Generic "Economy" thread

[Jaguar]

This thread is about a few different economics topics. Here are the questions I would like to be answered/debated.

1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

[Dis]

technically we are not in a recession.

but it had to happen as the tech stocks were overvalued. they wern't worth that much. and that money was pissed away.

since the spanish-american war, wars have tended to boost the stock market as a whole. So I have to go with history on that one.

[Urban Ranger]

4. No. The interest rate is so low that cutting taxes will not have any effect at all. W. should increase government spending instead.

[Dis]

I agree a tax cut will not work. But increase goverment spending? I diagree. I say decrease spending and reduce the debt.

[Solly]

Some rushed answers.

1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

No too big a thing at the moment, might be if it doesn't get sorted out though - looks like doing with fall of dollar and weakness of American demand.

2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

Too much investment in "IT, "dotcom" or whatever you want to call it. Natural cycle. September 11th.

3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

Might boost the economy but spending the defence money eslewhere would have a greater impact. Effect on oil prices is an unknown.

4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

Tax cuts can have multiplier effects, but the evidence suggests the tax cuts have been not been towards the poor. The poor have higher income elasticities so the multiplier won't be as great as it could have been.

5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

No.

[Drogue]

Re: Generic "Economy" thread

Originally posted by Jaguar Warrior
1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

In the long-term, yes, in the short-term it deopends on the circumstances. Deficit spending can be good to pay your way out of a recession (new deal style, or something less ambitious) under the basic idea that more spending, either by consumers or the Government, will boost the economy. However it must be paid back later from taxpayers funds. Therefore having a long-term deficit is generally bad.

Originally posted by Jaguar Warrior
2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

Partly worldwide economic downturn, partly Septermber 11th, and mostly overpricing of shares (dot com/tech boom) and business cycle, as Bod's said.

Originally posted by Jaguar Warrior
3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

It will have an effect, probably short-term boost, due to higher spending, but a long-term problem since it has to be paid back, as much of the money spent on defense is wasted , as it is used up.

Originally posted by Jaguar Warrior
4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

Neither. It will possible help the economy *slightly*, but create a bigger defecit and lower government spending.

Originally posted by Jaguar Warrior
5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

Yes ( to Boddington)
It can work, but it won't, at least not in the near future in the UK. Although possibly something in between the two would be better, having higher taxes, better services, but not quite going as far as Sweden.

[Kropotkin]

What is a Sweden-style economy then? Some definitions, please...

Also, as a side note; the swedish relative decline in economic growth in many aspects ran alongside the american relative decline compared to leadning OECD-countries for the bulk of the post war period, until around 1990.

[DAVOUT]

A trade deficit is not a bad thing when it is financed by other income from abroad, such as dividends, interests on loans or invisible exports such as tourism.
You have to worry when the financing is made by borrowings or the proceeds of selling assets.

However, even if satisfactorily financed, on the long term a consistent trade deficit can results in a technological dependence which you have to worry about.

[DuncanK]

Originally posted by Dissident
I agree a tax cut will not work. But increase goverment spending? I diagree. I say decrease spending and reduce the debt.

Decreased spending is the last thing we need. That's like saying we need less consumer spending. They both create jobs the same way. And you certainly don't want to try and reduce the debt if there is any danger of going into a recession.

[DuncanK]

The trade deficit doesn't cause economic problems, but it is the result of economic problems. It exists because of the reluctance to hire Americans to produce the things they consume. Instead Americans are hired to do lower paying service jobs. If it weren't for these McJobs, we wouldn't have many jobs at all. Corperations give the better jobs to people in other countries, because they will accept less pay.

The trade deficit doesn't cause any financial problems because the corporations just suck that off of us in profits, interest and rents and have plenty left over.

[Main_Brain]

Keynes Followers.. everywhere ..

[DAVOUT]

Originally posted by DuncanK


The trade deficit doesn't cause any financial problems because the corporations just suck that off of us in profits, interest and rents and have plenty left over.

Only corporations importing goods are remotely concerned by this statement. It is absolutely acceptable that a developping country exporting high technology products prefers to import low tech product such as shoes, dresses, toys etc. If you want to be paid for your planes, your client must make some money on other items.

It must not be forgotten that the international trade results for each country in balances which are deficits or profits, and overall NIL, by definition. The only reason why the US trade deficit is so big is simply because the US can borrow without limit to foreign $ holders.

[DuncanK]

Originally posted by DAVOUT
The only reason why the US trade deficit is so big is simply because the US can borrow without limit to foreign $ holders.

Of course we borrow from foreign dollar holders. They end up with the dollars from their exports and need to invest it somewhere. The natural place is back to the US. It doesn't reduce the wealth here in the US though. The US keeps getting wealthier and wealthier every year. That's because of profits, interest and rents.

[DuncanK]

Originally posted by DAVOUT
Only corporations importing goods are remotely concerned by this statement. It is absolutely acceptable that a developping country exporting high technology products prefers to import low tech product such as shoes, dresses, toys etc. If you want to be paid for your planes, your client must make some money on other items.

The thing is that there is labor here in the US to produce those goods. If we could produce many of those goods ourselvs it would force the corporations to pay us more, and we would be better off. It's not advantageous for us to import these goods if the result is a smaller paycheck.

[Solly]

Oh please, carry on DuncanK.

You're second only to Laz.