I was e-mailed the following clip.
It was sent with the message:
"Isn't it interesting that the question out of Donahue's mouth some thirty
one years
ago, is one of the primary issues Obama ran on and pushes
almost
daily?"
(The clip blow is from youtube, but he email actually linked here. Same clip)
The blog, includes the following commentary:
Pretty interesting clip…even though it is 30 years old, the content is
“timeless”
If you don't think we have been going aroud on the same argument for years this
will put it into perspective. Leave it to an economist to clear things up.
Wow! Talk about a clear cut look at the way the world operates.
This is Phil Donahue interviewing Milton Friedman thirty years ago.
The audience is notably silent.
Now I'm going to say a couple of things that will probably shock my Conservative readers, and possibly some of my liberal ones. I like to burninsh my centrist cred from time to time, and this post is going to be one of those times.
First of All: Milton Friedman was right.
And no, I'm certainly no fan of Friedman, nor am I a supply-sider. I'm a Keynsian, and unlike 99% of people of commenter who start out admitting they know nothing about economics, I have a graduate degree in Business, and three Graduate Level classes from the University of Michigan, which I solidly aced on my to graduating with honors. So i DO know a little bit about economics. And it's very simple: Keynes was right, Krugman is right, and their detractors range between liars, thieves and morons.
But... Every thing Friedman said in this clip? It's 100% correct.
And Phil Donahue is an idiot.
No, not in general. Generally I have no problem with Donahue. But here's the thing: ANYONE who is talking about "socialism" in this day and age is a FUCKING MORON. Hear me out...
If you are a Liberal, Progressive, Democrat, etc... talking about it? I'll clue you in: IT DOESN'T FUCKING WORK! OK? As a designed system it looks great, on paper anyway. But you're trusting humans to run things, and humans are, at best, short-sighted and fallible. At worst they're greedy, money-grubbing, evil and corrupt. And even if you could get past THAT part of human nature, the laws of supply and demand were not invented by Partisan Republicans. They're based on observations of COLLECTIVE HUMAN BEHAVIOR and you simply cannot fight them for very long. They're like gravity: You can go against them for a while (climb a ladder, fly a plane) but eventually you are going to pulled back to market equilibrium (the ground.) It's inevitable.
Now... To be honest, I'll be somewhat disappointed if I really have to argue that point with that many Liberals. I really said all that so that there's some chance that Conservative readers will drop their idiotic assumption that anyone not actively pining for the glory days of George W. Bush (with a McCain/Palin or Romney/Ryan sticker on their bumper) must be some kind of wild-eyed Socialist. I'm guessing there really aren't that many people out there who REALLY believe Socialism is the way to go, especially if they actually understand history and/or economics.
Which brings me to the reason that anyone who is Conservative, Libertarian, Republicans, Tea-Bagger, etc... and is talking about Socialism is also a fucking moron:
NOBODY ON THE LEFT (OR ANYWHERE ELSE) IN THIS COUNTRY IS PROPOSING ANYTHING SOCIALIST OR TALKING ABOUT SOCIALISM!!!
Show me the Socialism! Show where Obama, or Pelosi, or ANY Democrat has proposed that the State take control of, and run, private companies! SHOW ME! It's not fucking happening! And far from the e-mails claims that Obama "ran on" this [socialism? redistribution?] and "pushes [it] almost
daily;" back in the real world, the only legislation Obama has ever signed regarding taxes LOWERED THEM (for everyone) and that remains unchanged going forward. (More on that in a moment.) And his big health care system? "Obamacare"? Hardly a Socialized, government takeover: It owes it origin to the Right-Wing Heritage Foundation, it was pushed by Republicans during the Clinton years, and implemented by Governor Romney, the Republican candidate for President last year! And as much as I've heard the Rigth talk about Obama's plans for "redistribution," you know who I NEVER heard speak of it? Even ONCE?
Barack Obama.
