PeakTrader.com

[administrator]

PeakTrader:

[On the shale oil boom]

Some Americans benefit from employment, wages, and royalties. However, U.S. consumers will pay for the high oil prices in production and high gasoline prices.

U.S. consumers will also pay, through higher prices, lower income, and less employment, for more overregulation in an overregulated economy, higher tax rates, less government spending (to reduce federal deficits), falling net imports, and when interest on the national debt rises to the normal historical level of 5%, the federal government will pay $1 trillion a year just for interest.

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And, over the past five years, the economy, in general, has been stagnant, because the U.S. has underproduced by $1 trillion a year, which is output lost forever.

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Moreover, demographics aren’t in our favor, like 1980, when the 80 million Baby Boomers were beginning to enter “prime-age” (i.e. their most productive years).

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Ron:

Nonsense. That’s production that may come later than your model predicted because the real economy hasn’t obediently followed the trend-line you drew on your chart, because you mistake Fed induced bubbles for real growth.

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PeakTrader:

Ron, does that mean you’ll do two years of college in one year for laying around the house last year?

Asset bubbles induce demand. Employing some idle resources, or taking some slack out of excess capacity, isn’t inflationary. Therefore, real growth increases.

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Steven Hales, it depends on the series for cointegration. I think, there've been three major structural breaks recently.

1. Unlike 1980, household and government saving are low and debt are high. There isn’t a wall of saving to flow into the economy to spur economic growth.

2. Peak Oil is a constraint on economic growth. If growth accelerates, rising oil prices will slow growth.

3. Demographics have resulted in more retirements and disabilities, resulting in a shrinking workforce. However, it should’ve been a slow process, over 20 years, rather than the accelerated process we’ve had over the past few years.

These three major factors not only affect U.S. economic growth, they also affects global growth in the U.S.-centric world.

Although monetary policy has been most effective, fiscal policy has generally been weak, ineffective, or counterproductive, along with very expensive.

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Monetary policy has spurred spending and borrowing, and created a wealth effect in financial markets to stimulate the economy. The Fed created money out of thin air. When economic growth picks-up, the Fed can tighten the money supply to slow growth.

Fiscal policy has taxed and borrowed money from the private sector and foreigners to stimulate the economy. There’s a major crowding-out effect. When output and employment increases, tax revenue can rise and government spending can fall to slow growth.

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A $5,000 tax cut per worker in 2009 (or $750 billion for the 150 million workers at the time) would’ve done much more good than harm in the economy.

The tax cut would’ve paid-down household debt, cleared the market of excess goods & services, strengthened the banking system, and closed the output gap, raising output and employment. Government would’ve collected more in taxes and spent less in benefits, and the Fed would’ve tightened the money supply, as a virtuous cycle of consumption-employment took hold. The big negative is the price of oil would’ve rose towards $200 a barrel.

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We could’ve achieved a V-shaped recovery, long ago, if we gave every worker a $5,000 tax cut (or $750 billion for the 150 million workers at the time) and opened the floodgates for fossil fuel production at the beginning of Obama’s first term.

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We’ve been in a deep and long depression, and yet oil prices are high. It’s an ongoing oil shock. Chart:

http://gailtheactuary.files.wordpress.com/2012/02/world-oil-supply-and-brent-oil-price.png

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Ron, it’s ridiculous to assume there aren’t massive idle resources and the Fed isn’t a positive force on economic growth.

Moreover, I stated before, asset booms and busts aren’t important. What’s important is sustainable growth of goods & services.

One way of looking at excess capacity is the over 20 million Americans who are unemployed and underemployed and want to work.

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I guess, you miss the pre-Fed good old days when there were big economic booms followed by big recessions and depressions, and when per capita real income growth was much slower.

Perhaps, you believe raising interest rates for households and firms to boost saving, and reduce spending and borrowing, along with depressing net worth in 401(k)s, IRAs, and equity in houses, would cause consumption, investment, and employment.

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Also, I may add, the real minimum wage has declined over the past few decades. It has a very small effect on economic growth.

The (positive) income effect may be stronger than the (negative) employment effect, particularly in this economy where profits and income disparities are at all-time highs relative to the minimum wage.

Homeowners cannot use their homes as ATMs like before.

Over the past 25 years, corporate profits rose from 7% of GDP (output = GDP = income) to 13% today, fewer and fewer top income earners captured more and more of the income gains, and over this depression, the top 1% of income earners captured over 90% of the income gains.

So, it’s no wonder consumption, which is 70% of GDP, has been anemic.

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So? GDP is also at a record high. Are you implying we’ve had an economic boom over the past five years?

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Only the top 20% may not be able to pull this economy out of depression. Chart:

http://www.washingtonpost.com/blogs/wonkblog/files/2013/03/median-income.png

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This depression. Chart:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

For whatever reason, including little net worth, unemployment, lower paying jobs, and little saving, the bottom 80% are consuming not much beyond autonomous consumption. So, why would you expect strong consumption growth and therefore strong GDP growth?

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Walt, the top 1% lost big in 2009 and gained big in 2010:

“The top 1% had a rough Great Recession. They absorbed 50% of the income losses, and their share of income dropped from 23.5% to 18.1% percent… “The top 1% captured 93% of the income gains in the first year of recovery.”

For most households, their wealth is in real estate…But for rich households, their wealth is in financial assets, and those assets are recovering much more quickly.”

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http://www.aei-ideas.org/2013/05/how-shale-gas-and-oil-have-generated-middle-class-prosperity/#comments

http://www.aei-ideas.org/2013/05/thomas-sowell-on-the-political-obsession-with-homeownerhip/#comments

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PeakTrader:

I suspect, a minmum wage sales tax would be small, e.g. 0.5%. It could be distributed cheaply as a tax credit, each year.

Perhaps, people don’t want to work almost for free. So, they’ll more likely take low-paying jobs with the tax credit. Also, they’ll work harder for the tax credit. Moreover, they’ll have more income to spend, e.g. with a $5,000 tax credit each year, particularly given they have the highest marginal propensities to consume.

Higher productivity, lower profits, and less income for top management may compensate for the higher sales tax. So, consumers may not pay more. And if capital equipment replaces labor, then labor is freed-up to expand the economy, although there’s already abundant labor.

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Also, you can be one the of the best in the field you’re good at, and be paid much less than someone else, who is paid much more in another field that he’s good at.

So, income taxes should be progressive. The question should be about tax rates.

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[In response]

If people are desperate enough, they’ll work for less than $5 an hour. Sure, what good is a $5,000 check to someone making less than $5 an hour.

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As Ron buys his new $25 baseball cap, along with $5 for a cup of beer and $4 for a hotdog, at the stadium to watch his million dollar a year baseball players, after he stated to his economics instructor “market failure” is an oxymoron, and wondering why he hasn’t passed econ 101 yet, he’ll tell you how the top firefighter, earning $150,000 a year, is just an overpaid government bureaucrat and should be paying a much higher tax rate than any of the baseball players.

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http://www.aei-ideas.org/2013/05/don-boudreaux-on-income-inequality-and-the-minimum-wage/#comments

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