Bush Job Creation Promises Failing to Deliver

[dainbramage20]

You can't fuel consumer spending with McJobs and Contingent Temp work.

This economy is doomed. As wages continue to fall, consumer spending falls (unless morons continue raking up twice of there salary in debt). A terrible cycle of Recession,Bankruptcy, Inflation, Deflation, and anarchy will appear. Then, maybe then, we can start all over.

You know why henry ford paid his workers as much as he did? Remember his famous words, cause businesses have forgot

"Why wouldnt I? I want them to be able to afford one ; isnt that the point?"

[Kidlicious]

Originally posted by Lord Merciless
Unemployment rate in 2004 is actually pretty low by any standard, although you can say the actual rate could be much higher, but then why shouldn't it be the case in the past, too? The statics are always created the same way.

Time is the factor. If the unemployed don't get jobs soon they aren't counted anymore.

Originally posted by Lord Merciless
Remember back in early 90s, there were also lots of talks about lack of jobs and etc... The democrats received a throurough trouncing in the mid-term election of 1994. It wasn't really until 1995 when the job finally market heated up, and much of that job growth was due to the expansion of high-tech industries.

This time, we may not a get big job rush until some significant catalysts kick in. Last time, they were the semiconductor, internet, telecom, and software. What will be the hot topics this time?

We have to keep our head above water for now, until that happens. We don't want the economy to drag. That causes permanent damage.

[Whoha]

Originally posted by Vanguard
Oh, please. The Laugh-er Curve? A brave little cocktail napkin it was but, alas, soon torn to shreads by the shrill harpy of empirical evidence.

Well, at least you said "at the high end". I don't think there is any good evidence to support that claim, but if the Laffer Curve is true at all, it will obviously have most of its effect at the highest marginal rates (because it is a 'curve'). Anyway, it seems more likely to be true. So I'll grant it as a hypothesis.

But even with this hypothesis, there is no reason to think that higher tax avoidance means that you should borrow money instead of taxing it. Why should it? All that higher tax avoidance does is slightly increase the costs of collecting taxes. That's bad, of course. But not neccessarily worse than the alternative.

After all, people only lend the government money because they are paid to do so. And borrowing more money increases the amount you have to pay, at a gradually increasing rate.

So, while there may be a Laffer curve working at some level of taxation, there is also a curve in the costs of borrowing money. As you borrow more money you move up the curve, reducing, to some unknown degree, the advantage of keeping tax rates lower.

One of these curves might be better than the other, or a mix of the two might be optimal. But since we have no idea where we are on either curve, there doesn't seem to be any economic reason to prefer one to the other.

What makes you think that everyone we are running trade deficits with isn't getting tax revenue out the ass from all the money we are pumping into the system. Its all going somewhere, and apparently not into the US economy.

[Ned]

Originally posted by Vanguard
Let's go back to first principles on the Laffer Curve.

I think it is easy to demonstrate that the Laffer Curve is dependent upon both income and tax rate levels. The "rich" may be on one side of the curve while the middle class may be on the other. Not breaking the tax revenue differences out by income class says nothing about the Laffer Curve, particularly since the bulk of our tax rate changes are directed to the middle class.

[Ned]

Originally posted by Lord Merciless
Unemployment rate in 2004 is actually pretty low by any standard, although you can say the actual rate could be much higher, but then why shouldn't it be the case in the past, too? The statics are always created the same way.

Remember back in early 90s, there were also lots of talks about lack of jobs and etc... The democrats received a throurough trouncing in the mid-term election of 1994. It wasn't really until 1995 when the job finally market heated up, and much of that job growth was due to the expansion of high-tech industries.

This time, we may not a get big job rush until some significant catalysts kick in. Last time, they were the semiconductor, internet, telecom, and software. What will be the hot topics this time?

HDTV?

[Vanguard]

Only if the rates are above the certain point between 0% and 100% where raising taxes leads to less revenue. The Laffer Curve isn't wrong because of history, rather the perception of where we were on the curve itself is wrong.

