless.

 

 

I don't want to get between Steve and Intruder - but will point out that Intruder is not "using a model", simply listing the only available options.

 

When we run a deficit we must borrow, only three entities can buy that debt: Americans, Non-Americans or the Federal Reserve. I think it is doubtful the first two have the capacity or the desire to absorb the trillions in deficit spending that is coming (using the administration's numbers) and thus that leaves the lender of last resort - the Federal Reserve. They print money. Actually they don't, they create money out of thin air with a keystroke and that money is used to buy Treasury bills. This is usually (though not always) inflationary. The same as a company issuing more shares - they dilute the other owners.

 

High deficit spending that is not financed by Americans or non-American must be monetized by the Federal Reserve - if you've got another way to do it I'm all ears.

 

ScottyD

 

 

Hi Scotty, AP and Chrysoplyae,

I have Intruder on ignore. Dan can deal with Intruder if he wishes.

I was only pointing out that some booms were caused by big government projects and some busts were usually caused when the projects ended. To say that government does not effect the overall economy because its only private sector that can, is IMO short sighted.

Have a good day,

Steve

 

 

Steve,

 

If we accept the expenditure method of quantifying GDP, then it follows that government spending affects economic growth.

 

GDP = Consumption + Government Spending + Investments + Net Exports

 

Holding the other components constant, an increase in government spending (assuming that government spending is an exogenous variable) will result in an increase in GDP and a decrease in government spending will result in a decrease in GDP.

 

Since the observations you presented seem to fall in line with this model, I suspect that you are thinking along the lines of some variation of a Keynsian style model.

 

For anyone interested, here is a link to data on the components of GDP.

 

http://research.stlouisfed.org/fred2/categories/18

 

 

 

Dan,

 

Intruder is doing more than making the simple claim that only 3 entities are available to buy US government debt. He is making specific assertions about the results of current fiscal and monetary policies and proposed policies.

 

I am not making a claim here about the merits of his assertions. I do wonder, though, if he is not using a model (e.g. a monetarist model), how he determined the results of these policies.

 

 

You and Intruder have made claims about the intentions, rational, and ability of non-US entities to buy US debts. These assertions are separate from the assertion that only 3 entities are available to buy US government debt. Therefore, these assertions require a separate defense.

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Steve is NOT clueless.

 

I suspect that he is using different models and different assumptions than your own, and perhaps you would like to argue why your models and assumptions are better than the ones he chooses, but I see no reason to say that he is clueless.

 

 

I don't want to get between Steve and Intruder - but will point out that Intruder is not "using a model", simply listing the only available options.

 

When we run a deficit we must borrow, only three entities can buy that debt: Americans, Non-Americans or the Federal Reserve. I think it is doubtful the first two have the capacity or the desire to absorb the trillions in deficit spending that is coming (using the administration's numbers) and thus that leaves the lender of last resort - the Federal Reserve. They print money. Actually they don't, they create money out of thin air with a keystroke and that money is used to buy Treasury bills. This is usually (though not always) inflationary. The same as a company issuing more shares - they dilute the other owners.

 

High deficit spending that is not financed by Americans or non-American must be monetized by the Federal Reserve - if you've got another way to do it I'm all ears.

 

ScottyD

 

 

Hi Scotty, AP and Chrysoplyae,

I have Intruder on ignore. Dan can deal with Intruder if he wishes.

I was only pointing out that some booms were caused by big government projects and some busts were usually caused when the projects ended. To say that government does not effect the overall economy because its only private sector that can, is IMO short sighted.

Have a good day,

Steve

 

 

Steve,

 

If we accept the expenditure method of quantifying GDP, then it follows that government spending affects economic growth.

 

GDP = Consumption + Government Spending + Investments + Net Exports

 

Holding the other components constant, an increase in government spending (assuming that government spending is an exogenous variable) will result in an increase in GDP and a decrease in government spending will result in a decrease in GDP.

 

Since the observations you presented seem to fall in line with this model, I suspect that you are thinking along the lines of some variation of a Keynsian style model.

