Warren Buffet speaks common sense; alarms most Republicans

[Felch]

We're not talking about ratios, we're talking about total number of dollars.

[Ben Kenobi]

Inflation, however, has been substantially below average since 2008, and inflation expectations (as measured by the difference in the rate of return on normal US bonds, and the US bonds whose returns are indexed to inflation) are also below average.

Actually I agree with you but for a different reason. Monetary policy has seen a substantial curtailment of loans and lending and money supply and availability has substantially decreased.

The inflation rate is quite a bit higher than published (since they changed the formula in the Clinton era), but it's also mostly the product of all the dollar printing. There's no real economic underlying basis for it.

[Ben Kenobi]

Ah, ok. Sorry then, carry on.

[Jaguar]

Paul Krugman has a talent for explaining economics to laypeople, and this story, which he popularized many years ago, describes what happens to economies during recessions, including the our current recession.

http://www.slate.com/id/1937/

The Sweeneys tell the story of--you guessed it--a baby-sitting co-op, one to which they belonged in the early 1970s. Such co-ops are quite common: A group of people (in this case about 150 young couples with congressional connections) agrees to baby-sit for one another, obviating the need for cash payments to adolescents. It's a mutually beneficial arrangement: A couple that already has children around may find that watching another couple's kids for an evening is not that much of an additional burden, certainly compared with the benefit of receiving the same service some other evening. But there must be a system for making sure each couple does its fair share.

The Capitol Hill co-op adopted one fairly natural solution. It issued scrip--pieces of paper equivalent to one hour of baby-sitting time. Baby sitters would receive the appropriate number of coupons directly from the baby sittees. This made the system self-enforcing: Over time, each couple would automatically do as much baby-sitting as it received in return. As long as the people were reliable--and these young professionals certainly were--what could go wrong?
Well, it turned out that there was a small technical problem. Think about the coupon holdings of a typical couple. During periods when it had few occasions to go out, a couple would probably try to build up a reserve--then run that reserve down when the occasions arose. There would be an averaging out of these demands. One couple would be going out when another was staying at home. But since many couples would be holding reserves of coupons at any given time, the co-op needed to have a fairly large amount of scrip in circulation.
Now what happened in the Sweeneys' co-op was that, for complicated reasons involving the collection and use of dues (paid in scrip), the number of coupons in circulation became quite low. As a result, most couples were anxious to add to their reserves by baby-sitting, reluctant to run them down by going out. But one couple's decision to go out was another's chance to baby-sit; so it became difficult to earn coupons. Knowing this, couples became even more reluctant to use their reserves except on special occasions, reducing baby-sitting opportunities still further.
In short, the co-op had fallen into a recession.

Krugman's insight comes from John Maynard Keynes, but I credit him with popularizing this excellent analogy. The babysitting co-op had too few scrips, and the lack of those pieces of paper led to real losses in welfare. We have too few dollars in circulation, leading to the same problem. Kuciwalker is entirely correct that we need more money in circulation.

[Ben Kenobi]

Kuciwalker is entirely correct that we need more money in circulation.

I'm not sure that the current credit contraction is avoidable. You can print more, but to what end? Right now the US is at 98 percent debt to GDP ratio. You'll hit the ceiling likely at the end of the year where more borrowing by the state to get more money to the public will end up costing the state more in debt payments.

The only longterm solution is to take the hit now. Stop printing the dollar, cut spending, cut borrowing. Interest rates need to raise to around 5 percent again.

[giblets]

3 million jobs a months is irrelevant? If you include the Feds, that's 6 million a month.

Texas is creating jobs at a rate of 36 million a year? Wow, that's larger than the population of Texas! I guess Mexicans like to work ten different jobs at once or something.

[Ben Kenobi]

Texas is creating jobs at a rate of 36 million a year? Wow, that's larger than the population of Texas! I guess Mexicans like to work ten different jobs at once or something.

Gribbler can't do math. Edit, that's 3 million a year for the US. TX creates about 250k jobs a year alone, which is about half of the US's half a million. It works out to a rate of about 1 percent of the population in a year. For the US as a whole, that would be 1 percent of 300 million, which is 3 million, back of the envelope calculation.

