The more the merrier says I.
Sometimes, debates can’t progress until attempt at wicked humor is honestly tried. Satire can be a tool to undress arguments and show its absurdity in all its naked glory. Maybe I’m sadistic in that regard.
ETA: Btw, I’m jealous of your better username elucidator. To “ruminate” only tries to shine the light inward, but to “elucidate” shines it outward to open everyone’s eyes.
I suppose pointing out facts that you find inconvenient is considered sneering in your world, but I made a point and Hellestal accepted it. Reasonable people can continue the discussion from there, so naturally there is no reason for you to continue to chime in.
Provisionally accepting DtC’s thesis that all government is social engineering, the follow up question becomes: what is the goal of this social engineering? This is actually the fundamental point at which I differ with most of the posters of these boards. Beyond a certain floor, a societal safety net to ensure that those unwilling or unable or unlucky enough not to succeed at all don’t starve to death in the streets, all societal engineering undertaken by government should be in the service of ensuring an equality of opportunity for everybody, and most definitely NOT in any way shape or form to attempt to dictate an equality of outcome. Advocating a tax cut for the middle class because “the marginal utility of an extra dollar is going to be higher for someone with less money, so the lives of more people can be more significantly improved with cuts geared toward the lower ends of the tax bracket.” is most definitely the later. Now if that is your goal, fine, that’s your goal, you want to provide another entitlement for the middle class. Great, I’m middle class, I can use it. But let’s call a spade a spade here, to advance this as effective economic policy for jump starting the economy is nonsense. The middle quintile of taxpayers pay only 5% of income taxes*. (Hell, the bottom 90% only pay 30% of income taxes, those rich folks are robbing us blind! Who do they think they are, paying 70% of the income taxes collected each year?). Claiming that tax cuts that effect only 5% of the tax base are going to be a big economic benefit to the economy as a whole is ludicrous. If the objective is to get money flowing through the economy again, than your plan better somehow, some way, induce the people that have the money to use it for something. The alternative, borrowing money and then giving it away hoping that somehow that helps, is stupid.
*all figures are using 2008 IRS percentages
Who’s trying to guarantee an equality of outconme? You’re arguing against a strawman?
I can’t contribute much to this conversation, as much of it is over my head. But, I have a question. According to the St. Louis Fed, the M1 money multiplier is now lower than 1.0. Does this mean what you said above is happening? Are additional dollars actually having the effect of slowing the exchange of money?
source: M1 Money Multiplier (DISCONTINUED) (MULT) | FRED | St. Louis Fed
The biggest argument against infrastructure spending as a stimulus is simply that you can not get the money into play fast enough for it to make a difference. These days, infrastructure building is a S-L-O-W process. Even the projects that are already approved and could be started immediately still have to be put out to tender - a process that typically takes months. Then once a company wins the bid it has to finish up projects it is currently doing and transfer resources to the new job. And this is assuming that all the up-front analysis, requirements, approvals, environmental studies, and other regulatory and engineering tasks have been met.
I’ve been looking for estimates on this, and it seems to me that there’s no way reasonable infrastructure projects could consume more than 200 billion within 12 months, and even that is pushing things. And many of these projects could take years to complete.
And with an accelerated approval process and an accelerated bid/tender process, any bets that these projects will eventually come in grossly over budget and over time? And that there won’t be enough oversight to prevent fraud and abuse?
But there are many, many other problems with trying to stimulate the economy with infrastructure. One is that you wind up with a more inefficient infrastructure afterwards, because the focus was on speed of implementation and political power rather than on what really needs to be done. This happened to Japan with its massive infrastructure ‘stimulus’ (which did not fix their recession, btw).
Yet another problem is the distortionary effect such a large injection of work will have on the economy. You’re not going to be able to staff all these projects from the ranks of the unemployed, because the kinds of people who need to do these jobs in any given area could easily be in short supply. You might have 15% unemployment in a geographic region and still not be able to come up with the number of mechanical insulators or certified steelworkers needed to do the job. And if you try to hire non-union workers for such jobs, I’m sure the Steelworkers of America and other unions will scream bloody murder.
