War

Cal · September 29, 2004

Originally posted by john doe@Sep 28 2004, 05:47 PM

John Doe---The soviet union fell apart because they had to spend so much of their resources on defense that there was nothing left to keep a consumer economy running. end of story.
And yet, the country that does not subscribe to your theories had a vibrant economy going, with more than enough left over to force the Soviets into submission, and to admit that their ideas do not work. A government taking from the rich and giving it to the poor does not work.
And just who were they trying to defend themselves from? It seems to me that their policies were much more aggressive and punitive to nonbelievers than the democratic movement was. I remember the "we will crush you" speech at the UN, do you?

john doe---what are you talking about????? "The country that does not subscribe to my theories?" You read my posts and think I am advocating communism? Interesting black and white universe you live in.

The fact that the soviet system was not a democracy and was totalitarian, and didn't follow our human rights and constitution is of little relevance to whether they had reason to fear OUR war machine.

What "forced" the Soviets into submission was the fact that they realized that they could no longer afford to keep up with our technical capacity to make war on them. Also, by the time the late '80's rolled around, it was probably apparent to them that we were probably not going to aggress on them the way SOME of our leaders had advocated back in the late '40's and '50's.

Jenda · September 29, 2004

Originally posted by Cal@Sep 29 2004, 03:50 PM
What "forced" the Soviets into submission was the fact that they realized that they could no longer afford to keep up with our technical capacity to make war on them. Also, by the time the late '80's rolled around, it was probably apparent to them that we were probably not going to aggress on them the way SOME of our leaders had advocated back in the late '40's and '50's.

Which SOME of our leaders advocated agressing on the Soviets back in the late 40's and 50's? So far, you haven't mentioned any names, despite having the question put to you before, except MacArther and Patton, who don't really qualify as "our leaders".

Cal · September 29, 2004

Originally posted by TheProudDuck@Sep 29 2004, 01:52 PM
Cal,
On your point about the rich and their investment potential. Your comment would have made sense if the rich DIDN'T have plenty of investment capital. The problem today is NOT lack of investment capital. It is UNEMPLOYMENT. What good is investment capitalization when people can't buy the good whose production you are INVESTING in. Under Clinton unemployment went down dramatically, improving consumer demand while the costs of production went down due to improved efficiency. That was a formula that WORKED.
It's not a "lack of investment capital" that causes problems during a recession. Money doesn't just disappear. It's the velocity of money that goes away. When they perceive a high-risk economic climate, investors move away from higher-yield, higher-risk investments like IPOs and ventures towards lower-growth, lower-yield ones like cash and Treasuries. The result is a decline in capital investment and productivity, which can depress the economy still further, create an even greater atmosphere of risk, and create a downward spiral.
Investors invest based on a ratio of risk to return. By lowering marginal tax rates, government can increase the real return on investment. All things being equal, this will tend to result in increased investment.
If unemployment is such a problem today at 5.5%, then President Clinton wasn't being honest when, campaigning for a second term in 1996, he touted the then-5.6% unemployment rate as a sign of a strong economy. As for your analysis of Clinton's economic "model" (i.e., supposedly increasing consumer purchasing power by decreasing unemployment), if you look at the statistics, neither factor moved all that dramatically. Consumer spending remained virtually constant throughout the 2001 recession, and accordingly wasn't a substantial factor in either the recession or the recovery.
As you correctly pointed out, the key to the (fleeting) spike in prosperity halfway through Clinton's second term was increased worker productivity. Which measures proposed and enacted by President Clinton to you credit with causing that increase?
This is something of a strawman argument on your part--I am not advocating that the wealthy forego all of its wealth. I don't think that that is what Keysians advocate anyway.
No, it's not. I didn't say they did, or that you are. What I'm saying is that you are focusing exclusively on consumer spending as the key to recovering from recessions, and ignoring the importance of investment. That's the Keynesian fallacy.
I do think you have misinterpreted the causes of the problems with the economy of the 1920's. It was not JUST that consumers had too little to spend, which WAS true, but that the equity markets had too LITTLE control on trading practices.
The stock market crash was caused by speculation in an overheated, unsupervised market. But markets have crashed regularly throughout American history, and while they caused recessions, it took some spectacularly stupid government interventions to create the full-blown, decade-long Depression. Start with Hoover's tax increase, add old Utah Senator Smoot's tariff (which also helped give us Hitler, thank you very much), include the SEC's regulations (some of which were needed, and others of which discouraged investment altogether), combined with the anti-business atmosphere of the 1930s, and you turned a garden-variety recession into a national calamity that, but for the resilience of American institutions, could have left us a socialist or fascist state, as happened in other countries.
By the way--Reagan had his opportunity to demonstrate the effectiveness of "supply-side" economics. It didn't work any better than what you characterize as "Keynsian economics.
Take a look at economic indicators from the 1970s and compare them with those from the 1980s, and explain to me what you're talking about.
Part of the supply-side argument is that there comes a point when increased tax rates do not produce increased revenue. The clearest example of this would be to take things to extremes -- say, a 50% tax rate vs. a 100% tax rate. Under a linear model, a 100% tax rate would result in twice as much tax revenue as a 50% tax rate. But that's absurd; nobody would work for free. Instead of a 100% increase, the result of a doubling of tax rates from 50% to 100% would likely be that no taxes were collected at all.
The tricky part is finding the optimum point where marginal tax increases start discouraging economic activity enough to result in fewer tax revenues. I think it's probably around 33%. Certainly the 70% marginal tax rates that President Reagan eliminated were past that point.
Re: outsourcing -- see the following. Bottom line, it's a hugely exaggerated issue.
http://www.nytimes.com/2004/09/29/opinion/.../29drezner.html