Yes, but the Laffer Curve doesn't mean anything unless you are above that point. The only thing the Laffer Curve predicts is that you can increase tax collections by lowering rates, if your average rates are above a certain level. There is no other information content to the theory.

Once you have established that you are not at a point in the curve where reducing rates increases tax reciepts (and apparently no major economy in the world is), then the Laffer Curve does not tell you anything else. It does not tell you that you should borrow money instead of taxing. It does not tell you that lowering taxes is good. It does not tell you who the next winner of the Kentucky Derby will be.

Since the only use for the Laffer Curve is to tell you to lower rates when they are at a point where they will never, ever be, the theory itself is useless. In predicts nothing and cannot be used to support any other argument. It is functionally meaningless.

The main confusion generated by the Laffer curve is the belief that it predicts that high tax rates do not generate much revenue, due to tax avoidance.

This is wrong. The Laffer Curve does not predict this. It postulates it. In other words, before you can draw the Laffer Curve you must first make the assumption that progressively higher tax rates result in progressively more tax avoidance.

At first this seems like a fair assumption. Increasing tax rates certainly seem to increase the motivation to avoid taxes. But unfortunately there there is a critical difference between motive and opportunity. Just because there is increased incentive to avoid taxes at high rates it does not mean that increased tax avoidance will actually result.

Consider a couple of examples. First, let's suppose that there was no IRS at all and no penalties for tax evasion. Everybody simply calculates their own tax and sends the government a check each April 15.

In this universe, what average tax rate would result in tax reciepts decreasing? Well, it would obviously be pretty damn low. How many people are going to pay the full tax rate when there are no penalties for non-compliance? How many people would even pay taxes at all? Very few, I would wager. And therefore the critical point in the Laffer Curve is very low, let's say, a 1% tax rate.

Now consider the other extreme, a world where all transactions are tracked by computer and compliance is ruthlessly enforced. Where is the Laffer point here? Presumably it is very high, let's say a 90% tax rate.

This is a very, very different prediction than the 1% point for the other world. How much does it mean to say "the Laffer Curve actually works at the high end" when the "curve" could be anywhere on the chart? Not very much. Nothing really.

Unless you have fairly reliable data about how hard it is to avoid taxation, the Laffer Curve is useless. And such data is impossible to get. How do you measure people who are cheating on their taxes? Once the IRS knows you are evading on your taxes, it stops you. The only successful tax cheats are the ones we don't know about. So how can we measure them?

Given this fact, the Laffer Curve tells us nothing useful, except that there may be some tax rate that results in less revenue than a lower rate would.

[Sava]

The EPI (Economic Policy Institute), puts the ACTUAL unemployment rate at 7.4%.

[Lord Merciless]

Originally posted by dainbramage20
You can't fuel consumer spending with McJobs and Contingent Temp work.

This economy is doomed. As wages continue to fall, consumer spending falls (unless morons continue raking up twice of there salary in debt). A terrible cycle of Recession,Bankruptcy, Inflation, Deflation, and anarchy will appear. Then, maybe then, we can start all over.

You know why henry ford paid his workers as much as he did? Remember his famous words, cause businesses have forgot

"Why wouldnt I? I want them to be able to afford one ; isnt that the point?"

Never underestimate the power of American entrepreneurial spirit. We were in much worse situations before (the 90/91 recession was far worse than the current one), and everytime we came out stronger than before.

[Lord Merciless]

Originally posted by Sava
The EPI (Economic Policy Institute), puts the ACTUAL unemployment rate at 7.4%.

7-8% is where I think unemployment rate should lie. Many people, like me, lost their jobs and went back to school. I haven't claimed a single penny of unemployment benefits since being laid off in september 2002. Since then, I have made my living by doing part-time research for my college.

[Kidlicious]

Originally posted by Ned


HDTV?

I really don't think so. HDTVs just replace regular TVs. So it really doesn't act as a stimulus. Computers and internet were different, because they were completely new.

