The (US) economy: What should be done?

Great Debates
261

[QUOTE=John Mace]
No, I don’t think that. I don’t know that there is one Republican policy, and depending on what you want to do, it might be better to give tax breaks to businesses or give rebates to consumers. I’m not really inclined to do either, except as part of a broad economic policy (ie, not in response to a possible recession).
That would be true only if rich folks did NOTHING with that money (eg, the hid it under their mattresses). Anything they do that injects the money back into the economy will “stimulate” it. It will just stimulate it in a different way (investments, more likely) than if you gave the same money to poor people (consumption, more likely).
[/QUOTE]

Maybe you do understand. It is called "the marginal propensity to consume. And that is exactly what it says. A new chunk of income will be disposed of at a greater percentage and more quickly by a person of less means. I did not know you were aware of that . Not a mattress but it will not be spent like a disadvantaged person would. It would have less impact on the economy.

262

[QUOTE=xtisme]
I have no idea where you get this idea. IOW no…I disagree. Capital creates new jobs by allowing companies to expand. It allows them to update and automate. Without capital companies can’t do either.

Business create jobs and expand when they have capital to do so. Otherwise they don’t. I’m unsure how you think businesses work.

Sometimes…and if they have the capital to do so. Sometimes businesses decide to go after new business by creating new products or new markets…or exploiting existing markets by attempting to capture someone else’s share of the pie.

To penetrate new markets…to capture more market share…to expand their current capabilities. There are any number of reasons. And they all depend on capital. As an example think about Microsoft. Microsoft used to develop mostly office automation software. Why should they expand? Apple already controlled a large percentage of the OS market…and what they didn’t IBM’s DOS controlled. Why bother building a GUI OS to compete with Apple? Why compete against Novell on the server OS side of things when Novell had a virtual monopoly? Why expand their business when they had ‘excess capacity’?

Well…because they could make butt loads of money by capturing those markets, thats why. And what did it take for them to do it? Were people lined up to buy MS Windows vaporware before it was out? I think not. They did it by capital investment in creating a new product line and then smashing Apple AND Novell at their own games.

See?

-XT
[/QUOTE]

If a business has excess capacity it can borrow money to build more - or it can redirect the capital it already has to more productive uses.

You are also confusing R&D with capital. R&D gets a tax credit already, as well it should. Shoving more money at R&D doesn’t usually creates new products, it creates useless R&D. (I worked at Bell Labs, and I know this well.)

I think you’re a bit confused about the history of PC software. Microsoft started with BASIC, not office automation software. There was no Word, as far as I remember, when DOS came out. Microsoft has basically unlimited capital - what have they come up with in the last decade, besides Vista (purely incremental) and the bloody paper clip.

I’m not sure I’d call the Apple OS an OS, and even if it was back then its share of the OS market was tiny. The OS market was in IBM mainframes, and the BUNCH clones, with a bit in mutually incompatible minicomputer OS’s. DOS was for a brand new market, and the innovator there was clearly IBM.

As for capturing shares of the pie, the number one thing they tell you when writing a business plan is not to justify a market by saying - Company X and Y have 90%. It will be easy to get 10%, which gives us … To get a slice of the pie, you have to either have something better (sometimes not easy when you are new, sometimes easier) or the resources to undercut pricing or to flood the market with ads. None of that improves productivity and builds real wealth, assuming there is competition already.

I’m not saying capital is useless, of course. But capital by itself won’t grow a business, or make it succeed, or else we’d all be buying our dogfood on the Internet.

263

[QUOTE=gonzomax]
Maybe you do understand. It is called "the marginal propensity to consume. And that is exactly what it says. A new chunk of income will be disposed of at a greater percentage and more quickly by a person of less means. I did not know you were aware of that . Not a mattress but it will not be spent like a disadvantaged person would. It would have less impact on the economy.
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Dude, I was responding to a poster her said that giving money back to rich people would do NOTHING to help the economy. That was factually incorrect. What your post has to do with that discussion, I have no idea.

