I just turned on the news this morning and guess what I hear?
Morgan Stanley Dean Witter has now used the word recession, according to the Washington Business Journal!
Investors would only invest overseas or put money under the mattress if those were better alternatives than the US economy. Even with a slowdown the US is still the best economy in the world by a large margin.
Since the Reagan tax cuts we have only had one recession, after the tax increase of 1990, which was bracketed by the two largest peacetime expansions in American history. I think that almost 20 years of unprecedented prosperity is doing a lttle for the economy.
I agree with part of the orginal premise - there are plenty of people in the GOP interested in fiscal policy that helps themselves…if a rising tide raises all boats, great, but many (not all, by any means) are primarily interested in buying a bigger boat.
But, there’s one big Bush policy that should be causing the stock market to go through the roof - privatizing social security. If anyone is really serious about this, it will dump a lot of cash into the stock market.
Of course, the more the stock market stagnates, the less privatizing SS will look like a good idea.
Also, if I were “well off” I’d rather have a strong stock market than no estate taxes or lower income taxes. Estate taxes only make a difference to my heirs, and I don’t pay income tax on money I don’t earn. Even if I pay 38% tax, I’m still getting 42% of that dollar.
My own guess is that the reason the stock market isn’t going well is people have finally realized that “selling at a loss and making it up in volume” on the internet is only resulting in bigger losses. The internet companies that survive the next eighteen months are the ones that are going to be able to turn even a small profit immediately - outlasting the competion by having more capital to lose is over with.
the Gross Domestic Product is a measure of cash flow. a business could have a large Gross income but still be loosing money. what matters is NET not GROSS. who gets the tax cut and what do they spend it on. if i got a $1200 tax cut and spent it all on paying principal on my mortgage it would increase my NET WORTH and reduce time and interest i have to pay to the mortgage company. it would help MY ECONOMY but what good would it do THE ECONOMY. i work for ME not THE ECONOMY. i think accounting and personal finance should be mandatory in high school.
Dal Timgar
danielinthewolvesden
There are 11 indicators used to inspect the state of the economy, of which the stock market is only one. You can’t use it exclusively to back up a proposition.
RD
The tax cut WILL benefit the economy? This is in no way a solid fact. Tax cuts sometimes do not help the economy. If we are heading into a recession and the tax cut is used to stop this it is possible the extra money will be saved instead of spent which does not stimulate the economy much. But, as you noted later, economic matters are a function of general perception.
Now, a tax cut probably isn’t the best thing to do now when we could conceivably use “surplus” (har-har) to pay down debt.
As well any general tax cut is going to aide the rich more than the rest of use because they, suprise!, pay most of the taxes. Other tax cuts don’t necessarily promote the rich themselves but the corporations (which, I’m sure we’ll agree, are larely responsible for growth).
Dal Timgar
Damn right! Time to make some students learn something!
Dangerosa
Cute. This implies that democrats (as an opposite) help everyone but themselves. Clearly the GOP would find something wrong there because democrats don’t aide republican almost as a rule of partisan politics.
That is, who the hell isn’t interested (in general) in helping themselves? How is it “not helping yourself” if the poor guy votes for the guy who wants to tax the rich and give to the poor?
aynrandlover,
Well there are 2 mechanisims I described above, and savings does use the other mechanism, which is why I pointed it out. Those who argued that it does not necessariy have to be saved in the US economy are the closest to correct. However, US savings and foreign saving are not viewed as perfect substititues, in fact, most people prefer to invest their additional savings in their own economies because it doesn’t carry the added risk of currency fluctuatioins. So in that respect, savings or consumption are really irrelevent. Cutting taxes increase the GDP all else equal (and the all else equal is where you guys who are questioning this need to focus your attention :)). The propensity of Americans to invest directly in foreign savings is quite small, thus the majority WILL end up in the domestic economy. Oh btw, I’ll try to avoid being partisian (since I’m an independent) so you guys that wanna take sides are on your own :D.
Well, there are rich democrats that are fond of social programs - Minnesota just elected Mark Dayton.
And not ALL GOPers are like that - possibly not even most, went out of my way to say that originally. And there are certainly Dems more interested in helping themselves than anything else. I don’t thing you can boil down anyones politics to a simple sentence or generalization.
RD, I suppose…but I’m talking about saving versus spending within a particular economy. Spending is more growth-oriented than saving. But, I suppose that is also affected by the current monetary policy imposed by the Fed as well. That is, high personal savings leads to rich banks leads to lower interest rates leads to, well, speculation which should lead to growth.
Anyway, you and I agree I think, I was just nitpicking.
