Who benefits from another Depression?

[Mijin]

FWIW, I’m another person that does not believe that the austerity measures are trying to bring about a depression.

e.g. with Greece, you have extremely generous social security, lots of public employment (with salaries which have doubled in recent years), plus widespread tax avoidance. Without the recession there still would have been a crash for Greece, it’s just this way it’s crashed harder.

Many european countries have similar issues, though to a lesser degree. No-one knows how to fix this mess, but spending less seems like an obvious first move.

If spending is necessary to stimulate growth, then that money should be targeted at doing exactly that, rather than preserving jobs or services which don’t give much bang for buck.

[Try2B_Comprehensive]

@amarone

Are you seriously suggesting that when the market falls 60%, then nearly 3 years later is still down 15% or so from its high, that rich people will do better than in non-recessionary times when the market averages an increase of 10% per year?

Evidence please.

First, your previous post/cite was a pretty good counter-point to what I’m talking about here. Billionaire-ism is down post recession, so it does appear that (so far) these conditions are not helping them. I can only suggest that they are buying or will buy up cheap assets which will give them a bigger return later.

And what do we make of the fact that corporations are sitting on so much cash?

Rather than pouring their money into building plants or hiring workers, nonfinancial companies in the U.S. were sitting on $1.93 trillion in cash and other liquid assets at the end of September, up from $1.8 trillion at the end of June, the Federal Reserve said Thursday. Cash accounted for 7.4 percent of the companies’ total assets — the largest share since 1959.

I can imagine it being worthwhile for corporations to hold out until Mitt Romney gets elected, crashes the economy and then they dump that $2 trillion into amassing a huge pile of cheap assets while everyone else is going bankrupt. Similar to Romney’s plan of letting the mortgage crisis ‘run its course’, which means many people lose their homes and rich people buy them at a huge discount.

[msmith537]

@Wesley_Clark

I can’t find the entire article online, and am not subscribed to the new republic. But I would guess it is just short sightedness on the part of politicians and the public who elect them. We ignore climate change for the same reason.

Also, politicians are elected by their constituents, not economists. Most people have no understanding of monetary policy, Keynesian economics or…really anything. They understand “common sense” things like “budgets should be balanced”, “immigration and outsourcing steal jobs”, “protectionism saves jobs” and “poor people need money and rich people have it”.

There are also competing and equally valid schools of economic thought as well. So it’s not simply a clear case of government spending will automatically be a panacea for curing all economic ills.

[puddleglum]

@Try2B_Comprehensive

We aren’t anywhere near the condition of Greece, and with treasuries so low we aren’t going to get there anytime soon. And insofar as the real-world multiplier number probably cannot be known until after the fact, the risk that it is less than 1 is also pretty low..

America is in so much debt that it will eventually either have to raise taxes, cut spending, or become Greece. Everyone who can read the newspapers knows this. Thus those who are supposed to be stimulated with the government are expecting to either have the spending cut off or their taxes raised. In an environment where expectations are that any spending boost will either be temporary or offset by tax hikes the multiplier is likely to be below one. See the Ramey paper from July 12, Does Government Spending Stimulate Private Activity?

This paper asks whether increases in government spending stimulate private
activity. Using a variety of identification methods and samples, I find that in most
cases private spending falls significantly in response to an increase in government
spending. These results imply that the average output multiplier lies below unity.

Is that tax cuts for the rich vs. any kind of government spending, or what? If you can prove it with a cite I’d be enriched.

Here is the link to the paper elsa.berkeley.edu/~cromer/RomerDraft307.pdf PDF
Here is their conclusion:

Figure 4 summarizes the estimates by showing the implied effect of a tax increase of one percent
of GDP on the path of real GDP (in logs), together with the one-standard-error bands. The effect is
steadily down, first slowly and then more rapidly, finally leveling off after ten quarters. The estimated
maximum impact is a fall in output of 3.0 percent. This estimate is overwhelmingly significant (t = –3.5).
The two-standard-error confidence interval is (–4.7%,–1.3%). In short, tax increases appear to have a
very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax
changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large
and persistent positive output effects.13

[Voyager]

@amarone

Are you seriously suggesting that when the market falls 60%, then nearly 3 years later is still down 15% or so from its high, that rich people will do better than in non-recessionary times when the market averages an increase of 10% per year?

Evidence please.

Not better absolutely - there are clearly unrealized losses. But definitely better relative to others. A billionaire losing $50 million of his portfolio is less affected than the poor schmuck who loses his job due to the recession, or versus people losing hours or taking pay cuts or paying more for insurance with no increase in pay.

I’ve lost a bunch of theoretical money, and it has no impact. In fact, the recession has been good in that I could get home renovations done more cheaply. I lost a ton of theoretical money on options in the dot com bust. No real harm done except for the dents left when I kicked myself in the ass for being so stupid.

[Voyager]

@puddleglum

America is in so much debt that it will eventually either have to raise taxes, cut spending, or become Greece. Everyone who can read the newspapers knows this.

Oddly enough, the market doesn’t, as evidenced by the very low interest rates on government debt.

[Try2B_Comprehensive]

@puddleglum

America is in so much debt that it will eventually either have to raise taxes, cut spending, or become Greece. Everyone who can read the newspapers knows this.