264

[QUOTE=John Mace]
Dude, I was responding to a poster her said that giving money back to rich people would do NOTHING to help the economy. That was factually incorrect. What your post has to do with that discussion, I have no idea.
[/QUOTE]

I think what bothers Gonzo is the idea that a poor person may spend 80%, 90% or more of their income on basic necessities while a rich person may spend 20%, 10% or less on those same necessities. Thus in his mind the poor person is contributing more to the economy because his personal cost is greater. What I have not seen is any recognition that 20% of a rich person’s income may be greater than 90% of a poor person’s, meaning that in actuality the rich person is stimulating the economy more, no matter what he does with the other 80% of his income. I also think that there are people here who truly believe, who KNOW, deep down in their hearts, that most rich people keep the bulk of their assets as cash, and late at night they strip naked and roll around in it shouting “WHEEEEE!”, right before masturbating to videos of widows and orphans being evicted from substandard slum housing. These same people usually believe that most rich people are Paris Hilton, thus they don’t work and just waste their life partying and living their lives as idle rich. They are the true believers in class warfare, blinded by jealousy so rich they taste it every second of their lives. It’s a mindset that quite honestly baffles me completely.

265

[QUOTE=Fear Itself]
So what? We also discriminate between taxpayers with high incomes and low incomes. You say that as if it is a bad thing. I still see no support for double taxation.
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I think we should tax corporations but I cannot give you a slam dunk argument for why we should tax corporations and then tax distributions of corporate earnings through a dividend tax. The most compelling argument is that there are a myriad of ways to organize businesses (LLC, partnership, S-corp, grantor trusts, etc.) that is not subject to corporate taxes. If we could fix several other inequities in our system, I would not oppose a deduction for dividends paid to individuals (after all, corporations get a huge dividends received deduction which excuses corporations from much of the dividend tax).

In the end we have to collect enough to run our government (however large you think it should be) and we have to decide how than burden is distributed.

266

[QUOTE=Weirddave]
I think what bothers Gonzo is the idea that a poor person may spend 80%, 90% or more of their income on basic necessities while a rich person may spend 20%, 10% or less on those same necessities. Thus in his mind the poor person is contributing more to the economy because his personal cost is greater. What I have not seen is any recognition that 20% of a rich person’s income may be greater than 90% of a poor person’s, meaning that in actuality the rich person is stimulating the economy more, no matter what he does with the other 80% of his income. I also think that there are people here who truly believe, who KNOW, deep down in their hearts, that most rich people keep the bulk of their assets as cash, and late at night they strip naked and roll around in it shouting “WHEEEEE!”, right before masturbating to videos of widows and orphans being evicted from substandard slum housing. These same people usually believe that most rich people are Paris Hilton, thus they don’t work and just waste their life partying and living their lives as idle rich. They are the true believers in class warfare, blinded by jealousy so rich they taste it every second of their lives. It’s a mindset that quite honestly baffles me completely.
[/QUOTE]

A dollar given to a poor person is far more likely to be spent than a dollar given to a wealthy person.

267

[QUOTE=Damuri Ajashi]
A dollar given to a poor person is far more likely to be spent than a dollar given to a wealthy person.
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Horseshit…but so what? A dollar given to a ‘wealthy person’ is more likely to be invested than one given to a poor person. A dollar invested is more likely to produce a job than one spent on cigarettes and booze.

[QUOTE=Voyager]
If a business has excess capacity it can borrow money to build more - or it can redirect the capital it already has to more productive uses.
[/QUOTE]

If a company has excess capacity they will most likely divest themselves of it instead of build new business units. Excess capacity is usually a bad thing unless things are booming.

If a company wants to expand then what they needs is CAPITAL…not excess capacity that is just sitting there waiting to be used. Microsoft didn’t build up it’s OS product line because they had excess programmers just laying about waiting to be tasked to build Windows. Gates saw an opportunity and used capital to BUILD the capacity, to hire programmers and developers and marketers etc etc.

-XT

268

[QUOTE=xtisme]
Horseshit…but so what? A dollar given to a ‘wealthy person’ is more likely to be invested than one given to a poor person. A dollar invested is more likely to produce a job than one spent on cigarettes and booze.
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/sigh poor people are not all crack addicted winos.
Why woud you think it is horseshit?