Dangerosa…ah, my point was that it was a completely correct generalization. It has to be in a democracy. If it weren’t we’d have troubled politics:
Mark Dayton of Minnesota (to use your example) runs on a socially progressive welfare-ish platform. This stands to raise taxes (for example, I don’t know) for the wealthy and help out the less fortunate. Now, if we stick to this “ideal” of people-not-helping-themselves then only the people who stand to lose from this guy’s election (or maintain their economic status) should vote for him. The poor have a vested interest in helping themselves and thus should not vote for him. 
My point was that it would be a double standard to call it “greed” (and using it negatively) when rich people vote for their own interests and “fair” when poor people vote for their own interests. Just calling a spade a spade, is all.
Why vote if you don’t vote for your own interests, eh?
RD:
Just curious, can I assume you are familiar with Ricardian Equivalence?
The skinny is simply this, it is largely irrelevant whether or not government borrows or taxes in order to finance their spending. After all the difference is simply tax today or tax tomorrow.
Now considering I got some 8% student load debt and 16% credit card debt, I will gladly borrow (via the governemnt) at 6% to pay off that higher interest debt. Ntohing like borrowing off Uncle Sams low interest Visa to pay off my high interest MasterCard.
Oh, hi there. I just accidentally fell in here after surrepticiously taking a pee in the kiddie pool.
What about downsizing? It’s been a good six years since the last great and hugely profitable lay-off extravaganza. Don’t you have to wait for an economic downturn in order to flense away all those snotty kids who took over the middle management after getting hired as IT people straight outa high school, bad manners and all?
The fact that the administration-in-waiting is and has been openly discussing recession indicates to me that, 1) somebody expects something to happen very soon, (like maybe a hike in oil prices?) and 2) companies, like governments, respond to good times by overindulging on the payroll and benefits. Time to get on the recession treadmill.
So why can’t the top 2% wealthiest people in this country suddenly decide, logically but largely individually, that a recession is in order and that this is the time to do it, perhaps with the complicity of the officials they spent so much to elect?
Tretiak,
Yeah, I hear ya. Either increased govt spending or a tax cut will have the exact same impact on the economy. It is just a question of which fiscal policy choice you want to make. The repubs favor a tax cut, while dems favor increased spending. Either one will have the same effect on the economy. However, I think we can agree that if the market determines where the funds go (most efficent projects get money, well in theory) while if we just choose to increase govt spending the most efficent and productive areas do not necessarily get the funds. Rather where the money is directed is determined by political favors and goals of those directing the money. In that sense I think that the repubs route (tax cuts) is likely to be more efficent and more productive. However, in theory, both would be the same, assuming that the funds went to equally productive and efficient uses (which I tend to think may be a problematic assumption). In theory, yeah, but in practice, well that may be a different story:(
Oh yeah and don’t forget about the issue of utility. When you get to choose how the funds are direct (tax cut) one is generally able to derive a higher utility than if some beauracracy decides. But lets not get into the utility issue because most won’t be as familiar with that concept. However, I’m sure you understand my point on this.
Sorry, three posts in a row:( but I missed this one the first time.
[quote]
The fact that the administration-in-waiting is and has been openly discussing recession indicates to me that, 1) somebody expects something to happen very soon,**
Ok I’ll admit it, I voted for Bush, but this is why I won’t vote for him again. He is playing a game. He promised a tax cut, and he’s gonna deliver one, no matter what it takes:(. So this is what I think is going on. The economy is fundementally strong, so there is no need for a tax cut. However, the economy has a weird way of responding to perception too, just like the market. You say there is a recession, consumer confidence falls, and the next thing you know we need that tax cut. I think he wants the tax cut so bad he is playing on fears in order to get it through, and in the process he is harming the economy in a very real sense. Remember, those campaign contributions come at a price, and he’s gotta pay up. Yeah, it would seem that a volitle or declining market would not be in the interest of the rich, but in fact, a long term tax cut, and the increased liquidity that arises from it may very well justify a short-run loss. Now that is merely my speculation on this, and is no way representive of any facts, its just my opinion. So take that as you wil.
RD, don’t get me wrong here. I am a total fool when it comes to matters of the economy. That, I suppose, is why I am a (gun-toting) liberal.
I feel I understand the power of perception and its effect on the market, to some extent, but I personally watched oil companies immediately raise oil prices upon the invasion of Kuwait and then only slowly relax those prices when the Saudis immediately picked up the production orders. I also watched the economy nosedive, and watched businesses take advantage of that opportunity to advance pogroms on a scale so large that I watched the depopulation of an office complex from 5000 people to 2500 people in a matter of months. It had nothing to do with the economy, and everything to do with lightening the corporate load in a time of opportunity–an adverse opportunity, if you will.
