The (US) economy: What should be done?

Great Debates
181

[QUOTE=elucidator]
Well, both really. Economics as objective science is an ugly sister (didn’t I read about some guy trying to have economics drummed out of the “science” academy altogether?) I mean, if this is so scientific and objective, how come a firm consensus on any economic topic is so elusive?

I am suspicious anytime someone says the consensus of economic experts is clear about anything. I will certainly agree that trade is good, and likely, the more the better. But does everybody mean precisely the same thing when they say “free trade”? How many economists signed on to the “Laffer Curve”, which purports that lowering taxes increases government revenue because the economy booms? Were they drummed out?
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I probably wouldn’t agree with Renob on the color of the sky at midnight, but here, he is quite right. The free trade consensus is all but universal. Exactly how much “free trade” and under what circumstances is still debated, of course. but then again, do we really know how much iron should be in your diet?

The above is not really a fair way to characterize either economics or any other science. First, there is a great deal of consensus in economics about a large number of topics. The consensus is so vast I almost do not even know where to begin. The fact that there is a great deal of dispute on key questions invalidates economics no more than the lack of unity between classical and quantum mechanics undermines physics.

Economics is a science because it is a field of inquiry that strictly follows the scientific method. Theory. Hypothesis. Test, either classical or Bayesian.

The “Laffer Curve” is a neat little model. Reagan loved it because, well, you could draw it on a napkin. It was simple, it can be communicated easily to the masses, and it requires no more than 8th grade math to prove, let alone understand cursorily. It is a logical illustration. Its limitations are well known and well understood. The fact that it drove policy is a function of the administration that latched onto it like an anemic urchin on a DD tit.

182

[QUOTE=Fear Itself]
I never advocated new taxes on imports. I am in favor of targeting any tax *cuts * at companies that actually create jobs in this country. Anything less is just lining the pockets of the investor class without growing the domestic economy very much.
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OK, so what does happen to your American company when the Canadian one sets up its factory in China and then sells competitive products at a much cheaper price? What good is it to create jobs if your products aren’t selling?

My point is that the idea of targeted tax breaks sounds good on the surface, but I question whether they actually work. And I think that the only way to make them work is to take other steps to ensure that they do, like taxing imports to protect domestic industries that aren’t market competitive.

183

[QUOTE=xtisme]
You’d have to ask a neo-con but I don’t think anyone is saying they don’t matter. I think the argument is that in the short term they don’t matter as long as the economy picks up again after a down turn. The reasoning is that in the short term you can run at a deficit because in the long term you will get more money in the form of taxes when the economy is booming.
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Deficit spending is supposed to be short term stimulus to create enough demand to utilize our production capacity, its not supposed to be an economic policy. Long term our productive capacity is what causes long term economic growth. Deficit spending during a healthy economy is idiocy.

The shift has been precipitous. There is a lot of displacement. Automation increases productivity it doesn;t shift production overseas.

184

[QUOTE=John Mace]
Not to mention the jobs created by free trade. See the link in my last post for some of those details. It’s counter-intuitive, but outsourcing does create jobs. And remember when Bush did his little protectionist thing for steel workers? Well, the analysis was that the net effect was to destroy more jobs in other industries than were saved in the steel industry.
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Its not that we don’t understand the concept of comparative advantage, I just wish it were a it more gradual. Everyone knows that protectionism doesn’t work in the long run (unless the rest of the world lets you get away with it). It would also help if we had a Republican party that believed in science a bit more and voodoo economics a bit less.

185

As Maeglin said, there is wide agreement by economists on a huge number of issues. The disagreements tend to crop up when you start talking specific policy - because interactions in a modern economy are mind-bogglingly complex, and because policy mixes economics with ‘justice’, you can have two economists who agree on fundamentals disagree about the application of economic principles to the actual economy. But even here, there are areas where most economists agree about policy, and free trade is one of them. You can find a few dissenters among economists, but it’s generally not because they disagree about the economics of the policy. They disagree with the policy for other reasons, such as believing that ‘social justice’ trumps economics in some cases.

Also, because real-world interactions are complex, you can create logical chains of thought that that lead to differing conclusions from the same starting assumptions. For example, one economist might believe that trade should be free because economic fundamentals tell him that it will be better for the country as a whole. Another might disagree with free trade because, while he agrees that it’s technically better economically in a ‘pure’ environment, open borders will cause enough social problems that the economic gain is not worth it, or that through some complex interaction the simple case does not hold in the real world.

