Why is consumer spending good, but government spending bad?

Consumer spending adds to the economy.
Government spending adds to the national debt.

That being said, some government spending is needed, to provide all the services people have come to expect from the government. By the same way not all consumer spending is good. Everyone would be better off if we quit talking about who is to blame and talk about solutions.

I know you like to blame the republicans for every problem that arises, but they aren’t to blame for all of it, democrats, independents, green and every other party played a parts also.

^ Uhm… when did the independents, green, etc. last have a meaningful voice in the government? Never?

@DrBill hits the nail on the head here. Spending adds to the national debt.

Near as I can tell this is how the reasoning goes…

It isn’t that government spending is bad, it is that paying for that government spending is bad. See, if we had to pay for government spending that would mean raising taxes (gasp!) on some of the wealthiest Americans (do you hear that Koch brothers?). These are the people who carry Republican lawmakers in their pockets. Why on earth would these good old boys want to crap where they eat (so to speak) and talk about such craziness as raising taxes on those who can afford it and are protected by law from contributing their fair share, to pay for spending? It is much, much easier to blame “tax and spend liberals” for the economic situation then to blame their puppet masters. These folks are brilliant at twisting the truth to make it seem like they are trying to prevent more spending because it is in the best interest of the average US citizen.

@SuperMouse Aha. So all we need is a large enough tax cut to PAY for all the spending, then the debt will start to magically disappear—just like it did when it went from 20% of GDP in 1980 to 100% of GDP today thanks to tax cuts financing increased spending.

Here’s a _Slate Magazine article that cuts through at least some of the political blame game that’s going on around the sequester.

@ETpro you have an excellent grasp of the situation.

Why? Ideology. That simple.

@DrBill The reason Republicans get much of the blame has to do with their current unwillingness to compromise or negotiate, and their history of stalling unrelated legislation until they can extort compliance with whatever their current wild hair is. Then again, even many Republicans are getting sick of what their party is doing, but unless they can control/purge the radical elements within their ranks, all Republicans will get blamed; guilt by association.

@jerv I thought you said you were not commenting on my opinions any more? But welcome back, I like opinions even if I don’t always agree.

I am not saying they are not to blame, I think they are just as guilty as the rest. But I believe we could get closer to an answer if we talk about how to fix the problem and a lot less on just pointing fingers and saying “they did it”

@DrBill do you have the hotline number number for the Republican National Committee? Someone needs to give them a call and let them know it is time to stop finger pointing and start working “across the aisle” as some are fond of saying.

Government spending only adds to the national debt if we borrow to pay for government spending. And whether or not it adds to debt, it is still spending that creates economic activity. Further, since the government can target spending, it can target it to areas that invest in human resources, like education and job training and infrastructure development. These investments have long term returns.

As a result, most of government spending has a better return on investment than any other consumer spending. Economists speak of the multiplier effect of spending, and government spending has a bigger multiplier effect than most other spending. Within government spending, military spending has the lowest multiplier effect because it is so capital intensive. Spending on salaries and wages has a higher multiplier effect. The multiplier effect is the impact of dollars being spent over and over again within a community.

Consumer spending has a multiplier effect, but I suspect it is not as good as government spending. Therefore, it is worth borrowing money to have the government spend it, because the government has the most efficient spending that results in the biggest impact on the economy.

It is a myth that government spending is bad. Most government spending is an investment in the future, and provides a higher return on investment than any other spending. consumer spending is not as efficient and much more of it is not an investment in the future.

I like DR_Bill and ETpro’s answers. Government can do a lot to ease the recession and stimulate the economy. The problem is that they spent a trillion dollars bailing out big banks. What they should have done was insure the depositors and let the banks fail. The money would have been injected into the economy and banks would have learned that there are consequences to irresponsible and criminal actions.

So what happened? The government bailed out the banks and they sit on their money. The government lent money to buy GM stock, saved jobs, and injected money back into the economy. It was a win/win strategy for the car company and the government who will eventually be paid back with interest, if the right wing doesn’t do anything to further crash the economy.

Unfortunately, we have a Congress that only cares to discredit the president and covers up the fact that they mostly dislike Obama because he’s part black. It can’t be because of his politics, Obama is as center right as Bill Clinton. Of course they didn’t like Clinton either, probably because he was getting more sex than the dried up old white guys on the right.

The point is that that hate and discrimination are more important to the right than justice or the country. Apparently they would prefer to have a country with the economy of Haiti than enable a “black guy” to look good.

The government spends money before it is received. We are currently working on income that will be received long after the current generation is gone, to be paid for by our grandchildren. That is wrong.

In the U.S. over the past several decades the case has been that
– additional government spending accrues to the national debt (because there has been no increase in tax revenue).
– additional consumer spending accrues to private debt (because there has been no increase in wages for anyone but the top 1/10% wealthiest).
Whether one or the other is superior is debatable.

There is substantial argument that government spending is superior because the government has more tools at its disposal to dispatch the debt.

And the fact is that most increases in spending don’t stay in the U.S. within one or two transactions it’s spent on imported goods.

@SuperMouse I don’t have their number, but I would be happy to make the call.