I do not overlook the importance of capital investment as a stimulus to the economy. Of course there has to be capital investment and risk taking, and environment in which that can take place. I think what we are disagreeing on is how to make that happen. Perhaps I am reading too much into your position by infering that if you had your way, you would remove all but a token tax on the wealthy, so as to maximize the investment environment. If so, then we are not too far apart. But, there is more to the welfare of the country than just capital growth and productivity. We need to, yes, stimulate the economy by putting money in the hands of consumers, through low unemployment and reasonable wages. But, we also need to be able to address the needs of the poor and the less fortunate.

Getting off the subject a little.......

I know Snow thinks that every one who doesn't claw his way to the top, is a lazy good-for-nothing that doesn't deserve any help from uncle Sam. I look at it from a difference perspective. First, not all the poor "will" themselves into poverty. Many have never had the educational or cultural "vision" to even start making progress. Secondly, the government programs that have helped people get a "vision" of education and upward mobility, have been universally opposed by the Repubs and promoted almost entirely by democrats---ex. Upward Bound, pre-school programs, government loans for college ed. Interesting that the LDS church helps the poor and needy, and yet the Federal government shouldn't?

Oh.. that's right, the Fed. let's people get away with doing nothing but collect welfare, with nothing done in return. Well, that is mostly myth. The fact is, no one is getting rich off welfare, and most people that ARE on it, are on it for relatively short periods of time. The chronic welfare collectors are the exception, not the rule.

By the way, it was the Clinton administration that did ANYTHING at all in decades to reform welfare.

By the way, it is my recollection that the SEC didn't exist during the 1920's. ( I am willing to be corrected on that) That was part of the problem. I do agree that Hoover didn't have a clue how to handle the depression. Taking money out of the hands of consumers was the absolute wrong thing to do. The proof is in the pudding as to what it took to pull us out of the that depression. None of the pro-business tactics worked, except one---put money in the hands of the consumer. That worked.

As to taxation, you have raised the argument of the extreme. I don't advocate such drastic taxation. I just think the Repubs favor a scheme that distributes more wealth into the hands of the wealthy than is necessary, and tends to slow the economy because of less spending power in the hands of the middle and low class.

As to Reaganomics, you seem to think that Reagan solved our economic problems--if you will recall, inflation continued, at a lesser rate, but still high; interest rates stayed high, government spending went totally wild, unemployment was still a bit high and the real spending power of the middle class went to hades, and the poor got poorer. That is not what I call progress.

Under Clinton, unemployment went down, interest rates went down, real income went up drastically, the percentage below the poverty line went down, crime went down---I DO call that progress.