Another aspect that causes disagreement is that not all aspects of social policy involve economics. For example, an economist might believe that free trade is good for the economy, but bad for the environment. He’s not trained as an environmental scientist, so he’s swayed by people who tell him this is so.

It’s like the old story about how Velikovsky managed to convince so many people that “Worlds in Collision” was a serious book. He wrapped so many different disciplines into it that very few people could tell that it was all garbage. A scientist reading it would say, “Well, of course the science is garbage, but he really impressed me with the depth of his historical knowledge. That’s compelling.” An historian would read it and say, “Of course the history part is garbage, but I found the science to be very compelling.”

Pretty much an example of what I’m talking about. At its very basic level, the Laffer Curve is obviously true. If tax revenue is 0 at 0% taxation, and 0 at 100% taxation, there must be at least one maxima of the curve at some tax level between 0% and 100%. Raise the taxes above that level, and you will lower revenue. You can get pretty widespread agreement on that. The trick comes in figuring out exactly where that tax level is and what the shape of the curve is. And there’s enough ambiguity that people with various biases can come up with an analysis to support the own pre-conceived notions.

[QUOTE=Damuri Ajashi]
The shift has been precipitous. There is a lot of displacement. Automation increases productivity it doesn;t shift production overseas.
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Automation tends to create far more displacement, far more rapidly, than do trade issues. If you don’t believe me, ask former telephone switchboard operators. Or typesetters. Or livery hands. Or saddle makers and blacksmiths. Or pump jockeys.

How many mom-and-pop bookstores has Amazon put out of business? The rise of the internet has caused a massive shift in the economy, displacing millions of workers (but creating even more jobs in new industries).

186

[QUOTE=John Mace]
OK. I’d agree that it’s unclear how a tax cut to a corporation will translate into US jobs. It might and it might not. But the thing is… if our corporate tax code is out of sync with a good part of the rest of the world (and it is), then companies looking for tax breaks will just shop around to the country offering them the best deal-- and they’ll often find it outside the US. And if US companies don’t find it, non-US companies will. And unless you’re willing to tax the importation of goods from those companies to offset the imbalance, then you’ve lost. And that brings up back to the downward spiral of protectionism.
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I am not entirely opposed to the idea of a cut in corporate tax rates but I am not sure they are currently out of synch:

http://www.kpmg.co.uk/pubs/taxrates_04.pdf

We tax all income earned within our borders whether it is generated by a US corporation or not so to the extent that production costs here are comparable to costs elsewhere, the tax rate may not be as big a deal as things like production costs.

We still have a large population of unskilled labor and unless we are ready to have them live on the wages paid to Chinese workers we have to at least think about opening the doors to free trade a bit slower.

187

[QUOTE=athelas]
Raising the minimum wage is just like putting a price floor on bread - it creates a surplus of labor: i.e., unemployment. If workers currently don’t produce something justifying $15 of work currently, then under the LOUNE plan, they wouldn’t get employed at all. Welcome to your first attempt at meddling with the free market!

Seriously, I think we should have a policy that only people with at least a basic understanding of economics get to participate in these threads. Much more so than in any global warming thread, the ignorance on this topic is crippling.
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We are at about 5% unemployment. A $15 minimum wage isn’t going to have as much of an effect on the labor supply as it will on the demand for labor, but at least you have a viselike grip on economic principles.

188

[QUOTE=Damuri Ajashi]
We still have a large population of unskilled labor and unless we are ready to have them live on the wages paid to Chinese workers we have to at least think about opening the doors to free trade a bit slower.
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We do? What will happen if we don’t, and why is that worse then opening the doors quicker? I think it’s a fools errand to try an compete with the Chinese on price. We can’t win that race.

189

[QUOTE=Fear Itself]
I still don’t see why they should be rewarded with tax cuts, when they don’t create jobs here. If the tax code is made more favorable, it just makes it more profitable to be based here. That does not necessarily translate into more jobs for Americans. I think any tax cuts should be tied to new American jobs; if companies create no new American jobs, they lose the tax cut. If that is protectionism, then I am for it.
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Which tax cuts are you specifically referring to?

190

[QUOTE=Damuri Ajashi]
The shift has been precipitous. There is a lot of displacement. Automation increases productivity it doesn;t shift production overseas.
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Do you have a cite to back this up because it seems counter intuitive. If I replace every worker in my factory with robots how is it different than if I build a manufacturing plant in, say, the Pacific Rim? The only real difference I see is that there is at least an outside chance that the workers in the Pacific Rim, making more money, might actually be able to buy goods and services at some point…maybe even from companies in the US. While the robots are unlikely to buy anything.