@SuperMouse, @ETpro, @DrBill, et.al. contact information for the Republican National Committee. Look toward the bottom if you wish to try your luck with a phone number.

If the government had an idea for a Public Works project to repair our crumbling infrastructure (like FDR did) we could put thousands of people to work & they, in turn, could contribute to society’s consumerism which would push products created in the US (in order to stabilize our economy). *Granted, the banks SHOULD have been PUNISHED instead of being bailed out. The PEOPLE should have been bailed out, NOT the banks!

Ok forgive an ignorant question here prefaced with my angle.. I liked where @dabbler was going but want to push it farther.

One holdfast argument of the Republicans is that the private sector is much more efficient with spending because they have to compete and they have to be profit driven.

This arguement took a bit of hit with the wall street fiasco but the stubborn still persist.

Considering all the efficiency reports that both the private sector and government have been issueing forth why isn’t there some sort of comparison.

I realize that it would have to be limited as the government and private sector don’t have a lot of over lap. But there are a few examples I can think that could be seen as a random sampling. Is there such a thing?

Health care is one such area of comparison. We compare administrative costs for Medicare and Medicaid to the administrative costs for private health insurers. The Federal programs totally blow the private sector out of the water, but people are always making excuses for that. It’s ideology, not data that matters in debates like these and don’t try to make arguments based on facts. You’ll only be disillusioned when all your work matters for nothing when Republicans dismiss it for no reason at all.

Just a note on the comparison between Medicare and private health insurance. It is wildly distorted. They compare the percentage of total costs to the administrative costs. Since Medicare covers those with the highest costs (Seniors) the percentage of administrative costs are smaller. If you compare per client costs, private insurance comes out the same. If you look at medicare advantage (private insurance to cover seniors) the administrative costs are the same. To make it all worse, collection done by the IRS is not included in the Medicare costs. It makes it easy to tout efficiencies when you don’t count all the costs.

The worst part is that Medicare fraud is estimated to be 10–15% of the total cost of medicare. Private it is 1–1.5%. Your administrative costs are reduced if you don’t do any investigation of fraud. A completely disingenuous comparison.

The question posed seems to be a rather odd distortion of reality. First of all, the entire economy is fueled by the private sector. Government produces nothing but takes it’s revenue from the private economy. There are not enough rich people to pay for all the spending done in Washington. If you want to raise taxes to pay for the spending, you must raise taxes on EVERYBODY. And since both you and the president have no problem with debt, why raise taxes at all, on anybody. Even the most rabid liberal has to agree that raising taxes removes money from the private economy, so why do that if debt is no issue?

I find it amusing that the comparison you provide is between UPS ( a private company) and USPS, which is supposed to be run as a private company. Government is the least efficient use of money. It produces nothing and adds nothing to the economy. It pulls money out of the economy. Government adds layer after layer of inefficient bureaucracy to every function performs. It should be the path of last resort, not the first.

I should also add Obama’s stand on the Sequester issue. It was Obama that threatened to veto any bill that would end or delay the that event. Now for some reason he has decided that we shouldn’t have the bill he suggested and supported at all costs. Seems we have a hypocrite in our mitts.

@Jaxk there is a point where lowering taxes has no benefit to the economy. We are at that point now. What we really need is to end corporate welfare, end tax loop holes, and end the cap on taxable income for social security taxes.

The old Republican theory that all you need to do to stimulate the economy is to reduce taxes and regulations put us where we are now. It was lack of regulation that allow banks to become roulette machines and it is these unending wars that put pressure to reduce things like entitlements. I paid Social Security for the last 50 years and have paid medicare and other taxes since their inception. None of those taxes put a strain on the economy. ( I expect and am entitled to use social security for about 5 years before I crap out. ) I deserve it and it is my money and I’m entitled.

It is the upper strata of society that decides to go to war and the lower strata that does the fighting and pays for it. I would like a moratorium on new wars and a 10 or 20 year period where the upper classes pay for the damage they’ve done. A very simple change would be to get rid of the differentiating between earned income and investment income. I would also get rid of short term capital gains tax breaks.if my first suggestion doesn’t get passed. I would say that you would have to keep an investment for a month or more before it comes eligible for treatment as a capital gain and not ordinary income.

The point is that reducing taxes, further, will not work and we need to start looking for income to pay off the debt and restrain in adding new debt for loosing projects like discretionary wars.

@Jaxk If government produces nothing then neither do CEOs. You are basically claiming that ideas, framework, and organization have zero value. I doubt that was your intent, but that’s what you said. The private sector is only responsible for it’s shareholders, but government is responsible for everybody. They are responsible for ensuring everyone has at least the basics and an opportunity to improve. Whether they do a good job at that is a whole other discussion, but continuing to insist that zero taxation yields maximum revenue and that the private sector has enough altruism to entrust our livelihoods to them and them alone is ludicrous. How would that differ from “might makes right” anarchy?

@Ron_C

Where we are on the Laffer curve is a judgement call. You may think we are past the peak while I think we haven’t reached it. There are some good studies to show a tax rate of 30% is the optimum. And that would be both federal and state. The cap on SS wages is something I tend to agree with on. One of our rare points of agreement.