269

[QUOTE=Damuri Ajashi]
/sigh poor people are not all crack addicted winos.
Why woud you think it is horseshit?
[/QUOTE]

OK, let’s put it back on you, after all, you were the one who made the ridiculous statement “A dollar given to a poor person is far more likely to be spent than a dollar given to a wealthy person.”. I just gave a dollar to a wealthy person. Tell me, what does he do with it?

270

[QUOTE=Weirddave]
OK, let’s put it back on you, after all, you were the one who made the ridiculous statement “A dollar given to a poor person is far more likely to be spent than a dollar given to a wealthy person.”. I just gave a dollar to a wealthy person. Tell me, what does he do with it?
[/QUOTE]

The wealthy will buy more US government obligations with it. I guess you could call that spending but I was talking about the consumption form of spending. Just ask the Federal Reserve and the CBO and the Dept. of Treasury, they will each tell you that the poor are more likely to spend money than the rich (or at least they each did so in congressional testimony right before congress passed the stimulus package).

271

[QUOTE=Damuri Ajashi]
/sigh poor people are not all crack addicted winos.
[/QUOTE]

No shit? Really? I never knew…

[QUOTE=Damuri Ajashi]
Why woud you think it is horseshit?
[/QUOTE]

Well, I don’t know chief. Since you put those words in my mouth why don’t you tell ME why I think that. Keep your words small though…since I was one of those poor people who I think are all winos and crack addicts (and I even, gasp, ran with a gang in my youth)…

-XT

272

[QUOTE=Weirddave]
I just gave a dollar to a wealthy person. Tell me, what does he do with it?
[/QUOTE]
He invests it in a shoe company who moved their factory to South Korea and laid off 600 Americans.

273

[QUOTE=Fear Itself]
He invests it in a shoe company who moved their factory to South Korea and laid off 600 Americans.
[/QUOTE]

…who then ships those shoes back to the US (at a savings to the US consumer), while adding additional for people to take those shoes off the boats, ship them all over the country, and sell them. Those 600 buggy whip factory workers (oops…sorry, I meant shoe makers) then get jobs doing something else…or retire.

Sounds like either a win/win or a break even to me. But you seem to think its a great idea to have that shoe manufacture get a captive market instead, so that their shoes cost more but we still have to buy them because they were Made In America™! Or were you going to allow free competition so that said shoe manufacture instead is forced out of business…um, but then what happens to the 2000 workers at that shoe plant that are now out of a job because instead of moving manufacturing overseas the entire business collapsed because they couldn’t compete?

-XT

274

[QUOTE=xtisme]
Sounds like either a win/win or a break even to me.
[/QUOTE]
Not for the ex-shoemakers, who you have invited to retire, presumably under a bridge.

Why should they support a tax rebate to the rich if it doesn’t benefit them at all?

275

[QUOTE=Weirddave]
OK, let’s put it back on you, after all, you were the one who made the ridiculous statement “A dollar given to a poor person is far more likely to be spent than a dollar given to a wealthy person.”. I just gave a dollar to a wealthy person. Tell me, what does he do with it?
[/QUOTE]

I’ll tell you what he does with it. He puts it into the stock market, bidding up the price of stock, without any related increase in real investment.

What else?

276

[QUOTE=xtisme]

If a company has excess capacity they will most likely divest themselves of it instead of build new business units. Excess capacity is usually a bad thing unless things are booming.

[/quote]

I wish you had told Mr. Bush that in 2001. After the bubble, there was a lot of excess capacity. Companies all over the Valley were writing off inventory that they would never be able to sell. Contract manufacturers ate stuff that they made for companies but were never paid for. Intel stopped developing a plant in Dallas, halfway through. But the tax cuts went primarily to the rich, which is why the recovery was so damn slow.

Microsoft is a terrible example. They get their capital from monopoly profits. They got cash coming out of their ears. For every Office 2007 and Vista (great contributors to the good of mankind) they spend on junk like the IPod killer and social networking and trying to keep MSN afloat.

The Mercury News said on Sunday that the buzz among venture capitalists is that they have more money than places to put it. I guess they figured out not to invest in on-line pet stores again.