Then there’s the Davis-Bacon act, which requires that all public works projects pay ‘prevailing’ wages, which generally means union wages. You’re not going to hire these workers for minimum wage, which means these jobs are going to be particularly expensive. Instead of putting one million workers to work at minimum wage, you’ll be putting 200,000 to work at $20/hr.
This act also means that the public works projects will often be the best-paying jobs in a region, which could easily have the result of pulling experienced workers from existing jobs where they are productive and enticing them into public works jobs. Then when the job is over, these workers will have no place to go, because the companies they used to work for will have either hired replacements or have gone out of business.
The majority of people who have lost their jobs are not $20/hr workers, but lower-paid service workers without the kinds of skills needed for these projects. Are you going to put unskilled workers into skilled trades and double their salaries in the process, in the name of a ‘stimulus’?
Injecting a trillion dollars worth of new work into the economy will change capital flows, reward some businesses and hurt others, cause shortages of materials and subsequent price spikes, etc (what will the price of steel and concrete do with a huge influx of construction jobs into the market?)
A ‘stimulus’ like this reminds of attempts to ‘manage’ ecosystems by injecting new predators or controlling populations in an attempt to be smarter than nature. It almost always has unintended consequences. It’s the height of hubris for a few hundred people in Washington to think they can push around a 20 trillion dollar economy and tweak and tune it with injections of capital. They don’t have the foggiest notion of what they are doing or what the unintended consequences of their monkeying will be.
If you want to stimulate the economy, you’d be better off just cutting business and payroll taxes (as Obama seems to be moving more towards), and letting the market sort out what to do. That, plus selected infrastructure spending for projects that are already set to go and were going to be started anyway in the next year or two is all that should be done.
Well Diogenes the Cynic, you’re an SDMB veteran with 34,000+ posts so I assume you already know all the related ideology around “equality of outcome.” I guess you’re just hitting Weirddave with the Socratic method of questioning? (Also btw, Weirddave didn’t use the word “guarantee” in his post.)
In any case, the following statements from Hellestal talk about a more progressive tax than the progressive taxation we already have now:
*“favor middle class tax cuts over cuts for the wealthy”
“There are strong arguments to be made that the marginal rates for the wealthiest should be increased after the economy recovers.”
*
When “progressive tax” concepts are pushed, it’s usually related to “equality of outcomes.”
When other concepts such as discrimination laws, public schooling, etc are pushed, it’s usually related to “equality of opportunity.”
Yes, yes, one could argue that there is some overlap between the 2 but that’s a commonly accepted way of breaking down the categories.
Equality of outcome is not a goal of the graduated tax. That’s a strawman. Neither is equality of opportunity, forthat matter. The goal is an equitable distribution of the burden.
God that’s depressing.
Anyway: the Fed increases the monetary base by a 100 dollars. How? It buys a 100 buck Treasury note from a bank and wires 100 shiny dollars in exchange. The bank has 100 dollars in new reserves. The Fed created that 100 from nothing, because it has the power to do so. And then the bank takes that 100 new dollars and does stuff with it. Maybe gives the CEO a bonus, maybe pays its electricity bills, whatever.
In normal times, the bank would loan out a bunch of those dollars. This would create new money. Loans create new money. So let’s say that the bank loans out 90 bucks of the 100. People would eventually bring that 90 back to the bank. The bank would then lend out 90% of that 90. People would bring that back. The bank would loan it out again. Etc. In the end, the bank would create a lot of new money from the Fed’s initial creation of 100. If the M1 multiplier is 3.0, then the Fed wiring 100 new dollars to a bank would eventually create 300 dollars in checking accounts and cash because of banks loaning money and people bringing it back.
Right now, the multiplier is under 1.0. This means that out of those 100 shiny new wired dollars, only 95 or so of those dollars would wind up in the M1 money supply, checking accounts and cash, the places where it can be spent on new stuff. Everything else got swallowed. All that potential for new money just disappeared. This is just… unreal.
You’ve pretty much just said the same thing as the wiki page:
“This usually means equalizing income and/or total wealth to a certain degree.”
“A progressive taxation system is likely to increase equality of outcome, and so is a welfare state.”
To me, “equitable distribution of the burden” sounds like “equality of outcome”, but you can certainly insist they are different. I’m not going to debate semantics.