Capital gains are already taxed as regular income unless you hold the investment more than a year. Short term vs long term is a year.

As for war, no body wants to go to war. You may not agree with some of the action but it isn’t a matter of waiting 20 years before the next one. That may be long or short. Conditions make the choice. Both wars are essentially over. Maybe we should look at getting some reduction in spending already.

I’d be interested to know how much tax you think we should have. I’m personally not pushing to reduce taxes but rather to simply stop raising them. At some point we need to recover from this recession and so far we aren’t making any progress. Raising spending levels hasn’t gotten us anywhere.

@jerv

I’m not interested in arguing over zero taxation nor 100% taxation. Unless you can find some way to meet up with reality, I’m not interested.

@Jaxk I think that 30 to 35% rate would be sufficient if everybody paid at that rate. Remember Romney, a multi-millionaire only paid an effective rate of 15% while, last year my wife and I paid 39% and we don’t even come close to millionaire status.

I believe Exxon paid a negative tax while small businesses like ours are taxed as if they were individuals making over $5 million for the year. Also various cities and states are racing to the bottom offering cheap labor and little or no taxes to corporations willing to move there.

I would say that the entire taxing process should be simplified and evened out so that your proposed 30% would make good sense Right now, the only people that would benefit are the richest of us. First fix the tax code then after checking it for a year or so, begin lowering the tax rate. The problem is that the right wants to jump right into low tax rates but doesn’t want to fix the system, first. The left wants to spend without accountability and charge their spending to only the rich or preferably to tax their grandchildren.

@Jaxk I feel that one meets up with reality through a combination of efficient spending and adequate taxation. Failing to spend is at least as bad as failure to collect revenue, but the Republican position seems to be far removed from that, hence my opposition.
We both know the tax code is fucked up, we just have a few disagreements on how. I would like to see multinationals pay taxes and relieve some of the burden from small businesses. I would like to see the effective tax rate be progressive rather than a bell curve.
I’m more in tune with reality than you think; just not the “reality” in your head.

@jerv

We have literally doubled federal spending since 2000. In order to keep up with that kind of increase in spending we would have to double taxes, for everyone. If you think you can raise taxes on only the wealthy and recoup that kind of spending spree, you are not in touch with reality. Not even in your own head where ever that may be.

@Jaxk Lets look at the cause of that spending. Iraq and increased need for government assistance due to many falling behind inflation or becoming unemployed come screaming to mind, as do skyrocketing costs for healthcare and education both leading to massive consumer debt and increased bankruptcy.
I like to solve problems by attacking them at the roots where possible. Willy-nilly spending cuts and tax adjustments don’t solve anything, and often make things worse. The Republican solution seems to be cut necessary spending, don’t touch unnecessary spending, and cut taxes to win reelection.

@jerv

Iraq is over, let it go. You say you like to solve problems by attacking them at the root but I’ve never seen you attack anything except Republicans. The Sequester was proposed by Obama. It was then signed into law by Obama. He has said he will veto any attempt to postpone or eliminate it. Now it is going into affect and you want to blame it on Republicans. Do you have another solution? Does anybody?

Republicans have proposed alternatives but you don’t like. OK so what is your alternative? We’ve just raised taxes and it would seem prudent to assess the impact before raising them again. Is raising taxes your only solution? And just for the sake of argument who exactly do you think is proposing a tax cut? There is nothing in the works that I’m aware of that would constitute a tax cut. Or is that just another straw man to bolster your perception of Republicans.

Shit or get off the pot. If you think there is unnecessary spending to replace Sequester, what is it? The cut is only $199 billion and half that comes from defense. I thought you love that. To make matters worse it’s not even a cut, it’s only a reduction in the growth of our spending. We’ll still spend more in 2013 than we did in 2012. You don’t like what Obama has done, propose something else and stop trying to blame everyone else.

@Jaxk I will believe Iraq is over when the final receipt is stamped, “Paid in full”.

I see the sequester slightly differently. Nobody wants it, and that was the point of it. Now tell me, if there are no consequences for ones actions, then there is no point in having any rules/laws at all. What is the point of a hollow threat?

There are some rational Republicans that have made proposals, and they have often been shot down just as fervently by their own party members. Kind of a pity really, but that is what the GOP gets for allowing extremists to take over.

Re: Tax cuts – I see leaving money on the table as an expense, just the same way I see working 32 hours instead of 40 as costing me money. That especially includes keeping the long-term capital gains tax at 15% instead of 20% (which is still lower than the rate for earned income). I also see opposing measures to close loopholes that lead to lower tax bills as also supporting tax cuts.It may be a matter of semantics though.

When the rational opponents of the Democrats at least get more vocal about their opposition to the extremists and are more afraid of the direction they allowed their party to go than they are then I will change my tune, but in the meantime, I see them as accomplices; I hate getaway drivers just as much as I hate bank robbers, so their complicity earns them my enmity.

Why propose anything when those proposals will fall on deaf ears that consider negotiation and compromise to be weakness and therefore refuse to budge an inch in the name of the Greater Good?

