Now since S&P has downgraded the US, I wonder what other spending reductions Congress will be considering this week.

A couple of Trillion perhaps?

(08-06-2011 09:32 AM)WMD Owl Wrote:  Now since S&P has downgraded the US, I wonder what other spending reductions Congress will be considering this week.

A couple of Trillion perhaps?

al short-termcuts...and additional short-term spending cuts will only worsen the current fragile economy. IMO, a great deal of the market and credit rating agency actions this week was due to the debacle of our dysfunctional government (and it's inability to compromise for the good of the country), which has given global markets absolutely no confidence that anything significant will get done going forward. Additional short-term spending cuts is NOT going to help the economy; in fact, it will almost assuredly hurt it. Rather, what is needed is stimulation and job creation.

One thing we absolutely cannot afford is more "stimulus" that produces results comparable to its predecessors.

We can't run up deficits the way we are now. There is no way to address pour long-term problem without short-term pain. There is no way within our current approach to avoid short-term damage without guaranteeing our long-term collapse.

The problem with stimulating demand is that the jobs it creates--retail and service--don't create much value and therefore cannot pay well. We're not going to create wealth by delivering Domino's to each other. We're not going to create wealth by selling Chinese TV's at Wal-Mart--except in China. China isn't the problem--we can't compete with China on low-margin consumer goods--but neither can Germany, and they're doing just fine. So let China sew up our Nikes and let's focus on the upper-end high-margin stuff where Germany is kicking our butts in the export markets. And if we don't get back into creating wealth, then how we distribute it really won't matter.

Before we can create wealth, we need to stimulate investment. We need real supply-side improvement--not willy-nilly tax cuts under the guise of "supply side." Ross Perot picked up on this 20 years ago, but those 20 years have come and gone without much progress. We're reaping exactly what he said we would.

Our economy is not coming out of the ditch until the budget is balanced--or at least much closer to being there. And if the way we choose to get there is increasing taxes on investment, we're done. Forever.

Sorry, but that's just not true. We need to make the real and significant deficit reduction now needed to balance the budget over the mid-term and long-term. The crisis in the deficit is not short-term and never has been. We do need to agree on a balanced plan; however, that guarantees $10T - $14T in spending cuts and revenue increases. The worst thing we can do right now is to implement spending cuts that will take effect over the next 12 - 18 months; doing so we destroy an already fragile economy.

(08-06-2011 10:46 AM)Owl 69/70/75 Wrote:  We can't run up deficits the way we are now. There is no way to address pour long-term problem without short-term pain. There is no way within our current approach to avoid short-term damage without guaranteeing our long-term collapse.

The problem with stimulating demand is that the jobs it creates--retail and service--don't create much value and therefore cannot pay well. We're not going to create wealth by delivering Domino's to each other. We're not going to create wealth by selling Chinese TV's at Wal-Mart--except in China. China isn't the problem--we can't compete with China on low-margin consumer goods--but neither can Germany, and they're doing just fine. So let China sew up our Nikes and let's focus on the upper-end high-margin stuff where Germany is kicking our butts in the export markets. And if we don't get back into creating wealth, then how we distribute it really won't matter.

Before we can create wealth, we need to stimulate investment. We need real supply-side improvement--not willy-nilly tax cuts under the guise of "supply side." Ross Perot picked up on this 20 years ago, but those 20 years have come and gone without much progress. We're reaping exactly what he said we would.

We are not coming out of this until the budget is balanced--or at least much closer to being there.

(08-06-2011 11:05 AM)waltgreenberg Wrote:  Sorry, but that's just not true. We need to make the real and significant deficit reduction now needed to balance the budget over the mid-term and long-term. The crisis in the deficit is not short-term and never has been. We do need to agree on a balanced plan; however, that guarantees $10T - $14T in spending cuts and revenue increases. The worst thing we can do right now is to implement spending cuts that will take effect over the next 12 - 18 months; doing so we destroy an already fragile economy.