 

For anyone interested, here is a link to data on the components of GDP.

 

http://research.stlouisfed.org/fred2/categories/18

 

 

 

Dan,

 

Intruder is doing more than making the simple claim that only 3 entities are available to buy US government debt. He is making specific assertions about the results of current fiscal and monetary policies and proposed policies.

 

I am not making a claim here about the merits of his assertions. I do wonder, though, if he is not using a model (e.g. a monetarist model), how he determined the results of these policies.

 

 

You and Intruder have made claims about the intentions, rational, and ability of non-US entities to buy US debts. These assertions are separate from the assertion that only 3 entities are available to buy US government debt. Therefore, these assertions require a separate defense.

 

 

Chrysopylae,

Do you teach this?

I have George Reisman's book "Capitalism". Although he is an extremist even in libertarian world, I think its constructive to know and understand the thinking process on how far the power of pure, unmitigated capitalism can go at the expense of the common good. Along with the more mainstream economist, Milton Friedman, both argue for a free markets system. However, that is the kind of thinking that got us to where we are financially. The greed factor seems to have been left out of the equation.

 

Interesting that now there seems to be a concern, a major concern about the debt, deficits from the very people who got us here. Since the 80s, when the debt was a mere 1 trillon, what have we got to show for all of this government spending by none other than republican presidents? (Clinton had a surplus in later part of his presidency). The answer is very little and the cry was that "deficits didn't matter". Currently, when this new money is spent here to actually help our country, the deficit and the debt becomes a major issue for those folks who figured that deficits "don't matter" as long as we don't help people here.

 

Can you imagine if all of that money were spent here? We would have an energy policy, healthcare, great education system with a 21st century communication and transportation system that is the envy of the world. Instead we have clogged freeways that are still locked in time warp of the 50s; we spend 700 billion a year on foreign oil, we have schools that are a disgrace, and now we have a financial system that is still paying bonuses to executives of failed companies. We are an old country fixed on the past.

 

2 cents worth from somebody that is "clueless".

 

Steve

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Steve is NOT clueless.

 

I suspect that he is using different models and different assumptions than your own, and perhaps you would like to argue why your models and assumptions are better than the ones he chooses, but I see no reason to say that he is clueless.

 

 

I don't want to get between Steve and Intruder - but will point out that Intruder is not "using a model", simply listing the only available options.

 

When we run a deficit we must borrow, only three entities can buy that debt: Americans, Non-Americans or the Federal Reserve. I think it is doubtful the first two have the capacity or the desire to absorb the trillions in deficit spending that is coming (using the administration's numbers) and thus that leaves the lender of last resort - the Federal Reserve. They print money. Actually they don't, they create money out of thin air with a keystroke and that money is used to buy Treasury bills. This is usually (though not always) inflationary. The same as a company issuing more shares - they dilute the other owners.

 

High deficit spending that is not financed by Americans or non-American must be monetized by the Federal Reserve - if you've got another way to do it I'm all ears.

 

ScottyD

 

 

Hi Scotty, AP and Chrysoplyae,

I have Intruder on ignore. Dan can deal with Intruder if he wishes.

I was only pointing out that some booms were caused by big government projects and some busts were usually caused when the projects ended. To say that government does not effect the overall economy because its only private sector that can, is IMO short sighted.

Have a good day,

Steve

 

 

Steve,

 

If we accept the expenditure method of quantifying GDP, then it follows that government spending affects economic growth.

 

GDP = Consumption + Government Spending + Investments + Net Exports

 

Holding the other components constant, an increase in government spending (assuming that government spending is an exogenous variable) will result in an increase in GDP and a decrease in government spending will result in a decrease in GDP.

 

Since the observations you presented seem to fall in line with this model, I suspect that you are thinking along the lines of some variation of a Keynsian style model.

 

For anyone interested, here is a link to data on the components of GDP.

 

http://research.stlouisfed.org/fred2/categories/18

 

 

 

Dan,

 

Intruder is doing more than making the simple claim that only 3 entities are available to buy US government debt. He is making specific assertions about the results of current fiscal and monetary policies and proposed policies.