[Kidlicious]

Originally posted by Lord Merciless


7-8% is where I think unemployment rate should lie. Many people, like me, lost their jobs and went back to school. I haven't claimed a single penny of unemployment benefits since being laid off in september 2002. Since then, I have made my living by doing part-time research for my college.

It's probably about 10% actually and even higher if you count people like yourself, who would rather be working full time at a job that they feel they could get under full employment conditions.

[MrBaggins]

Originally posted by DanS
Baggins: That indeed is what the article says. I would like to see how that was derived. The article doesn't give much context.

/me laughs...

Slow reader, huh DanS? There wasn't much context, but I thought the fact that this was a federal bank, rather than a liberal group, studying wealth distribution and coming up with these figures was fascinating.

---

I noticed a somewhat fascinating article on CNN, relating to this whole business. The opinion of the industry insiders is that bonds are becoming increasingly poor value, and this will drive down demand for bonds, which will, in turn, drive up bond rates, which, in turn makes them more costly for government, diminishing their value.

This suggests that there isn't an infinite supply of capital to keep buying bonds, in the real system, as some have suggested, but the returns and desire to further invest in bonds diminishes as the deficit grows, and interest rates are forced up...

anyway... heres the article.

Fed on hold, but bond buyers beware

Central bank unlikely to raise rates soon; some analysts warning bonds may be too pricey.
March 12, 2004: 1:00 PM EST
By Mark Gongloff, CNN/Money staff writer

NEW YORK (CNN/Money) - Federal Reserve policy-makers are unlikely to move on monetary policy at their meeting next week, giving interest rates room to stay low and bond prices room to stay high.

But some analysts say Treasury bond investors ought to start gathering their coats -- the party may be over soon.

The central bank's policy-makers are scheduled to meet Tuesday to discuss the economy and their target for the federal funds rate, an overnight bank lending rate that influences many prime lending rates.

The Fed lowers its target when it wants to encourage borrowing and stimulate the economy. It raises the target when it wants to tap the economy's brakes and fend off inflation.

Few economists expect the Fed will change its target for the fed funds rate from 1 percent, the lowest level in more than 40 years.

Many economists also believe the Fed will leave unchanged the two-paragraph statement announcing its decision, which analysts scrutinize for clues about Fed expectations for economic growth, inflation and future policy moves.

"With few signs that consumer prices are about to break to the upside ... along with signs that aggregate demand remains robust, we expect the Fed will not only vote to keep rates constant, but will leave the growth and inflation bias statements unchanged," Lehman Brothers chief economist Ethan Harris wrote in a note to clients Friday.

The Fed busily slashed rates in 2001, fighting a recession and terror attacks, and added one cut a year in 2002 and 2003 when the economy was still not as robust as policy-makers had hoped.

The super-low fed funds rate has helped keep longer-term rates low, assisted by the sluggish job market and low inflation, despite several quarters of strong economic growth.

Expectations that the job market would recover, and inflation would start to pick up, sent investors running into stocks last fall and winter, hurting bond prices. Since bond prices and yields move in opposite directions, the yield on the 10-year Treasury note jumped to about 4.6 percent in September.

Since then, however, the Labor Department has released several reports of weaker-than-expected job growth, and consumer price inflation has been dead in the water, despite a weakening dollar and higher commodity prices.

Friday morning, the yield on the 10-year Treasury note was back down to about 3.71 percent, matching its level a year ago when investors were snapping up bonds ahead of the U.S.-led war with Iraq.

Investors love Treasury bonds as a safe place to park their money, especially in times of uncertainty, but signs of economic strength will send them fleeing since inflation erodes the value of the investments.

Meanwhile, economists now say the Fed won't start raising rates until after the November election, with some saying it won't until next year, meaning a jump in longer-term rates could be delayed for quite some time.

"Even with significant employment gains, the central bank wants to see more inflation and pricing power. The fall election is another hurdle," said Sung Won Sohn, chief economist at Wells Fargo. " No hike in the interest rate is likely in 2004."