@jerv I really liked ”; I hate getaway drivers just as much as I hate bank robbers, so their complicity earns them my enmity.” That’s a great way to look at Congress.

I saw a chart this morning that showed the difference with and with out sequestering. According to the chart, the job loss is very high if the funds are sequestered. Without any changes the employment rate keeps going up. Austerity is a very bad thing.

The funny thing is that both democrats and republicans are against the sequestering. How bad can a law be if both parties are against it? My gut tells me that the sequestering provision should be allowed to take place so both parties look like asses.

@Ron_C The Democrats are against sequestering and are doing everything they can to avoid it, short of cancelling it outright and thus turning it into a hollow threat and calling into question whether or not the White House has any authority whatsoever.

Many (though not all) Republicans actually support it since they can blame Obama for “making” it happen and thus ruining the economy. Since the POTUS always takes the blame anyways, it’s actually in the GOP’s best interest to crash us into a tree; they can then set themselves up as saviors in 2016.

The Democrats and rational Republicans are having a hard time finding a compromise, in part due to normal ideological differences, and in part because the batshit branch of the GOP won’t back (and will actually crucify) any Republican who is willing to negotiate. The Dems don’t want higher taxes, but see a “tax and spend” as more balanced than “spending cuts only”. I know the Republicans would never consider a plan that was “tax increases only”, so why not go for the middle ground where everybody is equally unhappy? The only reasons I can think of is that you are childishly petulant, utterly ignorant, or outright sociopathic; none of those are qualities I want to see in anybody who holds high office.

The only way to avoid the sequester is by cancelling it, at which point we may as well disband government and abolish the police as there are no consequences for anything.

It’s also worth noting that Congress is recessed and didn’t call an emergency session to deal with this.

Okay, the Apocalypse is near. Jan Brewer is being the voice of reason

This would be so much better if the comments had anything to do with the question…

@DrBill Look at my first response here; ideology. You cannot discuss “good” and “bad” without discussing ideology and how it affects perceptions.

@jerv Agreed, but it would be better if the ideology had something to do with the original question, rather than continually drifting further and further away from it.

@DrBill We start with, “Why….?”, and the details go into questioning how it is that Republicans think the way that they do. My assertion is that it’s due to ideology. I think that the squabble between @Jaxk and I are a perfect illustration of ideological differences, and how they can detract from anything getting done; we derailed the thread, and Congress derailed the nation. Between that and a few more details about the Republican mindset coming out during the discussion, I see it as perfectly relevant when you consider that complex questions rarely have simple answers.

Multiple peer-reviewed studies find spending cuts to be far more superior for the economy than spending or tampering with taxes.

This study The Output Effect of Fiscal Consolidations
finds that “adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. Spending-based adjustments have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments have been associated with prolonged and deep recessions.”

These two studies The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks and Fiscal Policy, Profits, and Investment find “a sizable negative effect of public spending, and in particular of its public wage component on business investment.”

Snip

“various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than the effect of taxes.”

Snip

“The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment. We also find that legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases.”

This study Large Changes in Fiscal Policy: Taxes Versus Spending finds that “Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.”

And finally, this study Government Spending and Private Activity “finds that in most cases private spending falls significantly in response to an increase in government spending. These results imply that the average GDP multiplier lies below unity.”

@avaeve I’m not saying you’re wrong, but I will say that you can find studies that support any viewpoint.

My personal take is that there is nothing truly linear when it comes to economics; it’s all about bell curves, and finding the right combination to where all factors are as optimal as possible without making other factors untenable. There is no way to make everything totally fine all at the same time. The best we can do is to try and balance things. Given the income stagnation for most workers, increases in poverty and unemployment, and many other factors, I don’t think we’ve done a good job at balancing, and part of that is that we are trying to do the opposite of what worked in the past.

Just out of curiosity, where was the growth after the latest round of tax cuts? The sum of all wealth increased, but did we really grow? How well did the austerity measures work in Greece and the UK? And is there a lesson or two to be learned from Iceland?

Still, GA for a well thought-out response.

@avaeve I have to agree with @jerv. If we’d never invested in today’s infrastructure as only Government reasonably can, where would US productivity have been for the past 50 years? No interstate highway system. No GPS system. No modern air traffic control system… Certainly there is a sweet spot, but over the last 30 years in the US we have greatly reduced the amount we are taxing as a percentage of GDP and it has not resulted in a massive economic boom. In fact, when Reagan cut the top marginal tax rate 60%, he also massively increased government size and spending. How do we tell which one produced the recovery?

On the other hand, Bill Clinton reduced government spending and increased taxes and got a sustained boom.

Frankly, I don’t believe economics yet has the right to call itself a science, so peer review in economics is more a current popularity contest for the theory du jour than it is a way of separating the wheat from the chaff. @jerv‘s right, economics “studies” go find what they were commissioned to find.

I cannot confirm, deny, or comment on anything you guys wrote because I’m not an economist, but if getting information is between regular guys like you or peer-reviewed professional economists, then I’ll choose the latter. A lot of the current and former members of National Bureau of Economic Research are Nobel laureates (Nobel Memorial Prize in Economic Sciences.)

