The Fiscal Cliff

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Re: The Fiscal Cliff

Postby jcjm » Wed Jan 16, 2013 8:25 am

What is good for the economy is not entirely opinion. There are people who devote their whole careers to studying the economy.


There are economists wo beleive almost anything. Some even say that it doesn't matter in the long term what the govt does. That economics is based on population and changes in it such as the baby boom etc.

With economists views on both extremes, it appears to me that politicians can just pick the view that suits their motive (tax and spend or tax cuts and spending cuts). Then inject that opinion into the equation.

If history tells us anything, it should be that you can't predict the future (the depression is an example). If we could, we would have.
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Re: The Fiscal Cliff

Postby Scenario Thinker » Wed Jan 16, 2013 8:59 am

jcjm wrote: ... you can't predict the future ...

That's right. That's why there's so much money involved in trying. :)
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Re: The Fiscal Cliff

Postby merk » Wed Jan 16, 2013 1:17 pm

jcjm wrote:There are economists wo beleive almost anything. Some even say that it doesn't matter in the long term what the govt does. That economics is based on population and changes in it such as the baby boom etc.

With economists views on both extremes, it appears to me that politicians can just pick the view that suits their motive (tax and spend or tax cuts and spending cuts). Then inject that opinion into the equation.

If history tells us anything, it should be that you can't predict the future (the depression is an example). If we could, we would have.

I think that's kind of a cop-out answer. There are some economists who have better track records the others. I think it's clear there are some who are knowledgeable and some who arent. It's also clear none of them know it 100% and can predict everything. But to just give up and stick your head in the sand seems foolish. The economy isn't some mystical thing. It's not as clear cut as 1+1=2, but there are some basic principles that can be applied to it.
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Re: The Fiscal Cliff

Postby jcjm » Thu Jan 17, 2013 7:01 am

I think the govt can do things that will hurt the economy over the short run, but not much to help it over the long haul.

One reason, the House changes every 2 years and what they do isn't long term, it can be changed in 2 years when there is a new House.

Another reason, population trends (like the baby boom) affect how many people are working, going to school, getting sick and dieing. Since a large part of the economy is based on consumption, these probably have more to do with the economy that what the govt does.

But I don't think I gave a cop out answer. Economists all have been wrong at some time and Politiacians do grab for an economist who supports their view.
There are some hacks that can be disregarded, but even among economists with good records, you can find one that will support almost any theory.

The biggest thing that comes to mind, tricle down economics. You can find good economists who say it works and good economists who say its garbage.
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Re: The Fiscal Cliff

Postby Scenario Thinker » Thu Jan 17, 2013 9:32 am

There's an economist (in DC) on a blog I follow sometimes and his opinion is this:
economist wrote:(economists) have the ideas that would go far in helping the economy get moving.
None are politically palatable.
Since the politicians make the rules...
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Re: The Fiscal Cliff

Postby SquarePeg » Thu Jan 17, 2013 12:08 pm

jcjm wrote:
It's not just about balancing the budget and possibly reducing debt. It's about maintaining growth in the economy.


Actuaually its not.

Balancing the budget and reducing debt is one thing. Maintaining growth in the economy is another.

The first is the governments responsibility. The second is something government has taken on to win votes.

They have a responsibility and the power to make laws to maintain the budget. What is good for the economy is totally a matter of opinion, which falls into the politics arena.

That is why we have a problem, politicians are doing what gets votes and is good for their supporters instead of doing what is ethically right and needs to be done.
I also disagree, at least with the first part of your response. Revenue depends on growth. What you spend today influences the revenue you receive tomorrow. Even just saying that "default is an option" can alter expenses by reducing perceived credit-worthiness. (Would you lend money to someone who might not pay it back? Maybe yes, if they will accept harsher terms.) And what's good for the economy is not (or should not be) opinion. The economy can be modeled mathematically. Sure it's a very complex model and depends on forecasts. It's somewhat like the weather, but at least the weather is never politicized, is it? (sarcasm alert)

The real problem (and I agree with you here) is that politicians are the ones who are mucking around with it.
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Re: The Fiscal Cliff

Postby jcjm » Fri Jan 18, 2013 7:00 am

And what's good for the economy is not (or should not be) opinion.