September 30, 2004

Cal,

No, the SEC didn't exist during the 1920s. It was instituted during the 1930s. But some aspects of securities regulation did help perpetuate the Depression, just as the new Sarbanes-Oxley regulations (a hasty response to the stock-manipulation scandals that took place during the late 1990s) also impose costs that probably outweigh their benefits.

The liberal mythology is that Hoover brooded mid' darkest night, then Roosevelt came and lo! all was light. Didn't happen that way. Some economists argue that the more controlling parts of the New Deal extended the Depression longer than it should have lasted. World War II took care of the unemployment problem by drafting everybody and getting half a million men killed. Brutal, but true. Unemployment spiked again in 1946 when the men started coming home, and the economy went into recession from the end of war spending. Fortunately, though, the distortions of the 1930s had been worked out of the system, and we went back to a normal business cycle.

Again, you can't look at the 1940s recovery merely in light of consumer spending. True, war workers were getting plenty of money. But so was industry. The government put war contracts on a cost-plus basis, which allowed them to make boatloads of money to use for postwar investments. Then, there was the advantage American industry got when its European competitors basically got bombed into powder. We enjoyed a ten-year run of having the field virtually to ourselves, and exported ourselves silly.

Perhaps I am reading too much into your position by infering that if you had your way, you would remove all but a token tax on the wealthy, so as to maximize the investment environment.

That's reading quite a bit into my position. I think progressive taxation is a sound idea, within reason. Obviously, a wealthy person can absorb a bigger tax bite than a poor person can. Which is why the rich pay the vast majority of income taxes, and have for a long time.

The problem I have is that it's become impossible to enact any kind of tax relief for the upper brackets -- even if tax breaks for the lower brackets are included which make the tax code even more progressive than it was, as the Bush tax cuts did. (It's true -- even though the largest absolute amount of tax relief went to the upper brackets who pay the most taxes, the lower brackets got proportionately larger breaks.) When the upper tax breaks get lowered at all, the Democrats have every incentive to demagogue the issue, accusing their opponents of favoring the wealthy.

In other words, Democrats will attack any reduction on upper-bracket tax rates, even when the economic situation suggests this should be done to make sure both consumer spending and investment revive.

Another problem is that when you increase the progressivity of the tax code too much, you make it unstable. The reasons for this are obvious, once you think about it. Lower-income people pay relatively little income tax. In fact, many low-income people actually get money back from the IRS because of the earned-income tax credit. Their incomes, in addition, don't fluctuate much between good times and bad (unless they lose their jobs, but the number of additional unemployed even in a relatively severe recession is still small compared to the whole).

High-income people, on the other hand, tend not to have fixed wages that don't fluctuate much based on the economic climate. Really rich people make their money from businesses they own or from investments. The result is that in poor economic times, their income tends to shrink dramatically proportionate to their income peaks. (Not that it matters; they typically have plenty of reserves to keep spending.) The problem with this for the tax collector is that we tax income, not consumption, and so when rich people are able to post relatively low incomes, tax collections plunge. The more the budget depends on these unstable incomes, the more susceptible it is to massive deficits when recessions happen.

That's one reason I favor a consumption-based tax (with a large personal exemption so that people can pay for basic necessities pre-tax, and so that progressivity is preserved.)

Snow · September 30, 2004

Originally posted by Cal@Sep 28 2004, 07:42 AM

We seem to be arguing a point upon which we will never agree: Who should carry the greater tax burden, the rich, poor or middle class. I say the rich, as you correctly point out they do now. I never said they didn't. I just say that they should continue to do so, and Bush's efforts at changing that are misguided.

Why must you dishonestly misrepresent the situation. There is no Bush attempt to make anyone other than the highest earners carry the largest burden. Bush may be attempting to make the burden less disporportionate but not as you suggest to make it so they don't pay the lion's share.

