Well, the statement I quoted by those gentlemen seem to claim that a monetary incentive is “necessary to produce a highly skilled, productive work force …” and I don’t think that is true about the people who provide the innovations that move society along.
I might come as a total surprise to an economist, but some people like to do fun things and are original and inventive, and if they have a comfortable living they don’t sulk and malinger because they don’t have more toys.
Well, of course, I agree with you as long as you don’t go too far that way either. I’m not sure they were claiming that money and only money will motivate people. Just that monetary rewards are necessary and that more rewards mean more incentive. I agree with you that other types of incentives motivate people. But I disagree if (as your last paragraph intimates) you are suggesting that income above “a comfotable living” is superfluous.
Jonathan, I think you’ve already answered your own question earlier in this thread. As I have understood it, running a deficit basically means that the government has to borrow money, mainly from:
a) the SS surplus (or similar funds), which basically means spending money now that is needed for a different cause later
a) it’s own citizens, who are buying Treasury bonds
b) foreign investors, who are also buying bonds
As time passes and the deficit/debt continues to grow, the government has to:
a) borrow money at an increasingly higher interest due to an increasingly unhealthier economy (issue new bonds at better terms)
b) use a bigger portion of it’s budget just to pay for interests alone
The endgame - worst case scenario - is an economic meltdown, similar to what we’ve witnessed in a certain South American economy not so long ago (imagine interests alone exceeding government income). The challenge of refinancing SS when time comes to meet its obligations is just one side to this, and it’s the easiest part (one that’s likely to be solved by reducing entitlements).
The key point in all this is a nations ability to continue to attract foreign capital, while still being able to pay off interests on its debt without sinking the budget.
Now part 2: Running a deficit will increase the pressure on the currency. Here, the problem for America is that it’s also running a huge trade deficit, one which is currently offset by foreigners reinvesting their surplus in American assets. But if the value of the dollar is sinking, many would liquidate their American assets, and reinvest their money elsewhere.
So, less foreign capital in America should result in declining stock prices, - which should increase unemployment, - which should shrink government income, - which should leave the government with even less money to pay for interest on its growing debt, - which should decrease the value of the dollar and the amount of foreign investments even further. This is the Evil Loop of Huge Continiuous Deficits. On the other side, a lowered dollar would result in American goods being cheaper for export markets.
Now I have to mention that I’m no master of economics (far from it), so feel free to debunk me. I’m not even suggesting that America is heading for any kind of economical disaster; America has been running large deficits before, and there are a lot of countries out there with a higher debt as a percentage of GDP than America, and they are still doing fine.
When discussing fears of economic meltdown, it’s important to note that the U.S.'s current debt to GDP ratio is nowhere NEAR as bad as many other countries. For example, Japan’s debt-to-GDP ratio is 130%, and its deficit-to-GDP ratio is 10%. The U.S., on the other hand, has a deficit-to-GDP ratio of around 4%, and a debt-to-GDP ratio of 61% (it was actually higher in 1999, btw). For comparison, Canada’s debt-to-GDP ratio is 82%.
Add in the fact that the U.S. is growing faster than most other countries, and the situation looks even better.
Not that it’s good, and deficit spending needs to be brought under control before it chokes off growth. But there’s no crisis brewing.
Isn’t it possible that deficit spending would cause us to curtail spending before high taxes would? Aren’t we more likely to find some sort of spending decreases because of deficits before we look for them because of tax rates? Expecially given the rhetoric lately about tax cuts benifiting the rich instead of the poor.
That is, isn’t it possible that reducing taxes (and thus temporarily increasing deficits) might be a better way, politically, to reduce the size of government?
Or does thei strategy assume that liberal tax and spend programs are cynical from the begining?
Yes, I would like to echo what Sam said. I would also like to tie his numbers in with projections from the Congressional Budget Office (CBO).
Presuming there are no changes in the fiscal policy, the federal budget would have a surplus in 2012, after accumulating $1.4 trillion in new debt. On the low side, if the tax cuts are made permanent, as Bush wants, and spending rises with the growth of the economy, the federal budget would accumulate $4.4 trillion in new debt, and still be in red numbers in 2013. (As a comparison, spending has surged by an average of 7.7 percent per year since 1998).