That's about twice the annual population growth. Because most of the US sucks at creating jobs, every year, sees another 1 million unemployed, with job creation of only 500k a year.

[giblets]

Gribbler can't do math. Edit, that's 3 million a year for the US. TX creates about 250k jobs a year alone, which is about half of the US's half a million.

Are you saying 3 million is equal to half a million?

edit:

Gribbler can't do math. Edit, that's 3 million a year for the US. TX creates about 250k jobs a year alone, which is about half of the US's half a million. It works out to a rate of about 1 percent of the population in a year. For the US as a whole, that would be 1 percent of 300 million, which is 3 million, back of the envelope calculation.

That's about twice the annual population growth. Because most of the US sucks at creating jobs, every year, sees another 1 million unemployed, with job creation of only 500k a year.

Yes, maybe we should eliminate legal barriers to immigration so the rest of the country can employ lots of immigrants for less than minimum wage just like Texas. Then we would see an improvement in the "job creation" statistic.

[Ben Kenobi]

Uh, no. Are you having problems with reading comprehension?

TX now = 250k

US now = 500k

TX pop = 25 million

Jobs created / pop = 0.01 jobs/person in the last year in TX.

Pop of US = 300 million.

300 million x 0.01 = 3 million.

Ergo, if the US as a whole created jobs like TX does they would create 3 million jobs a year instead of 500k a year like they do now.

Maybe I need pictures...

[giblets]

Uh, no. Are you having problems with reading comprehension?

TX now = 250k

US now = 500k

TX pop = 25 million

Jobs created / pop = 0.01 jobs/person in the last year in TX.

Pop of US = 300 million.

300 million x 0.01 = 3 million.

Ergo, if the US as a whole created jobs like TX does they would create 3 million jobs a year instead of 500k a year like they do now.

Maybe I need pictures...

How did you get "If you include the Feds, that's 6 million a month." out of that?

3 million jobs a months is irrelevant? If you include the Feds, that's 6 million a month.

[Ben Kenobi]

Feds are a larger part of the tax burden. If the Feds were to go to consumption taxes only that would boost TX higher than it is, and by extension the rest of the country.

Yes, maybe we should eliminate legal barriers to immigration so the rest of the country can employ lots of immigrants for less than minimum wage just like Texas. Then we would see an improvement in the "job creation" statistic.

Which is why CA does so well?

At present the US needs to create 1.4 million jobs a year just to keep up with the population growth. If they only create 500k, than workforce participation rates inorexably drop. Which is what we've been seeing.

The US doesn't really have a choice. They have to do what TX is doing if they want to turn the ship around.

[giblets]

Yep, better seek to emulate Texas and not one of the 25 states that currently have lower unemployment rates.

[Ben Kenobi]

Funny, how 25 states have better unemployment numbers but only 20 have better workforce participation. Odd that. Apparently you can be unemployed and yet not count as 'unemployed'.

North Dak - 72.3
Nebraska - 71.1
Minnesota - 71.9
South Dak - 70.9
Iowa - 70.9
Vermont - 70.6
New Hamp - 69.5
Kansas - 69.3
Alaska - 69.2
Wyoming - 69.1
Wisconsin - 68.7
Virginia - 68.5
Colorado - 67.9
Connect - 67.8
Rhode I - 66.8
Maryland - 66.7
Utah - 66.5
Illinois - 66.0
D of C - 65.9
Texas - 65.6

Historically, the Northeast has always had the highest workforce participation. Certain midwestern states are holding on too. TX is the best of all the southern states, save VA, but I'd wager that VA + MD + DC is what puts them up there.

[KrazyHorse]

Finance != economics. Full stop.

What makes you think tech people in banks understand finance?

[notyoueither]

The government can achieve precisely the same end by just printing dollars and then giving them to people. The "tax Warren Buffet" step is completely unnecessary and irrelevant.

How's that working out with the US's Chinese creditors?