This is not true in the least. Greece has fallen into a financial black hole- it is unable to service its debt, meaning it does not pull in enough revenue to pay the interest on its debt. I’m not sure what tells a country, “you’re screwed” more than that. Compare that to America’s situation, from here:

The chart may surprise many given the huge run up in the U.S. federal debt over the past 10 years. The data show that the total public debt stock has increased from $5.7 trillion on September 30, 2000 to $14.8 trillion on September 30, 2011.

The net interest cost to service the debt, however, has fallen as a percent of GDP due to the sharp drop in the average interest rate paid on the debt, which fell from 6.63% in 2000 to 2.886% on September 30, 2011.

Just look at their chart of debt interest as a percentage of GDP. For us, it is at a* 3 decades low*.

Our situation has nothing in common with Greece’s

We can continue borrowing as we have for years and years without coming close to Greece’s troubles. That is not to say that debt is not a problem at all, but to compare us to Greece is uttlerly misleading.

Thus those who are supposed to be stimulated with the government are expecting to either have the spending cut off or their taxes raised. In an environment where expectations are that any spending boost will either be temporary or offset by tax hikes the multiplier is likely to be below one. See the Ramey paper from July 12, Does Government Spending Stimulate Private Activity?

Whether it is spending cuts or tax increases, both would be a result of the Republican candidates’ plans, and not the Democrats’. Let’s take a quick look at them.
First of all, Cain’s plan is simply moronic. It raises taxes of the bottom 80% of taxpayers and gives staggering tax cuts to the super wealthy. If you want to characterize this as a ‘valid school of thought’, be my guest, I will be over here laughing at you. No revenue is the answer to the deficit ‘crisis’? Really? Ha. Ha. Ha.

Here is another simple chart expressing the results of Rick Perry’s tax plan. In short, it puts the ‘regressive’ in ‘regressive taxation’. Massive tax cuts for millionaires? Really? Please explain to me how this is supposed to bring revenue in line with expenses. It isn’t as bad as Cain’s comedy, but if you want to make our economy resemble Greece’s your only chance is to destroy revenue, and maybe Perry is your man.

And then there is Romney’s plan. From here:

Romney’s plan extends the Bush-era tax cuts, preserving today’s top marginal income tax rate of 35% rather than allowing it to jump up to 39.6% next year. It scraps the estate tax. And for taxpayers earning less than $200,000 a year, there would be no taxes on capital gains, dividends, and interest. The plan would also lower the corporate tax to 25%.

Aspects of Romney’s plan may be debatable, but in a nutshell it puts the cart before the horse, or rather the revenue-slashing before the debt reduction. We need jobs for growth, we are not going over a debt cliff, and history shows that a windfall for the wealthy does not grow the economy.

Thanks for the link, puddeglum. Lately I don’t have time to even log on to the 'dope every day, let alone plow though a 68-page paper about taxes. I have some time today and will read as much as I can, and have bookmarked it for future self-ignorance fighting, thanks. But consider this from the abstract:

We then examine the behavior of output following these more exogenous legislated changes. The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment.

I’ve already pointed to the fact that businesses are sitting on $2 trillion, and not investing it. This is after 10 years of Bush tax cuts. Clearly the tax cuts did not produce the predicted investment, but rather a mountain of cash for corporations to hoard. And I’ve pointed out the low low treasury interest rates- investors aren’t investing in business, they are buying bonds. That’s great considering the government needs to borrow money, but by itself it isn’t stimulating anything as long as the government is barred from common-sense usage of this borrowed money.

I’m sorry, but the conclusion of the paper is in contradiction of other data. Fromthe link I already posted

do lower taxes actually spur economic growth? Bruce Bartlett, an economist in the Reagan administration, has compared tax rates in various rich countries in 1979 to each country’s growth rate since then. His conclusion? There’s virtually no correlation. Recent US history backs this up too.

just go ahead and scroll down and look at the data yourself. Cutting taxes has not resulted in an acceleration of growth. All it has accomplished is a huge increase in debts. (again, I admit I have to read the rest of your link, but clearly there is a contradiction)
I don’t think I gave a proper response to Yorick. No, I don’t think the Republican candidates really believe what they are saying. How can we trust the sincerity of a party that engages in so much Orwellian doublespeak? Instead of invasion we get ‘liberation’. They aren’t rich, they’re ‘job creators’! It isn’t health care, they are ‘death panels’. I’m sure we could think of a long list of examples. Look, clearly the GOP’s plan is to give a windfall to the wealthy at the expense of everyone else. Romney’s plan, with it’s balanced budget amendment, is clearly intended to slash revenue while tying the hands of government such that Social Security and Medicare get slashed. While laying off thousands of teachers, firefighters, firemen &etc. And their strategy is to get elected is to fill the media with enough bullshit that the proles are confused into voting for them. They aren’t sincere, they’re lying.

You want another Depression? My link shows that actual business leaders cite lack of demand as their top concern, not taxes. What happens to demand when everyone is cut off from the Social Security benefits they spent their lives paying for? When thousands lose their jobs? When there are no cops or firefighters? msmith says it is simply a matter of valid, competing schools of thought. Do you mind identifying them for us?

Anyway, I could be wrong. I hope my tone isn’t insulting, I don’t mean to be. I am not a partisan- some of my position I consider to be conservative- and am perfectly willing to listen to and be instructed by conservatives if they have the best point. I think the GOP candidates plans are disastrously bad though and can’t see how anyone would support them, unless they are either fooled or in a position to benefit from another depression.