The craziness of the bubble was due to too much capital. Startups which got tons of money from venture capitalists didn’t invest it productively, they invested in on fancy offices and useless Super Bowl ads. Too little capital is a bad thing, but so is too much. Do you have any evidence, besides your faith in capital at all costs, that there is a capital crunch today?

277

[QUOTE=Fear Itself]
Not for the ex-shoemakers, who you have invited to retire, presumably under a bridge.
[/QUOTE]

To be sure, not for your theoretical 600 shoe makers. Things will most likely be bad for them. And you and I can feel bad for them…especially if we happen to be the shoe makers. I’m sure you felt terrible for me when first Williams Communications went tits up (taking several million dollars theoretical stock options of mine down into their watery grave) and then Nextira 1 failed after only 6 months. Times were touch for ole XT and I’m sure your heart went out to him and all his other IT geeky co-workers.

Shit happens however. Those of us who can, move on. Those of us who can’t…well, that’s what all that money we pour into social programs is suppose to help out on.

[QUOTE=Fear Itself]
Why should they support a tax rebate to the rich if it doesn’t benefit them at all?
[/QUOTE]

What you were supposed to take out of my riff on your theoretical show manufacturer example was that the situation is not deterministic…and is quite complex. If that shoe manufacturer feels the need to move it’s shoe making plants to other nations or they won’t be able to compete on price with companies who have already done so then in the short term this will certainly be bad for those shoe maker types. Thinking about it a little however you can see that while THEY may have bad times, this opens up jobs in other sectors because now the shoes will be coming in from outside the old logistics matrix. Instead of picking up shoes in St. Louis (or wherever they make shoes these days) and trucking them to a series of stores across the country those shoes now have to be imported on ships, and the logistics would be more complex.

Also, lets speculate for a moment here…lets go wild and crazy and say that the US company that outsourced it’s older manufacturing to another, cheaper country now gets a product back that has a similar quality AND costs a lot less. I know it’s wild and crazy but work with me here. Perhaps…just perhaps mind you…that these outsourced manufacturers are able to increase the quantity AND the quality of the product over what the old US manufacturer could do. Assuming all that stuff, isn’t it plausable that sales will increase? Market penetration and market capture increases? More capital in the old US business.

If all that happens, what would the shoe manufacture do? Blow all the cash on fast women, hot cars and drugs? Well, they might blow SOME of it on that. THey would also buy new expensive boats and planes and other toys. This would have the effect of creating demand in those sectors causing them to , perhaps, expand their own businesses. But all of the Rich’s money isn’t going to to consumption. Some of it they are going to invest in US and foreign companies (which, if they make more money starts the cycle up again for them to spend and invest even more).

I could go on and on (and aren’t you glad I didn’t?? :)), but the point is that everything is so interconnected and complex that you can’t simply look at those 600 workers laid off because their company moved their manufacturing to somwhere they make them cheaper. There is a ripple effect when something like that happens. Even investing in foreign companies can have a very real effect here in the US on jobs and on costs to our consumers.

-XT

278

[QUOTE=Voyager]
I wish you had told Mr. Bush that in 2001. After the bubble, there was a lot of excess capacity. Companies all over the Valley were writing off inventory that they would never be able to sell. Contract manufacturers ate stuff that they made for companies but were never paid for. Intel stopped developing a plant in Dallas, halfway through. But the tax cuts went primarily to the rich, which is why the recovery was so damn slow.
[/QUOTE]

Well, you’ve made my point then. Thank you. There was excess capacity…and yet there was no major growth (quite the opposite). Companies didn’t say 'Look! We have 10,000 programs here with nothing to do now that we have taken a huge financial loss. Lets use our excess capacity to <make widget XT2000> and take the country by storm!

Instead they looked to reduce that excess labor since it was just a drag on the company. There were a lot of reasons for this, but the main one is that you need capital to expand…and at that time a lot of these companies didn’t have excess capital laying about.