Cal · September 30, 2004

Originally posted by TheProudDuck@Sep 29 2004, 07:01 PM
Cal,
No, the SEC didn't exist during the 1920s. It was instituted during the 1930s. But some aspects of securities regulation did help perpetuate the Depression, just as the new Sarbanes-Oxley regulations (a hasty response to the stock-manipulation scandals that took place during the late 1990s) also impose costs that probably outweigh their benefits.
The liberal mythology is that Hoover brooded mid' darkest night, then Roosevelt came and lo! all was light. Didn't happen that way. Some economists argue that the more controlling parts of the New Deal extended the Depression longer than it should have lasted. World War II took care of the unemployment problem by drafting everybody and getting half a million men killed. Brutal, but true. Unemployment spiked again in 1946 when the men started coming home, and the economy went into recession from the end of war spending. Fortunately, though, the distortions of the 1930s had been worked out of the system, and we went back to a normal business cycle.
Again, you can't look at the 1940s recovery merely in light of consumer spending. True, war workers were getting plenty of money. But so was industry. The government put war contracts on a cost-plus basis, which allowed them to make boatloads of money to use for postwar investments. Then, there was the advantage American industry got when its European competitors basically got bombed into powder. We enjoyed a ten-year run of having the field virtually to ourselves, and exported ourselves silly.
Perhaps I am reading too much into your position by infering that if you had your way, you would remove all but a token tax on the wealthy, so as to maximize the investment environment.
That's reading quite a bit into my position. I think progressive taxation is a sound idea, within reason. Obviously, a wealthy person can absorb a bigger tax bite than a poor person can. Which is why the rich pay the vast majority of income taxes, and have for a long time.
The problem I have is that it's become impossible to enact any kind of tax relief for the upper brackets -- even if tax breaks for the lower brackets are included which make the tax code even more progressive than it was, as the Bush tax cuts did. (It's true -- even though the largest absolute amount of tax relief went to the upper brackets who pay the most taxes, the lower brackets got proportionately larger breaks.) When the upper tax breaks get lowered at all, the Democrats have every incentive to demagogue the issue, accusing their opponents of favoring the wealthy.
In other words, Democrats will attack any reduction on upper-bracket tax rates, even when the economic situation suggests this should be done to make sure both consumer spending and investment revive.
Another problem is that when you increase the progressivity of the tax code too much, you make it unstable. The reasons for this are obvious, once you think about it. Lower-income people pay relatively little income tax. In fact, many low-income people actually get money back from the IRS because of the earned-income tax credit. Their incomes, in addition, don't fluctuate much between good times and bad (unless they lose their jobs, but the number of additional unemployed even in a relatively severe recession is still small compared to the whole).
High-income people, on the other hand, tend not to have fixed wages that don't fluctuate much based on the economic climate. Really rich people make their money from businesses they own or from investments. The result is that in poor economic times, their income tends to shrink dramatically proportionate to their income peaks. (Not that it matters; they typically have plenty of reserves to keep spending.) The problem with this for the tax collector is that we tax income, not consumption, and so when rich people are able to post relatively low incomes, tax collections plunge. The more the budget depends on these unstable incomes, the more susceptible it is to massive deficits when recessions happen.
That's one reason I favor a consumption-based tax (with a large personal exemption so that people can pay for basic necessities pre-tax, and so that progressivity is preserved.)

One thing I hate about Sarbanes-Oxley is the attempt to dilute the Attorney-Client priviledge, and confidentiality rules of attorney ethics. Totally misguided attempt, IMHO. There is a much bigger picture to consider than just curbing securities violations--Att priv. needs to be protected at all costs.( We'll maybe not ALL cost, but at a cost higher than what the SEC is going to get by breaching ATT-Client rules.) The IRS is already starting to dilute the priviledge, I quess everybody else might as well jump on the band wagon! I suspect you agree.

I'm glad you agree improved consumer spending contributed to the economic recovery of the '40's. I will give you that government stimulus to big business may have also helped. We may not be so far apart after all. :)

Cal · September 30, 2004

Originally posted by Snow+Sep 29 2004, 09:50 PM--></span><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Snow @ Sep 29 2004, 09:50 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin--Cal@Sep 28 2004, 07:42 AM

We seem to be arguing a point upon which we will never agree: Who should carry the greater tax burden, the rich, poor or middle class. I say the rich, as you correctly point out they do now. I never said they didn't. I just say that they should continue to do so, and Bush's efforts at changing that are misguided.