See... What the idiot Right in this country doesn't understand (and/or doesn't want the voting public to understand) is the argument is not one of Capitalism vs. Socialism. It isn't. And if you think it is, you're an idiot. The Republican are no more the great defenders of Capitalism, anymore than the Democrats are it's Detractors. The argument is simply on of laissez-faire Capitalism versus regulated Capitalism.
Obama has done NOTHING to stop or curtail "free enterprise," "capitalism," "entrepreneurialism" or anything else. Nothing. Zip. Nada. And as for Keynes? How could Keynes possibly be a socialist? Aside from the fact that he was himself an avowed critic of Socialism, his economic models are based ENTIRELY on a Capitalist Free-Market economy! Being a "Keynesian" MEANS you're a Capitalist! Only, you one that wants the Government to do what it can to help out, and you're one that realizes that both the supply side AND the demand side are needed for a society to grow economically! See, while you're two choices here (being Democrat or Republican) are in fact "Keynesianism" or "Supply-Side," Keynesianism is NOT the opposite of Supply-side. Supply-side simply looks at only ONE-HALF of the Keynes model.
Kind of like building a baseball team on Pitching alone, only to have to face another team that ha equally good pitching, AND phenomenal hitting as well. And reasonably intelligent person knows you need BOTH. Consider the 1940's-1960's, those "good old days" of the "greatest generation" and the "baby boom." You had FDR-D, Truman-D, Eisenhower-Rino, JFK-D, LBJ-D and 1 Year of Nixon-r. You had strong labor unions, a top tier tax rate ranging from 70%-90%, and each President had, among his greatest accomplishments, things that are considered Liberal by today's standards!
Now ironically, that video was shot in 1979, one year before the Election of Ronald W. Regan. And what has happened in the 34 years since then? Unions have been broken, tariffs have been lifted, Top-tier tax rates has fallen, deficits has skyrocketed, and middle class wages have stagnated, at best, and for the majority of Americans, haven't even kept up with the cost of living! And while the country, in total, has done "better" almost all of that benefit has accumulated at the top!
And that's exactly what you'd expect from supply-side economics.
(Historically, it's also what generally becomes of Socialist States as well - our old "Corporate Masters" merely move into their new Government Roles, now having official, codified, legal power, insteadof just the power that comes unofficially with great wealth.)
Again: It's not about Capitalism versus Socialism. It's about common-sense regulations, based on sound science, and taxation and spending based on sound economical principles, matched the needs of the country, or letting the old, fat, rich, white, men (think Roger Ailes) take and keep all the money!
And if you think that's an exaggeration, I defy you to show me that it's anywhere close to the ones calling Obama, Krugman or Keynes, "Socialists."
------------------
*** Obama has lowered taxes. I said I'd get to that. Remember that in 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act. Part of this Bill became known as the "Bush Tax Cuts." They lowered taxes, for everyone, from where they were under Clinton, but were heavily favored towards the rich, exploded the deficit and did little to stimulate the economy, relative to their cost. (All facts - you can look 'em up.) One key part of this legislation however, was that they were only suppose to go for TEN YEARS. Then, according to that very law, voted for by a Republican Congress and signed by President George W. Bush, taxes would revert back to their previous levels - for EVERYONE - in 2011.
Then, one wrecked economy later, President Obama comes along. And he needs to get the economy going again, so as part of the Stimulus he does two things: (1) He extends the Bush Tax Cuts through 2012. (NOTE: If he does nothing,PREEXISTING LAW has them at a higher rate. His actions therefore LOWERED them.) And (2) he temporarily lowers the payroll tax. Not that's not REALLY a "tax cut," since you'll still owe the same amount in the end, but it does put more money in your pocket in the meantime. In any case, President Obama only took action to LOWER taxes, relative to existing law.
And what about now? What about the law he just signed RAISING taxes on the top 1%?!
Really?!
>Once again, let's go back to existing law: In 2013, without any action required from the President, tax rates would go back to what they were under President Clinton. So what action did he take? He signed a law that LOWERED taxes.