My personal take is that if you seek medical advice from your doctor instead of your plumber, then you should seek economic answers from peer-reviewed economists and if you don’t hold a Ph.D in the field you’re commenting on, then you shouldn’t be commenting on it,

Works the same way with any science. You have junk science and then peer-reviewed journals.

@avaeve I might think so if the currently in vogue crop of peer-reviewed economists had not proved so incredibly wrong on prescribing economic policy. If I went to a doctor whose prescriptions constantly made me sicker, and who always responded to my observation of that by saying I just wasn’t taking enough of the medicine yet, I’d soon give up any faith I may have had in that doctor’s pedigree and even Nobel prizes s/he might have won.

What I am saying is that it appears that humans either have free will, or that quantum mechanics gives us the approximation of that. Therefore, studies of human behavior (anthropology, economics, ethics, psychology, religion… all tend to have more to do with what school of thought it preeminent today and what “peers” are doing the reviewing than they do with actual predictive value as a theory.

I’m no Nobel laureate and not an economist, but I can rattle off dozens of real world tests that fly in the face of those studies, some conducted in the USA and others in nations around the world. That leaves me thinking these “studies” were efforts to sell an agenda. Bear in mind that doing so—selling a particular tax and spend policy—can mean billions in profits for some VERY well heeled people who pay for the existence of think tanks.

Well first you have to remember that you’re nobody and therefore you have no grounds to say that these peer-reviewed economists are incredibly wrong. Secondly, this isn’t theoretical research. Thirdly, this isn’t a think thank – The National Bureau of Economic Research (NBER) is an American private nonprofit research organization “committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.”[1] The NBER is well known for providing start and end dates for recessions in the United States. The NBER is the largest economics research organization in the United States.

And who are you? A nobody (no offense). You would have to proof that this economic research and its recommendations was actually prescribed exactly into policy and that it failed. If it’s legit, it will be peer-reviewed, otherwise junk science. Just because you got “sick” (you had/have a bad experience in the economy) doesn’t mean anything.

Not to long ago, you based your gun arguments on a link to a peer-reviewed study on gun ownership and owner death rates. You’re being pretty hypocritical.

@avaeve While @ETpro may or may not have a bunch of fancy initials after his name, he points out that plenty of economics studies are simply wrong in their forecasts or conclusions by pointing to facts, not theories or opinions, that show they’re wrong.
Everybody who’s nobody can do that and that’s completely valid.
If all the peers are also sold-out suckups, peer-reviewing is meaningless.
The General Accounting Office, who have a better track record than just about any other squad of economic analysts, produces facts that don’t agree with those sycophant-club peer-reviewed neocon-sponsored privately-funded think-tank.

Citing a peer-reviewed study whose conclusions track with reality, actual facts, is different from citing peer-reviewed studies whose conclusions are clearly disconnected from reality. @ETpro wasn’t criticizing the citation of peer-reviewed studies, he’s pointing out that those studies, despite the big brain trust behind them, are just clearly wrong.

(And, just because the NBER says they’re “unbiased” that doesn’t mean a thing, now does it? )

Simply saying something is wrong, doesn’t make it so. Where is etpro’s research to explain why these studies are wrong and that the opposite is correct? And who reviewed his work (if he has any at all) ?

Again it comes to getting information from a nobody with no credentials, no research, telling me “it’s wrong” or highly credential, well researched studies from a a consensus of economic professionals.

I disagree. It goes beyond what credentials a source has to the actual facts.
A bunch of credentials is worthless if the people are paid to lie.

Let me get this straight, the NBER has twenty-two Nobel Prize winners in Economics and thirteen past chairs of the President’s Council of Economic Advisers with more more than 1,100 professors of economics and business now teaching at colleges and universities in North America who are NBER researchers—-

And you’re saying all being paid to lie? And your evidence for this is?

For argument sake, lets ignore etpro’s credentials. Where is his research proving these economists are wrong and that he is right? Who reviewed his work (if he has any at all)?

@avaeve _ Ad Verecundiam_ is fallacious, while the fact that many Nobel prize economists disagree is provable. Any paper that ever gets published is subject to peer review, and until you can prove that 100% of economists agree with you, your arguments have no more validity than ours.
That said, which way does historical fact show is correct? Again, I look at Europe, and at our own performance during the 20th century.

If you were correct though, optimal revenue would occur at 0% taxation. Once that is proven true, I might change my position, but until then, I have to disagree, just like many other Nobel prize winners who only won after surviving peer review.

Then by your logic global warming and anything from medical to scientific is nonsense since not all scientists agree with the peer-reviewed research.

@avaeve

I hate to jump in here just because, you’re doing so well on your own. Your points are all well taken and verified by history. The austerity measures in Europe are mostly combined with tax increases which nullifies the spending cuts.

It’s almost funny to see these guys trying to deny the study with no better argument that ‘Nah ah’.

@Jaxk Zero taxation FTW then?