(08-06-2011 10:46 AM)Owl 69/70/75 Wrote:  We can't run up deficits the way we are now. There is no way to address pour long-term problem without short-term pain. There is no way within our current approach to avoid short-term damage without guaranteeing our long-term collapse.
The problem with stimulating demand is that the jobs it creates--retail and service--don't create much value and therefore cannot pay well. We're not going to create wealth by delivering Domino's to each other. We're not going to create wealth by selling Chinese TV's at Wal-Mart--except in China. China isn't the problem--we can't compete with China on low-margin consumer goods--but neither can Germany, and they're doing just fine. So let China sew up our Nikes and let's focus on the upper-end high-margin stuff where Germany is kicking our butts in the export markets. And if we don't get back into creating wealth, then how we distribute it really won't matter.
Before we can create wealth, we need to stimulate investment. We need real supply-side improvement--not willy-nilly tax cuts under the guise of "supply side." Ross Perot picked up on this 20 years ago, but those 20 years have come and gone without much progress. We're reaping exactly what he said we would.
We are not coming out of this until the budget is balanced--or at least much closer to being there.

Walt, the point you're disagreeing with is not exactly the point I'm making. See post #113 above for my approach.

In response to your post, there is never going to be a good time to pull the plug on deficits, but if we never bite the bullet and do it, we're Argentina within one generation and Zimbabwe within two.

We do need spending to keep the economy going. Is it better for the government to spend money that it doesn't have, or to attract investors to spend money that they do have?

Hypothetical. Assume that I'm CEO of a multi-national (or an Arab oil skeikh, or whatever) with a new product for which there is worldwide demand and I want to spend $100 million to build a factory that will employ 5,000 people to manufacture the product. Why should I put that factory in the US? (I'm leaving this open-ended, so feel free to assume any facts you need, just don't stray from reality)

Follow-on, if you can't make a compelling case for the US, how do we get our economy back on track?

I consulted on plant-siting decisions for 20 years, and unless I am making a product strictly for the US market, I can't think of a reason why I would put that plant here.

Dare I resurrect this thread? I couldn't find anywhere else to put this, but thought it was intriguing reading. There is a definite bias/clear slant to the author (toward free markets), and I can't help but feel that things are getting glossed over way too easily (due to the relative shortness of the paper), but at the same time, it does summarize things at a least in understandable bites and allow for the generation of maybe some back and forth on some of the ideas.

http://www.libera.fi/wp-content/uploads/...-model.pdf

I have something else bouncing around my brain on corporate taxation that I may eventually throw out, for those smarter than me to possibly help sort out. But not ready yet, as I'm not sure if the hypothesis/theory even merits further discussion.

(10-31-2011 12:06 PM)gsloth Wrote:  Dare I resurrect this thread? I couldn't find anywhere else to put this, but thought it was intriguing reading. There is a definite bias/clear slant to the author (toward free markets), and I can't help but feel that things are getting glossed over way too easily (due to the relative shortness of the paper), but at the same time, it does summarize things at a least in understandable bites and allow for the generation of maybe some back and forth on some of the ideas.

http://www.libera.fi/wp-content/uploads/...-model.pdf

I have something else bouncing around my brain on corporate taxation that I may eventually throw out, for those smarter than me to possibly help sort out. But not ready yet, as I'm not sure if the hypothesis/theory even merits further discussion.

If Europe craters within the next two months (as many believe) and pulls the US down into another major recession, the D's and R's can blame each other until the cows come home and it still doesn't make a difference.

This is what's happening, more or less, all over Europe. 50-60 years ago, they tried what we are trying now--ever more comprehensive welfare state, funded by punitive taxes on large corporations and the "rich" (another term for the successful). At one point in, IIRC, the 70s, I saw an analysis which concluded that in Sweden the difference between being unemployed and making $100,000 was something like $500 when all taxes and all welfare programs were factored in. What happened, predictably, is that money bailed out, and with it opportunity. Europe went through a very depressing period, to the extent that such depression was the topic of a lot of both serious research and pop articles. After Reagan in the US and Maggie Thatcher in UK began to push in a different direction, Europe began to shift. Today they still have the welfare safety net, but it's paid for with tax structures that we would consider highly regressive. Income tax rate structures are flatter, top marginal rates are lower, investment income is generally treated more favorably than here, and most of the heavy lifting is on the backs of a national consumption tax (VAT, GST). The philosophy is that everyone benefits, so everyone should pay. And everybody does benefit. What's available to the poor is also available to Richard Branson.

This all came home to me when I was doing strategy consulting on where companies should build manufacturing plants. Time and again, tax considerations made Europe more favorable than the US. Given that Europe was paying for a welfare state, that seemed a remarkable result. So I began to try to figure out how they managed to do that, and what I describe above is what I found.

It's a model that I think we'd do well to take a serious look at.