 

I am not making a claim here about the merits of his assertions. I do wonder, though, if he is not using a model (e.g. a monetarist model), how he determined the results of these policies.

 

 

You and Intruder have made claims about the intentions, rational, and ability of non-US entities to buy US debts. These assertions are separate from the assertion that only 3 entities are available to buy US government debt. Therefore, these assertions require a separate defense.

 

 

Chrysopylae,

Do you teach this?

I have George Reisman's book "Capitalism". Although he is an extremist even in libertarian world, I think its constructive to know and understand the thinking process on how far the power of pure, unmitigated capitalism can go at the expense of the common good. Along with the more mainstream economist, Milton Friedman, both argue for a free markets system. However, that is the kind of thinking that got us to where we are financially. The greed factor seems to have been left out of the equation.

 

Interesting that now there seems to be a concern, a major concern about the debt, deficits from the very people who got us here. Since the 80s, when the debt was a mere 1 trillon, what have we got to show for all of this government spending by none other than republican presidents? (Clinton had a surplus in later part of his presidency). The answer is very little and the cry was that "deficits didn't matter". Currently, when this new money is spent here to actually help our country, the deficit and the debt becomes a major issue for those folks who figured that deficits "don't matter" as long as we don't help people here.

 

Can you imagine if all of that money were spent here? We would have an energy policy, healthcare, great education system with a 21st century communication and transportation system that is the envy of the world. Instead we have clogged freeways that are still locked in time warp of the 50s; we spend 700 billion a year on foreign oil, we have schools that are a disgrace, and now we have a financial system that is still paying bonuses to executives of failed companies. We are an old country fixed on the past.

 

2 cents worth from somebody that is "clueless".

 

Steve

 

 

The republicans lost their ###### in the last election because they abandoned what they stood for--being fiscally conservative. Bush made a mistake when he started bailing these companies out and Obama has continued this practice but is growing the size of govnmnt at an alarming rate. The stimulus bill and all of this pork barrel spending of which the republicans have a 40% stake in, is not the soloution. Like AP said, they need to cut spending, something congress wont do. I dont think and I hope that Obama will not succeed in shifting America to a socialist platform because these unfunded programs have to be paid by increasing taxes. Americans are growing frustrated and are still waiting for the HOPE and CHANGE they were promised, at this point they only HOPE they pray for is having some CHANGE left over after they pay their bills! We should've became politicians, because when you get the huge expense accounts they get, you cant possibly feel the pain at the pumps or the grocery store!

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No, I don't teach Economics. I yet hope to return to graduate school and finish my degree, though.

 

I haven't read George Reisman's book, but I like reading libertarian view points. I will see if it is available in my local library after I finish my current book (The Math Instinct: Why Your a Math Genius (Along with Lobsters, Birds, Cats, and Dogs - how could I resist that title?). I often find libertarian views cogent and well considered, though I don't always agree with their assumptions or goals.

 

It probably comes as no surprise that I tend to share your political views.

 

As to the question about whether, and, if so, to what extent, and, if so, how a stimulus should be used, there are many competing views from well respected economists. It strikes me in reading many of these views, that the basic assumptions about the current state of the economy and assumptions for constructing models are not shared among all economists and, indeed, can vary significantly.

 

By the way, have you read The Drunkard's Walk: How Randomness Rules Our Lives by Leonard Mlodinow or Predictably Irrational by Dan Ariely? They are absolutely fun books.

 

 

 

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Some interesting links:

 

1) Greg Mankiw's blog: http://gregmankiw.blogspot.com/

 

From a recent post:

 

"Econ prof Bill Seyfried of Rollins College emails me:

 

Here's an interesting fact that you may not have seen yet. The M1 money multiplier just slipped below 1. So each $1 increase in reserves (monetary base) results in the money supply increasing by $0.95 (OK, so banks have substantially increased their holding of excess reserves while the M1 money supply hasn't changed by much)."