So I ask you this, and it is not a loaded question for which I have some prepared debate: do large corporations take advantage of economic downturns in order to strike out the redundant and the incompetent? Or was that an anomaly to which I was merely a witness? I only have my personal perspective to rely upon, and that, I can assure you, is not reliable.
Sofa King,
Certainly, that is exactly what they do. However, getting rid of all that “dead weight” is precisely the reason we have such a strong economy. There has been a great deal of substitution of labor for capital in the past decade of so. Computerisation has reduced the need for such a large labor force in many firms. Thus, I think that they wanted to get rid of these people for sometime, but I believe you are right, they used the perceived downturn to justify massive layoffs. However, I don’t think that there is a lot of “dead weight” left. In the 80s and early 90s they cut swift and they cut deep as far as dead weight. So I don’t really expect the same to happen this time. As for oil prices, well thats just how it goes, demand or supply changes or is perceived to change and so too does price, and immediately at that. It doesn’t seem fair, but thats just how it is. Btw as far as oil prices having much effect on the economy, I talked to several economist on this issue last year and their arguments were along the lines that in the 70s oil was a large fraction of the economy, but today it is too small a part of the overall economy to have much effect. I don’t know, that what they told me, and I tend to believe them.
It hurts people with currency wealth (nots&bonds, savings accounts, etc.). It helps people with capital wealth (land, stocks, etc.). As I said, an expectations of inflation would therefore cause people to dump currency wealth in favor of capital wealth.
The fact that Bush intends to keep his campaign promises is a reason not to vote for him again? That seems strange to me.
Your theory that the rich ae causing a recession so that tax will be lowered is also strange.
Imagine getting the rich together and telling them “This is the plan, we cause a recession in which we all lose billions of dollars in order to get a tax cut which will get through a divided Senate only if not one moderate Republican thinks it is too big and votes against it and McCain does not hold it up throwing a temper tantrum over campaign finance. This tax cut will probably be phased in over a period of years during which time if the Dems get back in power they can overturn it. If people blame Bush for the recession the GOP will probably lose their slim margin in Congress which will probably cause your taxes to rise. Also this will weaken him for 2004 and if a Democrat wins he will try to raise your taxes and pass a myriad of regulations on you while trying to sue or break up your companies if they get too successful. Now doesn’t that sound like a good plan.”
I think a more reasonable explanations for the slowdown are increases in oil costs, tighter regulations, and six consecutive interest rate increases to slow the economy.
Well I think the real reason for a slow down is the 6 rate hikes. If you notice, I offered that other “theory” as a consiracy theory rather than anything serious. I just mentioned it and said I don’t really think that is going on, but just the same it is not as inconceivable as one might think. However, my later point about mentioning the word recession and thus depressing consumer confidence enough to get the tax cut is not unreasonable. Like I said, its merely a political ploy. I agreee with the majority of people who believe the economy is fundementally strong and that the interest rate was merely over hiked. However, I think Bush is playing the slowing economy for all its worth to get his tax cut. My point being, when I said I wouldn’t vote for him again, is that I voted for him, not the tax cut!!! I NEVER wanted the tax cut!!! I just didn’t want AL. I think adjusting the interest rate, and keeping the “r-word” quite would be enough to get us back to a good stable sustainable equilibrium. However, every time you mention the “r-word” consumer confidence falls. Now granted most of this can be attributed to the ignorate feable-minded journalist, but don’t get me started on that one:D.
btw on that “the rich” issue, I guess that may be a bit vague. I was assuming you would make the same assumption on that as I did (institutions, Ibanks and such, not individual investors, once you take “the rich” to be institutions it does have more credibility if still remaining illegal and highly improbable;)).
RD: if the reason if the 6 1/4% rate hikes, then the 1/2% rate reduction would have caused an uphill trend. But- nope. I think it is lack of investor confidence in the Bush administration-(rational or no). The big thing which is worrying folks, is that contrary to what you said earlier- all the branches of the Gov’t are now in the hands of the GOP- allowing them to go for many of their more looney theories. Perhaps the same worry would occur if the dems had control of the Gov’t. One of my big reasons for voting for Gore was that i did not want the House, Senate, SCOTUS & POTUS to be all GOP. A Dem Prez with a GOP congress seems to be GOOD for the Country.
Aynrand- yes- there other other indicators. But- the one that is available to us all, and one of the quickest to react- is the Market. If it was only the Market- you would be right in thinking I was crying 'wolf"- but several economists have also used the “R-word” in talking about forecasts in the upcoming Admin. Most of the rest see a more mild “lessening of growth”- that falls short of an actual 'recession", and I have conceded that may be all we are in for. But still- rational or no, the Prez gets blamed for the economy.