Nobel winners attack Bush economics

[KrazyHorse]

And looking for high stock prices as an easier means to political points than a healthily functioning economy isn't a fault I'm ascribing solely to Republicans...

[DanS]

Haven't you heard? Joe sixpack is a shareholder now.

[KrazyHorse]

Not yet, Dan.

And the fact that he's closer to being one than 10 years ago was part of what I was thinking about when discussing overcapitalization...

[KrazyHorse]

You can't deny that the poorer segments of society derive more income through labour and the richer segments derive more income through capital investment, right?

[DanS]

Not yet? I think it's something like 55% now. At least in the US.

[KrazyHorse]

See above post.

[KrazyHorse]

How many of those 55% would benefit more from the wage increases deriving from, say, a half-point drop in unemployment than they would from a 9% increase in the value of their portfolio?

[DanS]

and the richer segments derive more income through capital investment, right?

Actually, in the US it's not quite so marked. Definitely different than in Europe.

[KrazyHorse]

Really don't know about the differences across the seas, Dan. Just know how things work here.

Now, remember that in terms of this discussion stock options &c. are covered more appropriately by capital investment than by labour...

[DanS]

How many of those 55% would benefit more from the wage increases deriving from, say, a half-point drop in unemployment than they would from a 9% increase in the value of their portfolio?

The drop in unemployment is a short-term phenomenon. The 9% increase is a long-term effect discounted to the present. So you're talking apples and oranges.

Edit: to see how the 9% price increase is derived, keep in mind that corporate earnings growth tracks economic growth. So plop in a .5% increase in your earnings into your discounted cash flow model et voila, the value is 9% more.

[DuncanK]

Originally posted by DanS
How many of those 55% would benefit more from the wage increases deriving from, say, a half-point drop in unemployment than they would from a 9% increase in the value of their portfolio?

The drop in unemployment is a short-term phenomenon. The 9% increase is a long-term effect discounted to the present. So you're talking apples and oranges.

Edit: to see how the 9% price increase is derived, keep in mind that corporate earnings growth tracks economic growth. So plop in a .5% increase in your earnings into your discounted cash flow model et voila, the value is 9% more.

But the government and the Fed haven't done much to stimulate wage growth in the long run. Wage growth doesn't have to be a short run goal. The thing is when you keep upward presure on wages you get good benefits.

[David Floyd]

Look, I don't give a flying **** if cutting/eliminating capital gains taxes, inheritence taxes, and things of like help the economy or hurt it. The point is, those taxes are inherently unfair, because they are double taxation. Granted, all taxation is unherently unfair, but double taxation is even worse. Couldn't care less what economists say about it, I only care what's right - and getting rid of these taxes is one thing I applaud Bush for.

[el freako]

Maybe this plan is cleverer than it looks...

Well sorry to be contrarian but I think that the US is desperately in need of more saving and less consumption.

Long-term GDP growth is very closely related to the growth in the capital stock, and the growth of the capital stock is closely related to net investment (that's total investment less depreciation).

On average the trend rate of growth in GDP has been 0.5% higher than the growth in the capital stock (for the period 1986-2001, and the gap fluctuated very little with a high of 0.9% in 1991 and a low of 0.3% in 1989).

The capital stock (which grew at 2.9% between 1995 and 2000) rose by 2.5% in 2001 and by only 1.9% last year.
Even if investment were to boom (rising at 7.5% a year as it did during 1996-2000) then the growth in the capital stock would only stabilize at around 2.5% (equating to a potential GDP growth rate of 3%)
If investment follows the path most forecastes expect it to (2% rise this year followed by 5%-6% thereafter) then capital stock growth with gradually fall to 1.5% (equating to potential growth in GDP of only 2% a year)

But another trouble is that the US is not saving anything like enough to finance this much needed investment, indeed it isn't even saving enough to meet the low investments it's currently making.
The difference between what a country saves and what it invests is equivalent to the current account balance, last year that was nearly half a trillion dollars.
If the US only invested what it was saving then the capital stock would only be rising at around 0.5% a year (equivalent to a potential growth rate of only 1% a year!, which would mean no growth at all in average incomes).
As such it can be stated that the US depends upon foreign financing to deliver all of the rise in it's living standards!

With the dollar falling (partly as a result of the world investment community realizing that the returns to be made in the US are not as great as was previously thought) sustaining that near half trillion dollars of imported capital will be difficult so US savings have to rise substantially or the US will see the same collapse in it's sustainable growth rate that Japan has done over the last decade.


Yes, this might mean some pain, and yes it may fall disporportionately on the backs of the poor - but the alternative to some pain now is stagnation.

[Boris Godunov]

Originally posted by David Floyd
Granted, all taxation is unherently unfair,

Bull**** and you know it.

[KrazyHorse]

You know, the motto was "no taxation without representation", but I get the feeling Floyd thinks you should be able to opt out of the representation part in order to get the no taxation bit.