This is excluded new programs. The WP article isn’t clear about whether the cost of likely new programs is per year or for a 10 year period, but it goes on to mention: the cost of Iraq ($150 billion?), increased spendig on defense ($200 billion), prescription drugs ($400 billion), and a revamped alternative minimum tax ($400 billion). Which should total another $1.15 trillion.
I don’t know how this would tie in with Sam’s figures, anyone?.
The WP article which I used as source for these numbers is highly interesting. I pulled it from disk upon reading Sam’s post, the url is http://www.washingtonpost.com/wp-dyn/articles/A46805-2003Aug26.html , or google for “CBO Predicts 2004 Deficit Will Top $480B” for a copy.
A question: There is the federal budget, but does anybody know how the states are doing, preferably combined? They are running rather large deficits too, aren’t they?
Sam, it has to be taken in context of the current account deficit as well.
The latest report on this just came out, and the total for the first three quarters of the year is a cool 413,142,000,000. Project that pace for the full year and it comes to 550,856,000,000. That’s more than half a trillion dollars. Combine that with a fiscal deficit of more or less half a trillion and the picture is not a pretty one. Among other things, the combination of these two gets you to a 10% combined deficit ratio to GDP. Barron’s this past weekend said that Merrill Lynch is projecting a 10.1% ratio to GDP for next year. With the dollar declining and a need to finance the current account at a rate of about 1.5 billion a day, you could spin a pretty awful looking scenario.
Latest current account report: http://www.bea.doc.gov/bea/newsrel/transnewsrelease.htm
You’re right, I wasn’t including the current account deficit.
There’s no doubt that the deficit is a problem. Its effects are insidious, because the damage to the economy comes through proxies like crowded out private money, higher interest rates, etc. This makes it harder to blame and easier for politicians to weasel around and avoid making tough choices.
If the consequences were more direct, (say, if everyone’s paycheck had a 10% deduction for debt interest), then you’d see a lot more reasonable amount of pressure on the government to clean up its act.
John, my employer also requires that the entire company match go into company stock. However, a company isn’t required to provide a match at all, so “force” may not be the right word.
Sam, you’re still off-target about the words “Ponzi” and “scheme” in this context. A pyramid depends on exponential growth in the number of “investors”, and soon simply runs out of bodies, thereby making it fraudulent. Social Security is a pay-as-you-go approach that depends on a constant or at least stable (NOT expanding) amount of money coming in. Your use of the term is, if not ignorance, then spin, an attempt to taint a simple transfer-payment system as a fraud or as inevitably doomed to a crash. Doesn’t fly here - and that goes for your spluttering denunciations of Krugman and his explications instead of providing actual facts in rebuttal, as well, too.
It is hardly comforting, btw, that other countries are in even worse shape at this point. The way to deal with a crisis is to prevent it from happening, and to learn from other examples.
pervert: “Isn’t it possible that deficit spending would cause us to curtail spending before high taxes would? Aren’t we more likely to find some sort of spending decreases because of deficits before we look for them because of tax rates? Expecially given the rhetoric lately about tax cuts benifiting the rich instead of the poor.”
If the budget were balanced, or even if there were strong pressures to try to do so or at least keep close, you might be right. But it’s very easy to just spend the money anyway, add onto the debt that you won’t have to be accountable for, and pass the bill to the kids instead. The Republicans’ budgets over the last few years (enacted without real participation by the other 49% of Congress, mind) show that graphically. Perhaps the “strategy” to cut back government is not to strangle it in the bathtub but to simply cripple it under a load it cannot forever carry.
Re citing Stockman as the creator of the “starve the beast” line, you’ll be unlikely to find a source for tha
I’m concerned that a souce is unavailable. I don’t need a web site. But the name of the book would be helpful. It seems naughty to say He said X and what he meant is Y,Z and W. Especially without any more than the three word quote from a source no one can find.
I agree that the Republicans have not been too fiscally responsible lately. But an argument can be made that the tax cuts might have limited Clinton’s ability to enact large new entitlement programs.