 

2) http://curiouscapitalist.blogs.time.com/

 

And here is an interesting recent blog: http://curiouscapitalist.blogs.time.com/20...ularity-or-not/

 

3) Arnold Kling, Bryan Kaplan, and David Henderson share a blog at http://econlog.econlib.org/, though they certainly are open to disagreeing among themselves about the issues. See for instance: http://econlog.econlib.org/archives/2009/0...and_fiscal.html

 

4) http://economistsview.typepad.com/economistsview/

 

To continue the remarks on Fama's views, try this particular post: http://economistsview.typepad.com/economis...n-the-sand.html

 

5) I should not forget Fama's and French's views: http://www.dimensional.com/famafrench/

 

6) http://freakonomics.blogs.nytimes.com/

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Some interesting links:

 

1) Greg Mankiw's blog: http://gregmankiw.blogspot.com/

 

From a recent post:

 

"Econ prof Bill Seyfried of Rollins College emails me:

 

Here's an interesting fact that you may not have seen yet. The M1 money multiplier just slipped below 1. So each $1 increase in reserves (monetary base) results in the money supply increasing by $0.95 (OK, so banks have substantially increased their holding of excess reserves while the M1 money supply hasn't changed by much)."

 

2) http://curiouscapitalist.blogs.time.com/

 

And here is an interesting recent blog: http://curiouscapitalist.blogs.time.com/20...ularity-or-not/

 

3) Arnold Kling, Bryan Kaplan, and David Henderson share a blog at http://econlog.econlib.org/, though they certainly are open to disagreeing among themselves about the issues. See for instance: http://econlog.econlib.org/archives/2009/0...and_fiscal.html

 

4) http://economistsview.typepad.com/economistsview/

 

To continue the remarks on Fama's views, try this particular post: http://economistsview.typepad.com/economis...n-the-sand.html

 

5) I should not forget Fama's and French's views: http://www.dimensional.com/famafrench/

 

6) http://freakonomics.blogs.nytimes.com/

 

 

Hi Chry,

Here is a PDF copy of Capitalism.

I have read about Fama and French's views and heard podcasts. While I did not read the whole book, I grew tired of the repetiton in Freakonomics. I thought it is a bit overestimated, my goodness its been on the best seller for years. It seems rather common sense to me, but I am extreemly gifted with common sense with emphasis on "common."

I am going to subscribe to the Economist.

 

My political views are mixed, however, I will never forget who helped me, some flunky farm kid (retained in 2nd grade) with no natural talents whatso ever from a tiny town in northern wisconsin with a very modest background, go from a have not to a have. There were FIVE government programs that significantly helped me: 1. SS (dad died when I was a minor and my mom got $38 per month), 2. GI bill that funded me through college, 3. unemployment insurance, 4. public schools all the way to PhD, and 5. finally our corrupted 403b.

 

Take care,

Steve

 

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Holding the other components constant, an increase in government spending (assuming that government spending is an exogenous variable) will result in an increase in GDP and a decrease in government spending will result in a decrease in GDP.

 

I'm not at all sure that I buy this. The federal government has been spending like a drunken sailor for the past several months, and we have had a decline in GDP for at least the last two quarters. Now, when we do have recovery, will it be because of all this federal spending, or will it be because natural market forces have kicked in? I think that it is pretty difficult to discern cause and effect.

 

 

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Holding the other components constant, an increase in government spending (assuming that government spending is an exogenous variable) will result in an increase in GDP and a decrease in government spending will result in a decrease in GDP.

 

I'm not at all sure that I buy this. The federal government has been spending like a drunken sailor for the past several months, and we have had a decline in GDP for at least the last two quarters. Now, when we do have recovery, will it be because of all this federal spending, or will it be because natural market forces have kicked in? I think that it is pretty difficult to discern cause and effect.

 

 

The financial markets are turmoil because there is a lack of confidence that the adminstration's estimates of GDP growth to reduce the deficit to $500B by increasing tax revenue is possible which means that the US government will be running larger deficits for the next 5 years than the administration projects. There is also uncertainty on how the $640B tax on carbon will levied because the administration has not provided any details and the $643B place holder for health care reform.