Don’t get me wrong, controlling spending is important, but if done wrong (including excessively) then they do more harm than good. It also assumes that the tax structure was remotely good in the first place; an assumption I don’t make. But lets try it your way; deregulate to the point of anarchy, cut spending, trash our expensive infrastructure, fuck the less fortunate, and have a Conservative Utopia.

If that sounds flippant to you, then we both agree that moderation is key.

Now like I said, I’m not an economist, but just to prove my point that regular people should not discuss economics – I fact checked etpro’s previous comment on Clintonomics. He says he raised taxes and cut spending. I googled that. It says he raised taxes from 36% to 39.6% on high-income individuals in the 1.2% of wage earners but what etpro doesn’t mention is that capital gains taxes were reduced from 28% to 20% and the 15% bracket to a 10% bracket. Also, under Clinton, taxes were cut for 15 million low-income families and made tax cuts available to 90 percent of small businesses households as well as $400–500 tax-credits for households with children under the age of 17 received $400–500. Educational savings and retirement funds were given tax relief.

As for the spending, Clinton never brought the deficit to a surplus. This was an accounting fabrication. “the claimed surplus was only recorded against public debt which was calculated with the exclusion of intragovernmental holdings. This meant that the administration was able to record loans deducted from the social security trust fund as revenue on budget reports, which accounted for the bulk of the surplus money. Calculating both the intragovernmental holdings from the public debt, the lowest deficit was $17.9 billion; in effect, the alleged surplus was a mere accounting fiction”
link1 link2 and

And where the surplus was claimed, the nation debt rose from $4.3 trillion to $5.6 trillion and from $5.4 trillion to $5.6 trillion Budget of U.S Government – Historical Tables

@avaeve Thus proving that doing anything wrong can go badly, and many things are open to interpretation as there are facts to prove all arguments.

Any time you change multiple variables, it’s hard to figure what change caused what outcome. I would be interested to know what merely upping Capital Gains taxes back to 20%, maybe in a tiered manner so as not to impact small investors, and leaving the rest of the tax code alone would result in. One effect would be a reduction in the public outcry over billionaires having half the effective tax rate of the middle class, and that alone would not change the fact that we must do something about spending.

@jerv

If you want moderation, it seems your Chicken Little response would not be that. We are talking about a 2.4% reduction in the federal spending. That alone seems like very moderate response to a $16 Trillion dollar debt. But if we look a little closer, it is after a 3% increase slated for this year. So it’s not even a cut. That would seem like a pretty moderate response. Yet we’re being told that it will cripple us. We’ve literally doubled federal spending, yet we won’t be able to support basic services. There is nothing moderate about that response, nor even reasonable.

Conservatives have asked to slow the tsunami of new regulations. Not to undo those in place but only to slow down. Your response is that we want “deregulate to the point of anarchy”. Doesn’t that seem a bit over the top.

You want moderation but your screaming Doomsday. Try a little moderation of your own and maybe we could have a conversation.

@Jaxk Separate the rational Conservatives from the ones screaming about us going to Hell and ruin for not following their radical agenda, and I would be a bit less intense. Get the ones that want to slow down rapidly constricting regulation to crowd out the Batshit Brigade that wants government out of the boardroom but in the bedroom, and conversations will be more civilized.

I would like to see more efficient spending. When you run a tight ship, you can get more done with less.

more later, but break is over; back to work…

@Jaxk This CBO graph shows that your 3% spending increase this year never happened. Spending has been steadily decreasing from the peak it hit in 2009 when we were trying to limit the damage of the 2007 Great Recession. Like most GOP talking points, Obama’s wild spending increases are just one more Republican lie repeated so often people believe it.

Sorry for the delay, but my workday got a lot more hectic during the 4½ hours OT I wound up putting in for crisis management. The price I pay for working hard is having less time to argue with strangers on the internet.

@Jaxk I would believe you more if not for the way cuts are always targeted on ideological lines with no regard for actual savings. Both parties do this, but the Republicans are generally more blatant, definitely more vocal, and some of their cuts would cause other expenses that outweigh any savings. Tell me how cutting Planned Parenthood’s funding and causing an increase in medical costs for preventable issues and increasing demand for services like WIC would actually save money. It’s things like that that make it hard for me to take them or their supporters seriously.

If we are serious about spending cuts, they have to be across the board. No playing favorites. Of course, both sides will want to push their agenda and spare their pet projects while defunding the opposition’s, the battle will wind up in a stalemate, and the only real end result is a bunch of the supporters of both sides arguing over things that they really have little/no control over in the first place.

@ETpro Most Americans are bad at math. Even being able to count correct change puts you in the 70th percentile these days, and being able to do long division makes you an utter genius. Economics involves numbers, therefore many people are more willing to believe what they are told than to hyperextend their brain trying to figure out the truth.

@ETpro

The Prsident’s budget has nothing to do with anything. It has never been passed nor has it ever gotten a single yes vote from either Republicans or Democrats. To make it worse, if you try to use this as a percentage of GDP and he overestimates (which he usually does) the spending is under estimated. Even the decrease he estimates is not a decrease in spending so much as an increase in GDP. Simply an erroneous and irrelevant measure.