I’m not sure that cutting taxes all by itself is a solution to the problems of government’s size. But it may be a temporary solution to the continued growth of entitlement programs. Not necessarily the size of existing ones (although that certainly has to be addressed) but it may cripple the effort to create new ones.
It’s kind of like cutting up your credit cards. You still have to pay your old bills, but at least you reduce your ability to easily borrow more money.
Again, I’m not advocating this sort of thing. Just trying to answer the OP in the sense that the strategy might have a certain amount of political effectiveness.
Elvis: The ‘ponzi’ and ‘scheme’ comes from the fact that the early retirees never paid as much into the system as they should have, because the government has been relying on a large number of people in the work force supporting a comparatively small retired community. As the number of retired people grow, and the number of people working to support them shrinks, the whole house of cards comes crashing down unless you force the fewer people who are working to pay a higher percentage than their parents did to keep the system stable. And in fact, charging them so much to keep the system going that they’ll only see a fraction of their ‘investment’ ever come back to them.
You can nitpick the exact details of what constitutes a pyramid scheme all you want, but the essential mechanism of both is the same - the people in early make out like kings on the backs of the people who come along later.
Sam: Certainly, it is true that S.S. involves an intergenerational transfer of wealth. However, since our society has generally been growing more prosperous with time (albeit with less of this trickling down to most of the people over the last 20 years or so), this may not be entirely a bad thing…And, of course it is necessary if you are to have a system where the benefits start up right away even for people who didn’t have time to pay into the system, and with the demographic changes over time.
Perhaps, jshore, but those are the motivations for the system. Ponzi really thought (on some level) that he was providing a way for common people to garner great riches. Certainly a worthy goal. It doesn’t make the method at all desireable.
Sam, if you really don’t want to know what a “Ponzi scheme” is, then kindly cease using the term. It is hardly “nitpicking” to point out the difference between the social contract and a simple fraud scheme, and it does not help your threadbare credibility (which is the consequence of your own actions entirely, ya know) to insist that there’s no fundamental difference. I explained it for you already, but without effect. You’ve once again been caught out passing spin and falsehood as simple fact, and it would help you a great deal to face it instead of whining about it. For once, at least.
pervert, the concept and its implementation status are what matter here, not who called it what when, right?. Looks like the last part of my post got cut off, but so what - news and commentary from the Eighties is pretty sparse online.
Agreed. But I find it disengenuous to take for granted characterizations of a policy by those who disagree with the policy. It is the greatest thing I have learned while posting here. I used to read libertarian or conservative thoughts almost exclusively (although I did listen to NPR sometimes). In one of the first threads I participated in, I got slammed pretty hard as a result. I had not properly understood the opposition.
Again, I’m not exactly trying to claim that the policy is a myth. I’m not trying to call those who use the phrase liars. And I understand that a quote from the early eighties will not be easy to find on the web. But if he “wrote it”, as I saw in a few of the cites, then they should be able to point to the book or article which he wrote. Most books or articles from that time are still available in some form in libraries.
Also, if the policy is still actively being proposed, then some translation should be possible. We used to call pro choice advocates anti abortion. It is somewhat dishonest to continue doing so today. As least without saying something like “they call themselves pro choice, but…”. So, if “starve the beast” is still an active policy then we should be able to point to people who are proponents of it even if we have to admit that they do not use that exact phrase. If we do this, however, we need to drop some of the knee jerkiness of our problme with the phrase “starve the beast”.
Darn right. It’s hard to do otherwise if the proponents of a policy are reticent about openly stating their purposes, though, leaving us to infer them from their actions, such as the Bush “job growth” tax cuts of 2001.
Unfortunately that has to be indirect, too, such as following the path from Norquist to Rove to Bush, as has been done here (thanks to Krugman mainly). As for the phrase itself, well, the only one here with a problem with it seems to be you. The rest of us have been discussing the policy, its philosophy, and its implications.
Mostly except for the occasional assertion that the policy is meant to cause a major financial crisis. this seems to be basically a knee jerk reaction to a particular interpretation of the phrase itself.
I had to resurrect this thread upon finding a link that takes the idea of “letting the free market reign” to its logical extreme. The Onion does it again. Taking tongue out of cheek, wouldn’t this be a perfect scenerio to prove what the (mythical) free market could be if fully enacted?