 

Also the administration's proposal to limit deductions for charitable contributions and mortgage interest on taxpayers with more than $250,000 in income is running into opposition from leading Democratic legislators in the Senate.

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Holding the other components constant, an increase in government spending (assuming that government spending is an exogenous variable) will result in an increase in GDP and a decrease in government spending will result in a decrease in GDP.

 

I'm not at all sure that I buy this. The federal government has been spending like a drunken sailor for the past several months, and we have had a decline in GDP for at least the last two quarters. Now, when we do have recovery, will it be because of all this federal spending, or will it be because natural market forces have kicked in? I think that it is pretty difficult to discern cause and effect.

 

 

The quote was a statement of fact about what the model tells us if we hold the other components constant to view the result of changing just one component (government spending).

 

 

When we look at actual data, we of course see that all the components are changing.

 

For example, here is the percentage change in nominal personal consumption expenditures year over year, starting at the beginning of last year. (http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s'>http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=PCE&s[1][transformation]=pc1)

 

 

2008-01-01 &&&& 1.6673

2008-02-01 &&&& 1.15965

2008-03-01 &&&& 1.52541

2008-04-01 &&&& 1.33375

2008-05-01 &&&& 1.387

2008-06-01 &&&& 1.06958

2008-07-01 &&&& 0.21055

2008-08-01 &&&& -0.21118

2008-09-01 &&&& -0.64698

2008-10-01 &&&& -1.30746

2008-11-01 &&&& -1.44373

2008-12-01 &&&& -1.88632

2009-01-01 &&&& -1.63996

 

Here is the same data adjusted for inflation. (http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=PCEC96&s[1][transformation]=pc1)

 

2008-01-01 &&&& 5.33723

2008-02-01 &&&& 4.69314

2008-03-01 &&&& 5.01119

2008-04-01 &&&& 4.77949

2008-05-01 &&&& 4.95701

2008-06-01 &&&& 5.19018

2008-07-01 &&&& 4.68708

2008-08-01 &&&& 4.14282

2008-09-01 &&&& 3.395

2008-10-01 &&&& 1.96799

2008-11-01 &&&& 0.1119

2008-12-01 &&&& -1.1256

2009-01-01 &&&& -0.98852

 

 

In both cases we see a declining growth rate that has changed to a negative growth rate in recent months.

 

Here is the year over year percentage change in gross private domestic investment (quarterly data). (http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=GPDI&s[1][transformation]=pc1)

 

2007-10-01 &&&& -3.11183

2008-01-01 &&&& -2.9134

2008-04-01 &&&& -6.81352

2008-07-01 &&&& -7.07486

2008-10-01 &&&& -8.46915

 

Here is the data adjusted for inflation. (http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=GPDIC1&s[1][transformation]=pc1)

 

2007-10-01 &&&& -3.27433

2008-01-01 &&&& -2.29411

2008-04-01 &&&& -6.63229

2008-07-01 &&&& -7.34214

2008-10-01 &&&& -9.76815

 

 

Here is the Net Exports in Goods and Services. (http://research.stlouisfed.org/fred2/series/NETEXP?cid=108)

 

2007-10-01 &&&& -696.7

2008-01-01 &&&& -705.7

2008-04-01 &&&& -718.2

2008-07-01 &&&& -707.7

2008-10-01 &&&& -551.5

 

Here is the data adjusted for inflation. (http://research.stlouisfed.org/fred2/series/NETEXC?cid=108)

 

2007-10-01 &&&& -484.5

2008-01-01 &&&& -462.0

2008-04-01 &&&& -381.3

2008-07-01 &&&& -353.1

2008-10-01 &&&& -372.9

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Given this data, if we use the above model, then it becomes clear that the effect of the increase in Government spending (the exogenous component according to the model) has been to slow the decline in GDP. On the other hand, if government spending had remained the same or declined, then we would expect GDP to have fallen at the same or a greater rate.

 

So those are the basics of how that particular model works.

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