[QUOTE=Voyager]
Microsoft is a terrible example. They get their capital from monopoly profits. They got cash coming out of their ears. For every Office 2007 and Vista (great contributors to the good of mankind) they spend on junk like the IPod killer and social networking and trying to keep MSN afloat.
[/QUOTE]

They are a good example if you actually read what I said. MS may have that situation NOW…but not in the early 80’s they didn’t. At THAT time there were a fairly wealthy office automation and specialized software manufacturer. The big giants in the personal computer arena were Apple and IBM DOS. In the LAN server arena there was Banyan Vines, Lan Manager and Novell Netware (and some other Unix based systems that were pretty low on the totem pole at the time). Microsoft chose to penetrate those pretty much established markets…and they didn’t do it because they had a few extra programmers laying about eating bon-bons and thought ‘gee, we should put these guys to work!’. They were able to do it because they had the vision TO do it…and they had the capital to invest in the company to make it work.

Their gamble paid off and, yeah, today MS is the 800 lb. gorilla that needs to be looked at warily. MS now has the ability to buy excess capacity any time they want buy purchasing small companies who are going to bring in some new product MS is interested in. And that takes capital to do…something, as you pointed out, MS has a boat load of.

[QUOTE=Voyager]
Do you have any evidence, besides your faith in capital at all costs, that there is a capital crunch today?
[/QUOTE]

Did I say there was a capital crunch today? I think what we are seeing is a crisis in faith or confidence in the system today. There is capital out there…but companies are reluctant to use it right now before they know which way the wind is blowing. There are myriad factors from ‘will Bush’s tax cuts be permanent or will we go back to the way they were before…or will they increase?’ to ‘will we be getting a new health care system thrust upon us…and how much is that likely to cost?’ to ‘what new Global Warming and anti-CO2 legislation will be enacted and how will it effect not just my business and personal life but all of the interconnected businesses I have to deal with to get the products and services I need. What will the bottom line be?’

-XT

279

[QUOTE=Weirddave]
These same people usually believe that most rich people are Paris Hilton, thus they don’t work and just waste their life partying and living their lives as idle rich. They are the true believers in class warfare, blinded by jealousy so rich they taste it every second of their lives. It’s a mindset that quite honestly baffles me completely.
[/QUOTE]

This is not an assault on wealthy people or corporations. By nature, capitalism seeks to dominate the market and maximize profits. Corporations are only behaving in their best interest, but what is beneficial to corporations is not necessarily beneficial to the country.

The problem with the current global model is that American workers, the economy, and the country are losing far more from the lack of growth, suppressed wages, and declining standard of living than they can ever gain from access to cheap goods. Two classes are emerging from the global free market: The few with astronomical wealth and everyone else, including the declining middle class, with nothing – no affordable health care, a decent pension, quality child services, or a working government that is supposed to represent all the people.

Corporations offshore IT, the service sector, aeronautical production, white color management, R&D, and pharmaceuticals, the only jobs left for the majority of Americans are in minimum wage retail, selling American goods entirely developed and manufactured offshore back to U.S consumers. We have equipped our competitors with sophisticated technology, enabling highly efficient production. I don’t understand how anyone can deny this is a problem, especially with the massive trade imbalance and debt. It doesn’t take a credentialed economist to recognize what is happening, or that it’s a serious problem. This country used to attract the brightest minds from around the world, but now we may actually experience a brain drain.

Economic strength is what gave the U.S. global influence. The debt and trade deficit will be used as a means to control this country when other wealthy nations exert their soft power.

280

[QUOTE=Damuri Ajashi]
The wealthy will buy more US government obligations with it. I guess you could call that spending but I was talking about the consumption form of spending. Just ask the Federal Reserve and the CBO and the Dept. of Treasury, they will each tell you that the poor are more likely to spend money than the rich (or at least they each did so in congressional testimony right before congress passed the stimulus package).
[/QUOTE]

More likely to spend more money, or more likely to spend more money on necessities? Think carefully now, your answer will determine where you stand on the continuum of communism to unregulated capitalism.

[QUOTE=Voyager]
I’ll tell you what he does with it. He puts it into the stock market, bidding up the price of stock, without any related increase in real investment.

What else?
[/quote]

And what do those companies that he has invested his dollar in do? Do they use the dollar to expand/increase production/pay off debts, thus making themselves financially healthier, paying a return to the investor, or do the stockholders of that company toss the dollar on their pile and roll around in it? What do you believe happens?