Until last week's much weaker-than-expected jobs report, some analysts thought the central bank would start raising short-term rates this summer.

Time to get out of bonds?

Still, there's no reason for bond traders to get complacent, analysts say. The first report of solid job growth -- whenever that will be -- could send Treasury bonds tumbling, pushing long-term rates higher, even if the Fed doesn't move on short-term rates right away.

And if you happen to believe in buying low and selling high, this is not exactly an ideal time to buy bonds. With yields not much above the record lows set in mid-2003, how much lower can they go?

"If one buys bonds now, one has to expect the possibility of a capital loss over the next six months," said former Fed Governor Lyle Gramley, now a consulting economist with Schwab Washington Research. "I don't worry about prices collapsing or spiking up, but 3.75 percent is an historically low [10-year note yield]."

What's more, the consensus forecast for a prolonged period of low inflation and low rates has some factors working against it:

The dollar continues to fall, putting upward pressure on inflation and interest rates

Big federal budget deficits mean the government has to borrow more, increasing the supply of bonds, which hurts prices and tends to push bond market interest rates higher

Prices for commodities, imports and many consumer services are rising -- all of which could translate into gains in consumer price inflation

"This is the way inflation gains a toe hold," Robert Brusca, chief economist at Fact and Opinion Economics in New York, said on Thursday. "The chance to buy bonds is past us," he added. "It is now time to sell them ... if you haven't already."

In the short run, however, bond prices could be kept afloat by a number of traders engaging in strategies such as the "carry trade," or borrowing money at cheap short-term rates and then buying longer-term bonds that yield more.

As long as the Fed keeps the overnight rate super-low, the carry trade and strategies like it are safe and should keep demand for bonds relatively high.

What's more, foreign central banks have pumped billions of dollars into the bond market in a bid to keep the dollar strong against their own currencies.

Analysts have prematurely declared the end of the bond rally several times in recent years, but it won't keep going forever.

"For a trader, there are still [short-term] opportunities, but if I were a longer-term investor, I would not want to be holding bonds," said Joseph Shatz, fixed-income strategist at Merrill Lynch.

[Lawrence of Arabia]

That basic economic principle is the Law of Diminishing Utility. I'm suprised to see you apply it to income. I thought you were a libertarian. Of maybe you are. You don't care about utility.

yea, im a libertarian, but im an econ major, and im not going to ignore economic reality. if im going to base my open market and free market arguments on economic principles, then i will anchor my taxation arguments on the same

next point, libertarians dont believe in anti trust laws, or government issued currency or the fed reserve. i believe in all of these, because they facilitate economics and make sure that competitions exists.

as for using it as a utilitarian argument, id say im not. im just saying that increasing taxes on the wealthy will not lead to a decrease in tax revenues in a closed system. now of course, there will be leakage due to tax loopholes (which we should close) etc, but in general higher taxes means more revenue. (duh) now, that doesnt mean im for higher taxes, im just stating a fact.

finally, for those who say tax cuts for rich will stimulate the economy (ala trickle down economics) i will i say to a small extent yes, but mostly no. why? because again, it ignores economic principles and assumes that the consumption curve ends at a point (which is ridiculous)

[Kidlicious]

Originally posted by Lawrence of Arabia
as for using it as a utilitarian argument, id say im not. im just saying that increasing taxes on the wealthy will not lead to a decrease in tax revenues in a closed system. now of course, there will be leakage due to tax loopholes (which we should close) etc, but in general higher taxes means more revenue. (duh) now, that doesnt mean im for higher taxes, im just stating a fact.

I guess I was just suprise to see that you believe that each dollar that we recieve benefits us less and less. Are you concerned with maximizing utility? Most economists are.

[Lawrence of Arabia]

I guess I was just suprise to see that you believe that each dollar that we recieve benefits us less and less. Are you concerned with maximizing utility? Most economists are.

i think in most cases, yea. or if not actual maximization, allowing the chance for each person to maximize.