Bush's deficits and the coming crunch.

[Kidlicious]

Originally posted by DanS
The tax cuts are important to keep because the marginal tax rates impact the willingness of people to work to a great degree.

Supply-side economics.

[Odin]

Originally posted by DanS

The tax cuts are important to keep because the marginal tax rates impact the willingness of people to work to a great degree.

J. M. Keynes is rolling is is grave.

[DanS]

This is based on the research that this year was awarded the Nobel Prize in economics.

And I don't much mind what Keynes is doing in his grave.

[Kidlicious]

A lot of people win that. Do you believe all their theories?

[Odin]

Originally posted by Kidicious
A lot of people win that. Do you believe all their theories?

Milton Freidman:

[Kidlicious]

DanS,

Let me ask you something about the research of the recent Nobel Prize winners.

Here's what I read about their theories .

Research by the laureates also transformed the theory of business cycles by integrating it with the theory of economic growth. Whereas earlier research had emphasized macroeconomic shocks on the demand side of the economy, Kydland and Prescott demonstrated that shocks on the supply side may have far-reaching effects.

In their business-cycle model, realistic fluctuations in the rate of technological development brought about a covariation between GDP (gross domestic product), consumption, investments and hours worked close to that observed in actual data. Previous business-cycle models had typically been based on historical relations between key macroeconomic variables.

But models that had functioned quite well during the 1960s began to break down under the more turbulent economic conditions of the 1970s, with oil-price shocks and concurrent inflation and unemployment.

Did they do there research on the behavior of businesses during the 70s? Because that doesn't show that hours worked will decrease when tax rates or inflation increases. Businesses behave differently than individuals.

Another thing is that it's one thing to show that businesses will produce less when costs increase. It's another thing to show that they will produce more when costs decrease, because supply is constrained by demand, and there's the factor of saturation.

[MRT144]

wait, so taxing the top 1% rich people makes them less likely to work? BULL****ING****!

[Lawrence of Arabia]

heres the only thing worth believeing on the supply side - tax cuts to those with high MPC and to those whose MPC> MPS are the only ones who will jump start the economy.

those with low MPC (aahhhem the rich) will have negligeble effect in the short run and heres why.

theres two types of rich people.
1. entrepreneurs/big business owners
2. big shareholders, and upper management

group numero uno will not hire more people during a recession because no one is buying, and their profits are flat or falling(see introductory micro). their tax cut will go either a) into a swiss bank account, b)into the stock market c) to buy that yacht d) campaign donation

a) might push interest rates down, except since the US is in such debt, its pocket change. even if the rates went down slightly, no one is investing because of no profits.
now you would think that if it went into the stock market, it would help other companies expand. well, you'd be wrong again. those owners do the same math, realize that people arnt buying now, and are not likely to buy in the second period, and they continue firing, and put the money away for later.
c) might employ a couple hundred employees, and might even increase hiring in luxery products. unfortunalty, there are more people being laid off at steel mills, at retailers, and at software companies, then are being hired by Yachts Ltd.

group 2 doesnt actually employ anyone, so it either goes to a) b) c) or d) with no chance of further hiring.

[chequita guevara]

Anyone who thinks that people won't work hard because of tax rates is either lying or stupid, and very possibly both.

[Lawrence of Arabia]

Anyone who thinks that people won't work hard because of tax rates is either lying or stupid, and very possibly both.

i have yet to see any data to that effect. perhaps they are correct, at the extremes (say if the tax rate was at 90% and all the sudden it dropped to 30%.) However, from 34% to 32%, it just doesnt seem likely.

[Ted Striker]

Keynes' wisdom is THE classic economic model that was 100% right at the time, I would hardly suggest "not caring" about it, DanS.

He argued that FDR wasn't spending ENOUGH to stimulate the economy. FDR's programs WORKED, but only in proportion to the amount of government spending that went out, which was alot but still not enough. Once REAL government stimulus kicked in (WW2 spending) the depression was over.

Keynes was also right about the nation having the capacity to cope with the increased demand due to the stimulus, factory work went from the 8 hour day to 3 shifts around the clock to meet the increased demand from government orders.

Alot has changed in 70 years, but he was 100% right about what was going on at the time.

But I don't think "tax cuts for the rich" were anywhere in his studies though.

I'd rathar have poor and middle class people spending that money on their immediate needs, such as food and clothes, and bills, not some rich bastard who is going to tie it up in an investment account where it goes to prop up some multi-million dollar CEO salary.

Poor Carly got fired and she is still getting a multimillion dollar severence package.

I'd like to see if any HP or Compaq workers got the same deal if they had gotten laid off.

[Lawrence of Arabia]

the problem with keynes is that G can only go so far, and there are very few ways to get G high enough to move the economy forward.

the more G, the more crowding out of the private sector, and the more you need to spend to cover that crowd out.

and then theres trade, which goes to hell since no one can afford your exports anymore, so everyone in the export sector gets fired.

research shows that if the federal bank had dropped the interest rates or increased the money supply, the whole depression could have been avoided/ cut short. i dont remember if they were still using gold at the time as a standard, but if they were, that woulda made it harder to decrease the value of money.

all the classic reasons for the great depression that you hear in classrooms across america are usually from the persepective of someone who hasnt studied economics. 'oversupply' 'stock market drop led to failure of banks.'

as all those banks closed and as less money was avaiable to the public, the government simply had to increase the supply in other banks to counteract this effect.

problem solved.

[Ted Striker]

Well in the case of G, during the Depression, when it was raised the first time, it did work. Unemployment fell, and the economy started getting better around 1936. But then FDR cut back G, in an effort to balance the budget. So the economy worsened again. Had he increased G spending, the economy would have been better more quickly, and there was plenty of room at the time to accomdate the increased G, as the private sector was so small there was plenty of room for lots and lots of increased G without any crowding effect. G was simply making up for the lost space that the private sector normally occupied.

He had scolded Hoover for not having a balanced budget, so he wanted it balanced as quickly as possible, and that's why he pulled back.

As far as seeing the effects of a monstrous G, that is illustrated by the outbreak of WW2, which not only rescued the economy, but took it to legendary heights and set the stage for economic prosperity that we have enjoyed for (most of) the last 70 years.

Keynes thought that TOO much G would shock the economy because it wouldn't have the capacity to deal with it, which was illustrated when there were 2nd and third shifts added to deal with the increased demand.

[Lawrence of Arabia]

Well in the case of G, during the Depression, when it was raised the first time, it did work. Unemployment fell, and the economy started getting better around 1936. But then FDR cut back G, in an effort to balance the budget. So the economy worsened again. Had he increased G spending, the economy would have been better more quickly, and there was plenty of room at the time to accomdate the increased G, as the private sector was so small there was plenty of room for lots and lots of increased G without any crowding effect. G was simply making up for the lost space that the private sector normally occupied.

and thats the problem - the economy didnt take off with G. FDR wasnt able to wean the country off of it after a couple of years. he needed a war which completely restrucuted the economy. all the unemployed went into the army, thus reducing unemployment and driving wages for those who stayed behind (women, older people) and massive orders in military supplies. in normal times you cant expect this to happen.

and i dont think that FDRs new deal lead to 70 years of prosperity. there is no way it had that effect.

[Ted Striker]

You are misreading. I said the economic boom from WW2 set the stage for the next 70 years, not specificallly because of what FDR did.


Secondly the economy DID recover because of increased G. It was when G was reduced, "weaning" as you would say, when things got worse again. This again was in an effort to balance the budget, which meant reduced spending, and a big slowdown of stimulus, which was not recovered from until foreign orders started to show up for WW2.