It means that as additional money is injected into the system, the velocity of money is slowing, meaning each additional dollar gets less bang for its buck than did the last dollar.
M1 includes liquid cash and checking deposits, but does not include household savings (those are included in M2). This could mean that money injected into the markets is being increasingly held by the public and not spent. It could also mean that the financial markets have decided that printing more money and injecting it is just more aggregate debt, and debt is the real problem and not money (i.e. there may be plenty of money in the system, but it’s just not moving because of debt fears. Printing more money does nothing to change this impulse).
What this really suggests to me is that the central bank is running out of ammunition. It can’t fix the problem by printing more money, and it can’t fix the problem by lowering interest rates, since they are damned near zero anyway.
It’s also worrying for a fiscal ‘stimulus’, as it suggests that sending cheques directly to the public will just result in that money going down the same rat hole, doing nothing. If debt is the big problem stalling the economy, then all the government would be doing is pushing debt around. And the longer it does that, the longer we’ll be in this mess, because we need to correct our public and private balance sheets and pay down the debt, and we can’t do that so long as governments keep borrowing more money and throwing it back at us every time we try to save it.
In the meantime, my worry would be that with all that extra cash injected into the economy, once it does pick up again we could see a pretty bad round of inflation.
At best I hope to briefly dazzle, so I can make an escape or cop a feel, depending.
Thinking more about this… The multiplier going below 1 might not be the result of Bernanke injecting new money into the system - it could just be a symptom of the financial panic. Banks just stopped lending money, because the financial system is mired in debt that cannot be quantified and risks can’t be priced. So no one knows what the proper cost of a loan should be, so money isn’t moving. It could be that the Fed is having no effect on this by adding more money (if you don’t know the price of something, having more cash doesn’t change anything), or the Fed could be preventing the decline from being even steeper. Or it could be making it worse. I’m not sure anyone knows - including the Fed. Bernanke is throwing darts at a wall, hoping he hits something.
I think you’re right. The ‘permanent income’ hypothesis says that people tend to spend money in proportion to their estimation of their long-term income, and not just based on their current income. So a one-time rebate is probably more likely to simply be saved than money that comes home as part of a perceived permanent pay raise.
Ooo, me… call on me…
I quote: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
I guess in this case, we are trying to promote the general welfare.
I actually agree with you that this should be our target, but I suspect that we will disagree that there is a “equality of opportunity”. When you and your partner are making minimum wage, there is a very low probability that your children will be Harvard educated lawyers making 6 figures a year. Likewise, the children of a 6 figure a year lawyer have much better opportunities in life even if their daddy (or mommy as the case may be) is being taxed at 40 fucking percent. (I know there are exceptions, but this kind of class movement, while more prevalent in the U.S. than anywhere else, is still relatively rare.)
How is there a “equality of opportunity” when the poor pay a much larger portion of their real income (meaning all the money flowing into their household) on taxes and basic living requirements than the 6 figure earning lawyer? Hell, most families on the edge of poverty (best case here) are living hand to mouth; if they are lucky (no accidents, medical emergencies, etc…) and frugal they may be able to buy a small house and support their kids in an effort to get a better education than they got, but they sure as hell won’t be investing in a 401k. Meanwhile, the lawyer’s family is most likely spending <10% of his income on the basic necessities of room and board. She (or he) is probably contributing a large amount to a retirement plan, maybe has a second home (with some rental income) and probably has to file a 1040 schedule D every year… I say this because I have all these things and I don’t even make 6 figures (though my wife does, just barely)… Expenses in this country (including taxes) are pretty regressive… I’m am not a socialist, but I think everybody in this country should have room, board, basic medical procedures, and the opportunity for a good education provided (this, in my mind, is the general welfare). Any income made beyond this basic survival level should be taxed at a flat rate. This means getting rid of sales taxes, sin taxes, property taxes, government license fees, etc… That, IMHO, would be an equalization of opportunity.