Other than that I’m seeing no real difference here.

-XT

191

[QUOTE=Damuri Ajashi]
Which tax cuts are you specifically referring to?
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This bill, signed by Bush in 2004, among others:

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192

[QUOTE=msmith537]
…
You throw around a lot of “theys”. They should do this. They should stop that. As if Corporate America is some monolithic entity. “They” just don’t get together to decide how to do things…
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National association of manufacturers
the oil lobby
the insurance lobby
the real estate lobby
the banking lobby
the every other fr1kking lobby except for the regular people lobby.

Not even close. They are motivated solely by profit. For profit they will lie about the addicitive carcinogenic properties of smoking. For profit they will lie about global warming. There’s not much they won’t do if we let them.

193

[QUOTE=Damuri Ajashi]
Not even close. They are motivated solely by profit.
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Well…yeah. You make it sound as if this is a bad thing. Companies are in business to make money.

[QUOTE=Damuri Ajashi]
For profit they will lie about the addicitive carcinogenic properties of smoking. For profit they will lie about global warming. There’s not much they won’t do if we let them.
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You can always vote with your pocket book. Don’t like what some company does or the products they make? Don’t buy them. Even the cigarette companies aren’t holding a gun to your head MAKING you smoke. And of course, this is also why we have regulations, no?

-XT

194

[QUOTE=jayjay]
I know I’m irrational on this subject. Economics seems like it’s especially designed to screw over the little people. …
…Our government is bought and paid for and doesn’t really give a damn about people like me if it’s not an election year. My freedom of speech is apparently worth a fraction of Rupert Murdoch’s, for example, since the new standard seems to have gone from one man, one vote to one dollar, one vote. I’m just overwhelmed and not seeing any way out of what’s going on right now. I’m scared. I’m angry.
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Economics is not designed to screw over little people, its not really designed to do anything. Its a soft science, it get abused by Republicans to push their agenda but pure economics isn’t “designed”

And yeah our government is bought and paid for. You can buy donate $2300 per election cycle so for about 5 million dollars, you can max out your contribution to every incument in Washington DC. (2.5 million for the primary period and 2.5 million for the general election). It sounds like a lot of money but these people control a budget worth between 2 and 3 trillion dollars every year, they also levy about 2 trillion dollars of taxes every year. 5 million is a bargain.

195

[QUOTE=athelas]
Wait, are you saying, through all the sarcasm, that because you have a different opinion, then there must not be an objective truth? Because I’m sure the creationists have a strongly held opinion as well.
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Biology is a bit “harder” than economics as far as sciences go.

196

[QUOTE=elucidator]
How many economists signed on to the “Laffer Curve”, which purports that lowering taxes increases government revenue because the economy booms? Were they drummed out?
[/QUOTE]

The ones that signed on to it the way the Republicans portray it aren’t exactly mainstream. How many reputable economists think that a tax rate cut in the present environment would increase tax receipts?

197

[QUOTE=Sam Stone]

Automation tends to create far more displacement, far more rapidly, than do trade issues. If you don’t believe me, ask former telephone switchboard operators. Or typesetters. Or livery hands. Or saddle makers and blacksmiths. Or pump jockeys.

How many mom-and-pop bookstores has Amazon put out of business? The rise of the internet has caused a massive shift in the economy, displacing millions of workers (but creating even more jobs in new industries).
[/QUOTE]

Well, I guess I would say that technology keeps production here while free trade moves production offshore. Maybe you are right about the shock tho.

198

[QUOTE=John Mace]
We do? What will happen if we don’t, and why is that worse then opening the doors quicker? I think it’s a fools errand to try an compete with the Chinese on price. We can’t win that race.
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So is there any way to address our loss of competitive advantage in labor?

199

[QUOTE=John Mace]
My point is that the idea of targeted tax breaks sounds good on the surface, but I question whether they actually work.
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So why would untargetted tax cuts work any better than targetted ones?

Why would these measures not also be necessary with untargetted tax cuts?

200

[QUOTE=xtisme]
Well…yeah. You make it sound as if this is a bad thing. Companies are in business to make money.
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It kinda takes a lot of the enlightened out of the “enlightened self interest” without the human factor. They are kind of unidimensional, they don’t balance efficient markets with social equity.

I just don’t subscribe to all this free market worship. I’m not about to stop using gas just because the oil companies lie about global warming. I’m just saying that the market doesn’t regulate itself.