Most of our problems here are based on the lack of a budget. If the Senate would pass a budget we wouldn’t have to haggle like this. Instead they pass Continuing Resolutions which typically leave spending at current level with an increase for inflation. We passed a continuing resolution just before the election that will carry us through March, and it was an increase. That’s part of the issue here since if Sequestration takes place, the next continuing resolution will be from a lower base. Obama doesn’t want that so he is pushing for a delay so that the continuing resolution will be from a higher base. All these games are designed to confuse the issue and the public. Pass a budget and let’s get back to a baseline we can agree on.

@jerv

The current sequestration IS an across the board cut. That’s what the Democrats are complaining about. The rest of you post is simply more bleating about how bad the Republicans are. Nothing to do with the point in question.

@jerv “Tell me how cutting Planned Parenthood’s funding and causing an increase in medical costs for preventable issues and increasing demand for services like WIC would actually save money.”

By your logic, there cannot be any spending cuts. Following that logic, social security and medicare prevents the old from being sick and hitting poverty. Welfare helps those who are already poor and sick. Defense protects everyone and everything. This all implies that only taxes should be raised, but raising taxes creates additional costs to everyone, and costs create disincentive and disincentive.

It doesn’t matter if spending has slowed down. There is nearly a trillion dollar gap that needs to be filled. 3.8 trillion in spending and 2.9 in revenue.

@Jaxk That is what both sides are complaining about, which was the point of the whole exercise. But my ideal would be to spend less to get more; I think we can agree on that. Now, how much would the need for Medicare/Medicaid funding go down with no reduction in services if we could find a way to curb healthcare costs? Things like that. Of course, any fundingcuts sshould go through a vigorous cost/benefit analysis to make sure we actually will save money…

@avaeve How efficient is our current system though? One thing I agree with Conservatives on is that private industry is better at reducing overhead costs and being more efficient than government… when they want to be. Another solution isfor tthose we gave money to in the hopes of creating jobs to create jobs like we paid them to do. When unemployment is low and workers earn a living wage, demand for government services goes down. Lower taxes and smaller government follows, and I think we both would like that.

@avaeve A question about disincentive;

Suppose you invest a million dollars and make a quick 10%. Is getting only 80k instead of 85k really that strong a disincentive? Last i checked, 1.08m was better than 1m. Don’t get me wrong; it’s possible to raise taxes high enough to actually give investors second thoughts, but ifwe were near that point now then nobody would have ever invested during/before the Clinton years when tax rates were much higher.

@jerv

A false choice. First if you make a quick 10%, less than a year, it is short term gains and taxed as regular income. In this case 39% plus whatever the state gets. Second, it’s not a matter of sticking the cash in your mattress but rather where do you put it. Invest in business, bonds or savings. Whatever you choose, a million dollars won’t end up in the mattress. You could do savings at about 1% and pay tax on that or maybe tax free bonds at around 4%, or stocks (or business investment) where both upside and downside are unlimited. The choices are all dependant on risk/reward. As you change the equation with less reward (taxes) the decision moves. If we want more business investment in this rocky and risky economy, we don’t want to make investments even less appealing.

@jerv “When unemployment is low and workers earn a living wage, demand for government services goes down. Lower taxes and smaller government follows”

Let see if that holds true by looking at the historically highest and lowest peak unemployment levels and at federal spending and income/capital gains tax brackets.

1949 – 7.9% unemployment rate peaked
Federal spending – 40.2 billion
Highest income tax bracket – 91%
Highest capital gains tax bracket – 7–12%

1953 – 2.5% unemployment rate peaked
Federal spending – 80 billion
Highest income tax bracket – 92%
Highest Capital gains bracket – 25%
—————————————————————————————————————————-
1958 – 7.5% unemployment rate peaked
Federal spending – 86.1 billion
Highest income tax bracket – 91%
Highest Capital gains bracket – 25%

1960 – 4.8% unemployment rate peaked
Federal spending – 97.3 billion
Highest income tax bracket – 91%
Highest Capital gains bracket – 25%
————————————————————————————————————————
1961 – 7.1% unemployment rate peaked
Federal spending – 104.9 billion
Highest income tax bracket – 91%
Highest Capital gains bracket – 25%

1969— 3.4% unemployment rated peaked
Federal spending – 183.6 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 28%
——————————————————————————————————————————-
1971 – 6.1% unemployment rate peaked
Federal spending – 210.2 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 32%

1973 – 4.6% unemployment rate peaked
Federal spending – 245.7 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 37%
———————————————————————————————————————————
1975 – 9% unemployment rate peaked
Federal spending – 332.3 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 37%

1978 – 5.8% unemployment rated peaked
Federal spending – 458.7 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 40%
——————————————————————————————————————
1980 – 7.8% unemployment rate peaked
Federal spending – 590.9 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 28%

1981 – 7.2% unemployment rate peaked
Federal spending – 678.2 billion
Highest income tax bracket – 70%
Highest Capital gains bracket – 28%
———————————————————————————————————————————-
1982 – 10.8% unemployment rate peaked
Federal spending – 745.7 billion
Highest income tax bracket – 50%
Highest Capital gains bracket – 20%