What the hell does paying taxes have to do with jump starting the economy? The economy (as currently set up) is driven by consumption. Not taxes, not investment, but consumption. The engine of the economy is not the upper class. It is not the top 5%. It is the middle and lower classes buying products that drives our economy and putting money in their pockets will (theoretically) put money in everyones pockets, including the factory owners and investors. Our economy at this point in the game needs customers, not more investment, and trying to trickle down money just won’t work (though in some times it is appropriate). If you cut taxes to the wealthy, they are not going to invest in companies (stocks are down), and those companies are not going to build more efficient factories or hire more workers (no one is buying, companies are closing factories, either permanently or temporarily), they are going to sit on what money the have and try to ride out the storm. Hell they might stick all their money in government bonds even though they have a 0% return (been reading the news lately?).
Again, you seem to think that taxes somehow drive the economy, please explain…
I think you are wrong and Keynes was right with regards to fiscal stimulus during recessions… I guess only time will tell…
Hey, I’m just happy that you guys admit I’m not a Communist. 
Now that’s an excellent summary of the situation, in my opinion.
Two things to add. One, part of the problem seemed to be the creation of instruments that no one understood, and which, being new, were unregulated. The second was a false sense of security from measuring risk. The Sunday Times Magazine had an interesting article on VaR - Value at Risk, which was a set of algorithms for converting the risk in a situation to one number. This had advantages in that it let CEOs look at the risk level for each part of a company and for the whole company. However it assumed a Gaussian distribution of risk, and computed risk at the 99% level. The problem was that traders learned to game the system, and to shove their risk into the tail in order to keep making increasingly profitable and risky trades. So, when things blew up and violated the assumptions, they really blew up. I’m oversimplifying even the article, which I’m sure severely oversimplifies VaR.
It’s not an entitlement. Social security is an entitlement. This is just a tax cut.
This is messed up analysis on many levels.
First, yes, federal income taxes are very progressive. But taxation as a whole is not. Taxation as a whole is only slightly progressive. The richest 20% get paid about 52% of all income, and they pay just about 54% of taxes. The bottom 80 percent of people pay 46% of taxes. Of course, they only earn around 48% of income. They’re paying their share. That is nowhere near 5% of the tax base. And even it that were so, 5% of an insanely huge number is still a very large number. Their share is plenty high enough to matter. The problem with middle-class tax cuts is not how much money to give back to them (which would potentially be a whole frickin lot), it’s what they do with it once they get it back.
Like I said before, I don’t trust these tax cuts as much as I do infrastructure spending because spending guarantees that the money gets spent, whereas the cash from tax cuts might just end up languishing in bank vaults. But infrastructure takes longer to set up, and a permanent tax cut, one that shows up in every paycheck as Voyager noted, is more likely to loosen people’s spending habits a little bit.
Maybe that’s usually the case. But personally, I’m looking for the most bang for the buck.
They want to give out 300 billion in tax cuts? Okay. It’s a start. According to the consumption functions I’ve seen, the marginal propensity to consume is pretty much the same across all income levels, so theoretically, you could give it to any group and they’d spend the same percentage of it. The total effect to the economy as a whole should be roughly the same. So how to decide? Well, why not give it to the people whose lives will be most improved? This is subjective, sure, but it’s still an easy sell. And I’m not out for perfect equality of income. I still want productive folks to be well compensated for their productivity, so that they have incentive to continue. But it takes quite a lot of money to noticeably improve the lives of the people at the top because of diminishing marginal utility. It takes much less to improve the lives at the bottom. And the outcome, even after a tax cut for one group and not the other, will still not be anything close to equal.
Plus, as I already mentioned, there is great reason to believe that the marginal rates are too low right now and so should be raised after the recovery starts. I mentioned this not out of some sense of fairness, but because of distortions at the high end of income levels. Those financiers especially were pulling in huge salaries while they screwed us all over. They were getting paid handsomely to destroy our economy. And it is possible that higher marginal rates would offset that distortion in a way that a simple salary cap definitely would not. I’m interested in a better economy as a whole, and if we have to take even more from the people who will miss it the least to make things run smoother, then I have no problem with that.
I seldom agree with Sam Stone on anything political, but this whole “Let’s have the government focus on helping the poor” thing sounds pretty good to this liberal. 
If you liked that one, might I suggest Malcolm Gladwell’s Blowing Up (from 2002)? It focusses on Taleb – I got a much better sense of what he’s all about than I did from the NYTimes article.