Why must you dishonestly misrepresent the situation. There is no Bush attempt to make anyone other than the highest earners carry the largest burden. Bush may be attempting to make the burden less disporportionate but not as you suggest to make it so they don't pay the lion's share.

Snow--you have a penchant for trying to make big points out of nothing. Obviously Bush is not going to actually be able to change things THAT drastically--as I said he is trying to lighted the burden on the rich, and in my opinion WOULD do as much as he could to lessen the burden on the rich. Whether he would actually succeed in making the middle class carry the MAJORITY of the burden is not the point. Bush wants to make the middle and lower classes carrry a lot more---best example is Federal Estate Tax Exemption. Bush actually favors doing away with the Federal Estate Tax altogether.

Snow · October 1, 2004

Originally posted by Cal@Sep 29 2004, 04:05 AM

I do think you have misinterpreted the causes of the problems with the economy of the 1920's. It was not JUST that consumers had too little to spend, which WAS true, but that the equity markets had too LITTLE control on trading practices. Why do you think the SEC regulations came into effect in 1933 and 1934?

Coincidently I am studying this very topic this week. The crash and depression hatched out of complex set of circumstances. I am sure we all agree that it was much more than lack of public confidence and lack of control on trading practices...

-Corruption was rife on Wall Street with Joseph Kennedy, Ivar Kreuger (the Swedish match king) and Samuel Insull leading the way. Later the crook Kennedy became the first head of the SEC on the idea that he would know all the tricks and deceptions the corrupt money brokers would try to get away with.

-Not unlike the recent scandal, much of the wealth in the stock market was simply vastly inflated "paper money." As an example, after the crash Insull's pyramid of holding companies fell apart and declined in value 96% - to what it was really worth.

-The paper wealth masked the economic rot in America... struggling farmers, factory worker unemployee, declining housing starts, etc.

-Production intesified but demand was falling and warehouses filled up.

-The worlds wealth was concentrated in the hands of small group of elites, many of whom really had gotten their wealth as Cal thinks - the Morgans, Rockafellers, Vanderbilts, Fords, etc.

-Not enough of the wealth was trickling down from the elite top to allow the masses to consume the production that was piling up in warehouses.

-Not understanding the insidiuos dynamics of the stock market, Americans, "drawn like moths to a flame" took their life savings and poured them into stocks and securities.

-The easy going rules of the day allowed investors to only put in 10% of the investment in cash, the other 90% coming from credit.

-The Federal Reserve fed the monster with artificially low interest rates because of old line Republicans beholden to their industry pals.

-In Sept of 29 the market was reaching its peak but the key industries of steel and auto production were in decline.

-Nervous European investors began to withdraw their money.

-Therefore brokers need cash and called on credit investors to pay off their credit.

-Investors began selling their stocks to raise the needed cash to pay off their credit.

-A wave of panic ensued as investors feared losing everything.

-As prices fell, brokers called on investors to pay more of the credit margins causing more sell-offs, lowering prices, repeating and exasserbating the cycle.

And so on and so forth.

The Stock Market Crash on Black Thursday and Black Tuesday did not cause the depression but it was syptomatic of the economy's underlying disease.

Snow · October 1, 2004

Originally posted by Cal@Sep 30 2004, 04:01 PM

Snow--you have a penchant for trying to make big points out of nothing. Obviously Bush is not going to actually be able to change things THAT drastically--as I said he is trying to lighted the burden on the rich, and in my opinion WOULD do as much as he could to lessen the burden on the rich.

But you didn't say that. You said that the rich carry the burden and Bush was going to change that. I don't believe that you are merely careless with your verbiage, your argument depends upon misrepresenting the situation. If you simply said that Bush wants the top 5 percent or earners to pay 50% of the burden instead of the current 53.3% then no one would listen to you, so you twist what is going on to make your case.

Cal · October 1, 2004

Originally posted by Snow+Sep 30 2004, 06:22 PM--></span><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Snow @ Sep 30 2004, 06:22 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin--Cal@Sep 29 2004, 04:05 AM

I do think you have misinterpreted the causes of the problems with the economy of the 1920's. It was not JUST that consumers had too little to spend, which WAS true, but that the equity markets had too LITTLE control on trading practices. Why do you think the SEC regulations came into effect in 1933 and 1934?