1989 – 5% unemployment rate peaked
Federal spending – 1,143.7 trillion
Highest income tax bracket – 28%
Highest Capital gains bracket – 28%
————————————————————————————————————-
1992 – 7.8% unemployment rate peaked
Federal spending – 1,381.5 trillion
Highest income tax bracket – 31%
Highest Capital gains bracket – 29%

2000 – 3.8% unemployment rate peaked
Federal spending – 1,789.0 trillion
Highest income tax bracket – 40%
Highest Capital gains bracket – 21%
————————————————————————————————————
2003 – 6.3% unemployment rate peaked
Federal spending – 2,159.9 trillion
Highest income tax bracket – 35%
Highest Capital gains bracket – 21%

2007 – 4.4% unemployment rate peaked
Federal spending – 3,456.2 trillion
Highest income tax bracket – 35%
Highest Capital gains bracket – 16%
——————————————————————————————————————

From this we see that under the best economic conditions, spending and taxes never stopped and before Reagan, taxes never decreased even when income tax rate were eventually lowered from 92% to 70% because the capital gains tax was increased to make up the loss. The only thing that changed was when Reagan decreased taxes for both income and capital gains but spending never stopped.

@jerv “but if we were near that point now then nobody would have ever invested during/before the Clinton years when tax rates were much higher.”

Taxes were not much higher under Clinton. Clinton increased the highest bracket to 40% but he lowered the capital gains tax bracket from 29 to 21 and tax cuts for 90% of the businesses. Also income and capital are not the only taxes. When you include state, property, sales, and any other taxes, then around 40% of your money has gone to the government.

Also, you have to remember that there are all sort of accounting tricks you can do to avoid paying these rates. As long as you can still use these tools, I don’t see a strong disincentive. Another thing is that you have global competition and you’re also looking at this from a subjective perspective. All people are different. Perhaps that extra 5k is the last straw for people and they will take their business else where and they do. Plenty of capital flight, off-shoring and outsourcing. There are countries with much better rates, less regulations and a freer economy.

@Jaxk On the one hand, true; I think 25% would be pushing it. On the other hand, it’s hard to see who benefited from incentizing investing, aside from investors.

@avaeve I see a few years where there were major military actions, so that has to be taken into account. Thanks for posting actual figures though.

Made a small mistake for 2007 spending. Its $2,728.7 trillion.

2008 – $2,982.5 trillion
2009 – $3,517.7 trillion
2010 – $3,456.2 trillion <<Slowed here

2011 – $3,603.1 trillion <<Picked up again here

What are the numbers when one adjusts for the ever-changing value of the dollar? Also, many things the government spends on depend on population; I think the US has a few more people than it did in 1949.

“Not much higher” dodges my point, so let me rephrase; people invested at 29%. They invested before Reagan.

As for Capital Flight, is it possible that the US cannot compete in a global free market economy, in part because we insist on doing things opposite of what works elsewhere; places with less wealth inequality, that treat their non-elite citizens better? That alone should clue you in that we screwed up somewhere.

@jerv “What are the numbers when one adjusts for the ever-changing value of the dollar?”

Numbers adjusted for inflation

@jerv “Also, many things the government spends on depend on population”

If the economy is good (if unemployment is low) then population doesn’t matter. We don’t have to spend so much.

@jerv “is it possible that the US cannot compete in a global free market economy, in part because we insist on doing things opposite of what works elsewhere;”

The U.S is competitive but there are some countries that have freer economies then we do. The top places where people from the U.S run to are Hong Kong, Singapore, Switzerland, New Zealand. Others go to Australia and Canada, but not necessarily to save as much (they have more business friendly regulations, trade/investment/financial freedom and some better tax policies)

People (the rich, entrepreneurs) leave because of cost from taxes, unions, energy costs, and regulations That is what I meant amount losing out to the competition.

Thank for that; the last few days, I’ve been so occupied with dimensions, G-codes, and other work-related things that I haven’t had much time or brainpower left for this discussion.

FOr your second point, unless unemployment is zero then it does. We have 50% more people here than we did when I was a kid. Add in underemployment because cost of living has outpaced wage increases for most of those who do work, never mind the fact that there are many more disabled/elderly people as well. I don’t see that. I see more working poor, more Baby Boomers getting old enough to get Social Security and Medicare; even if unemployment and poverty rates were the same as they were in 1950, and the dollar’s value was the same as it was then, we’d still be spending twice as much.

I also see regulation as being self-inflicted. If you don’t have a nasty history of causing harm to others by your actions, there generally will be no need nor desire to make regulations to govern your actions. Energy costs, well, that is what we get for being behind other parts of the world due to our love of oil. Regulations… some are ridiculous, but enough make sense that I take regulation on a mroe case-by-case basis than just saying, “regulation is bad!”. Drop a 400 pound casting on your foot at work, and you might actually appreciate government having OSHA tell you employer that you need to wear steel-toed boots. If nothing else, it cuts down on L&I costs. But if you don’t care about the human cost of stuff so long as the financial numbers add up, well, you and I have another ideological divide.