Wholeheartedly disagree.

There are at least 2 basic "opinions" on how to grow the economy with a lot of variations .

Trickle down economics and trickle up economics.

Give tax breaks to the rich and let the money trickle down or tax the rich and give the money to the poor and let it trickle up. I prefer the trickle up version for many reasons, but there are still those who swear by the tricle up theory and point to instances where it worked.


The economy can be modeled mathematically. Sure it's a very complex model and depends on forecasts.


It can be modeled, but I don't think it can guarantee success in the long run. On a short term basis, raising or lowering interest rates, extending unemployment, etc. can have an effect for a quarter or maybe 2, but it can't go much beyond that. The reason, the farther out you go the more variables and the model would have to be too big with too many what ifs. Even if you could model the economy for 6 months at a time, at some point the decisions for expansion would hit a snag where the only options available, turn the tide in the other direction.

If it could, there would have been no great depression or any recessions since.
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Re: The Fiscal Cliff

Postby Scenario Thinker » Fri Jan 18, 2013 4:57 pm

The problem is, when you tax the rich, the money doesn't necessarily get to the poor.
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Re: The Fiscal Cliff

Postby jcjm » Mon Jan 21, 2013 6:47 am

I think more money gets to the poor when you tax the rich, than when you give them a tax break.

Giving them a tax break, doesn't seem to have have much trickle down effect because they just keep it where they have it. They don't go out and buy a new car, go on vacation, or buy new furniture because they are paying less taxes.
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Re: The Fiscal Cliff

Postby merk » Mon Jan 21, 2013 12:50 pm

The money may not go to the poor - but it is more likely to go to the public in general, and some of which will find it's way to the poor. it's not like tax money is automatically ear marked for the poor and needy. It's suppose to go towards paying for all public services, some of which includes services for those in need.

Given how the income gap has only grown worse over the last few years, i don't think lower tax rate on the highest earners is having a positive benefit on the country as a whole.
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Re: The Fiscal Cliff

Postby Scenario Thinker » Mon Jan 21, 2013 3:11 pm

Yes, taxing $X from the rich doesn't mean $X goes to the poor or working class. It goes wherever the government wants it to go.

jcjm wrote: ... They don't go out and buy a new car, go on vacation, or buy new furniture because they are paying less taxes.

You're forgetting, the rich already have all that stuff. The point of the rich having more money is they are motivated to invest that money to get the highest return possible. They are producers, not consumers. If they keep their money where it is (e.g., cash equivalents, under mattress :) ), the way they are not stimulating the economy is because they're not investing in something that may produce jobs and products/services for the less rich to consume.

Taxing the rich too much will result in a negative effect. Say you had the option to invest a quarter million into a business that would generate a million, but were taxed 90% (you keep $100K - $250K = -$150K). Not much incentive.

Taxing the rich less is supposed to give them more incentive to invest, and possibly help the working class get paid even before the rich make their profits in those ventures (payroll before profit statement). I'm sure that was working in the Bush years along with all the other stuff, and investing was done by "everyone" and "everyone" was going to get rich. Well, we know what happened then.

There's a paper I just read, and if you want to wade through it, it makes sense if you consider it's not a long term solution (long meaning over 5-7 years), but it might be worth a try to kick start the economy, except it would never fly through our dysfunctional government (not to mention it includes government spending). Plus, it came out over a year ago, and while Obama was able to try some similar smaller things, some say it wasn't enough (jobs act, etc.).

It also explains how this all started with the emergence of the global economy and a huge surplus of labor, decades ago.

