PeakTrader.com

[administrator]

PeakTrader:

Another illusion is taxing the rich without a real economic recovery will reduce budget deficits, substantially.

A real recovery is needed to get the economy off government life-support, and into full employment, which will reduce budget deficits.

Then, tax rates can be raised to slow the expansion to a sustainable rate.

******

Methinks, economics isn’t simple. Yet, our understanding improved substantially, including at the macro level, in the 20th century.

Also, the Fed has been attempting to spur spending and borrowing with low interest rates. We learned from the Great Depression (and mathematical models) that tightening the money supply (e.g. to maintain a gold standard) causes people to save (see Paradox of Thrift). Moreover, higher interest rates will dampen “animal spirits” (of households and firms) resulting in both slower nominal and real growth.

******

I see the blame Bush mentality is still strong.

Yes, defense budgets as a percentage of GDP were relatively low under Bush, who won two of the most decisive wars in history (defense budgets hit a low under Clinton, after Reagan won the Cold War).

Also, budget deficits normally increase in recessions, e.g. 2001, and by 2007, the budget deficit shrunk to $161 billion.

Moreover, entitlement spending helped Bush win a close election in 2004.

******

Larry, if U.S. real GDP was $1 trillion higher in 2012, how much of that, if any, should go to defense spending?

******

Ron, the U.S. toppled the Iraq government in a few days (or was it a few hours), and sent Saddam, and his two sons, to Allah. Also, the Taliban was toppled quickly and fled to Pakistan.

Basically, other countries got involved to create civil wars in both countries. So, we decided to defend the new governments.

------

http://www.aei-ideas.org/2012/11/amazing-illusion/#comments

------

PeakTrader:

House Speaker John Boehner’s War on Taxes & Big Government (which is really containment) makes sense, because when taxes go up, then spending can go up, or at least remain high.

The economy, unlike the last years of the 18-year bull market in the late ’90s, is too weak for higher taxes, particularly, in this unnecessary deep depression (where the economy underproduces by $1 trillion a year).

A depression brought upon by maintaining, expanding, and increasing excessive regulations; a massive and inefficient two-year federal spending spree (where the federal government now spends $1 trillion a year more than in 2007); and tax cuts that were too small and too slow to jolt the economy into a virtuous cycle of consumption-employment.

In this depression, states like California, raised their taxes, fees, fines, fares, tolls, etc., while maintaining, expanding, and increasing their own excessive regulations (so, California has the highest poverty rate, by far, along with over a 10% unemployment rate).

------

http://www.aei-ideas.org/2012/11/wednesday-afternoon-links-4/#comments

------

Here’s what Bob Brinker said about the Fed (Dec 2012):

“It’s only because the Federal Reserve has been active that we have any growth at all in the economy….The Federal Reserve is the only operation in Washington doing its job.

The only person that would criticize Ben Bernanke would be a person who is so clueless about monetary policy and (the) role of the Federal Reserve as to have nothing better than the lowest possible of education on the subject of economics….Anybody going after Ben Bernanke is a certified, documented fool….”

ESTATE TAXES

“There are so many tax increases on the table right now, it’s hard to keep track…Estate Taxes…$5,120,000 per person.. But that exemption drops to $1 million on New Year’s Day, and the rate above $1 million per person goes to 55%.”

http://honeysbobbrinkerbeehivebuzz3.blogspot.com/2012/12/december-2-2012.html

------

PeakTrader:

Politicians will accelerate the cost of living with expensive and inefficient economic policies.

Before the Fed, over a hundred years ago, we had deflationary growth with inefficient boom/bust cycles and a large uneven wealth distribution.

Today, the destructive economic policies of politicians more than offset the huge benefit of much smoother business cycles.

We didn’t have to borrow massive amounts of money to maintain or raise our living standards over a hundred years ago.

And with so much redistribution of wealth by government, we still have a large uneven wealth distribution.

I suspect, the masses are suffering much more than the rich in Europe.

------

A better equation or measure of the CPI:

Inflation Index Fix Could Cut Federal Deficit
National Public Radio
December 14, 2012

HORSLEY: These part-time government shoppers compare the same basket of goods and services every month to see which prices have gone up and which have gone down, and they crunch those numbers together to get the Consumer Price Index.
The only problem, say critics, is that’s not how consumers actually shop.

MARC GOLDWEIN: If the price of turkey goes up and I buy more ham, or the price of oranges go up and so I buy more apples, that’s not accounted in the current price index. It thinks I continue to buy those oranges, no matter how expensive they get.

HORSLEY: Marc Goldwein wants to adjust the inflation measure so instead of comparing the same basket month after month, analysts would make substitutions, just the way real shoppers do. Goldwein stresses he’s not talking about customers who reluctantly switch to an inferior product.

GOLDWEIN: It’s not as if people are always going from steak down to chicken. Sometimes people are going from chicken to steak.

HORSLEY: The federal government actually already calculates this alternative measure of inflation. It’s called chained CPI. And over the last decade, it’s typically shown prices rising a little more slowly than the regular consumer price index – about a quarter to a third of a percent slower each year. That might not sound like much but over time it adds up.

If the government switched to chained CPI for cost of living adjustments, Social Security payments and other benefits would grow more slowly. And tax revenue would go up because parts of the tax code are also indexed to inflation.

Goldwein, who worked for the Simpson-Bowles commission, estimates the switch would shave more than $200 billion off the deficit over the next decade. Because most of the savings would come in later years, it wouldn’t be an immediate drag on the economy.

GOLDWEIN: Given that the economy is still weak, we don’t want massive amounts of deficit reduction right now. That’s the whole reason we’re avoiding the fiscal cliff. It’s too much deficit reduction too fast. The chained CPI sort of is the best of all worlds, because it gives you a very credible way to reduce future deficits but with barely any effect in the short term.

------

PeakTrader:

Of course, the CPI is a general price level. When an actual economic recovery is underway, taxes can be raised to slow the expansion to a sustainable rate, which will help reduce federal deficits quickly.

------