Link to full paper at bottom of this link:
http://newamerica.net/publications/poli ... ay_forward

  1. Public Investment program.
  2. Nation-wide debt restructuring program.
  3. Global reforms including balancing supply/demand.
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Re: The Fiscal Cliff

Postby jcjm » Tue Jan 22, 2013 7:04 am

You're forgetting, the rich already have all that stuff.


I didn't forget, that was my point. They already have what they want, so they are not going to spend. Most likely they will leave the money where it is, which is not growth but the status quo at best.

Taxing the rich too much will result in a negative effect. Say you had the option to invest a quarter million into a business that would generate a million, but were taxed 90% (you keep $100K - $250K = -$150K). Not much incentive.


I don't think that is what will happen as evidenced by the 90% under Eisenhower. It will simply mean when a person hits the 90% rate, they will be forced to let someone else invest in that business. Creating 100 millionaire instead of 1 billionaire.

I see it as a way to make the American dream for more people by keeping a few greedy people from monopolizing an industry.


I use to think as you did, until I saw how Bill Gates, Warren Buffett and others were grabbing up all the good stuff and realized that was not happpending when I took High School Bookkeeping in the 60s. Rich people had to choose what they really wanted to invest in or give a lot to charity. It did a lot for the charities and for giving everyone a piece of the pie.

People say the stock market didn't grow back then, but stocks gave dividends. Kind of like having a money market that pasy 6-8%. Sounds good to me. Stock price doesn't grow but your investment does grow if you reinvest the dividends.
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Re: The Fiscal Cliff

Postby Scenario Thinker » Tue Jan 22, 2013 9:54 am

I guess it depends on where we are on the Laffer Curve and if trickle down works.

In a way, it doesn't matter much. The capital gains tax only went up to 20%, and that's where the rich make most of their money. It's easier to get more rich when you're already rich.

The real disparity is in income. I read somewhere where the net worth difference was not much different back several decades ago, whereas income has really separated over the last decades.

As Gordon Gekko said in Wall Street, "There's a working stiff making $400K" (in 1987 no less). So, the question is, who is it really "hurting". Who makes a salary that will be taxed at a higher rate. As a percentage, 1%, 1.5%?

I actually don't think any way for sure, yet. I'm trying to find economics information, but it's hard because it's such a partisan topic.
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Re: The Fiscal Cliff

Postby SquarePeg » Fri Jan 25, 2013 5:28 am

jcjm wrote:
And what's good for the economy is not (or should not be) opinion.

Wholeheartedly disagree.

There are at least 2 basic "opinions" on how to grow the economy with a lot of variations .

Trickle down economics and trickle up economics.

Give tax breaks to the rich and let the money trickle down or tax the rich and give the money to the poor and let it trickle up. I prefer the trickle up version for many reasons, but there are still those who swear by the tricle up theory and point to instances where it worked.
Perhaps it's opinion, perhaps not. I also prefer trickle up. And I would argue that trickle down is inherently flawed in a business climate in which decisions are made based on maximizing profits. There is a disincentive to letting profits trickle down (the drain). That's why I would favor increasing taxes on profits. Gosh, how I wish I were a corporation and had to pay taxes only on surplus. I have no surplus!
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Re: The Fiscal Cliff

Postby jcjm » Tue Mar 05, 2013 7:05 am

We are through the cliff into something else, but we still haven't had a balanced budget for several years.

Frankly I can't keep up with all the name changes, but it seems the people, the economy and the market have all come to the same conclusion.

We have a bunch of idiots in Washington.

Who are more interested in keeping their right or left wing donors happy, than doing what is right.

I say I can't keep up with the name changes, but its mostly that I try not to even listen to the news on this. Its all garbage in the form of spin. Its getting to the point that "ignorance is bliss". This could be a dangerous thing, but theres not much I can do until the next election and hopefully gridlock will keep them from doing something really stupid.
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