For the bottom 99%? What about those at the top? Those poor, suffering 1%'ers?
Nope. For EVERYONE.
>EVERYONE is paying a lower tax rate than they would have been absent any action from the President, even those top 1%'ers who saw that top tier tax rate go up.
How's that, you ask?
It's called our progressive taxation system. (And it was first advocated by every Right Wingers second favorite economist, Adam Smith, I might add.)See... you know how all those "flat tax" advocates keep saying that we should all pay the same rate? Well, what they're hoping you don't know is that we ALREADY DO!
My first $8700 is taxed at 10%. So is Yankee Third Baseman Alex Rodriguez's.
My earned income between $8,700 and $35,350 is taxed at 15%. So is Donal Trump's.
My earned income between $35,350 to $85,650 is taxed at 25%. So is Roger Ailes and Rupert Murdoch's
(and so on...)
And so is all of yours. EVERYONE'S is, in fact.
So, see... when you cut the bottom tier tax rate, EVERYONE benefits from it. When you cut the TOP rate, only the rich benefit.
Likewise, when you raise the bottom tier rate, you raise EVERYONE'S taxes. (Unless you do what Reagan did in 1987, having a top tier rate that was LOWER than the middle-tier, the great fellatiator!) So even though that poor, suffering Billionaires will be paying a little more that they would have if Obama had extended ALL of the tax cuts, they are STILL paying less than they would have had no action been taken, on account of them keeping the same benefit we all got from those lower tier rates.
What do you know: Obama STILL hasn't raised income taxes!
Now, yes, we can talk about the taxes that are associated with "Obamacare" (again: a nae that Republicans gave to their own plan, once they realized how many even of their own people hated it) but that's a much more complicated discussion, as it involves an objective discussion of how broken our health care system was BEFORE. And it remains to be seen, going forward, if the various taxes, benefits, regulations, restrictions and markets/exchanges will bring a net benefit or net harm. And on a personal level, that depends largely on whether you currently have health insurance or not, if you can afford it, and if you can afford it down the road. A worthy discussion, to be fair, but not what we're talking about HERE.
One final note: I came out pretty big for Capitalism in this post, albeit the regulated Capitalism of 40's, 50's and 60's, not the laissez-faire Capitalism of the 20's (which didn't end well, you may recall) or the Reaganomics that continues pretty much to this day. (Until I see a top-tier rate over 50%, we haven't substantively left Reaganomics yet!) I'd still proudly describe myself as a "Free-Market Liberal" or "Progressive Capitalist" and see no contradiction in doing so, at all.
To SOME EXTENT, Gordon Gecko was right: Greed is (or can be) good. Greed WORKS. (or CAN.)
And I do believe that for many things, the free market and the profit motive, assuming there's good, fair, open competition and well-informed choice, will generally distribute goods, services and income in a fair and equitable way. (Or at least the best possible way over time.) And while there may be others, I really see only four areas in our society that should be kept completely isolated from the pursuit of profit. And while, sadly, so many seem to disagree with me on these, I really can't see how these are anything but universal:
1) Education. Education is neither a right, not a privilege: It's a OBLIGATION. Of both a society to educate, and the people within it to become educated. And it an obligation that should be fulfilled by passing on OBJECTIVE KNOWLEDGE, not just the clap-trap that Corporations want to teach you in order to make you better voters and consumers (for them.) And make no mistake: The Right, and their 1% Corporate Masters, FEAR an educated populace. (And so does any Government in general.) Let's keep it that way!
2) Medicine. This one's easy. Just ask yourself, Do you want your Doctor making medical decision based on what's best for the Hospital's shareholders, or YOU, the patient. I think all sane people will say, "To hell with the Hospital's shareholders!" if the alternative is that they receive sub-standard or mediocre medical treatment. WELL... if you want that for yourself, you have to willing to grant it to everyone else. Otherwise, you're just a selfish little ass-wipe!
3) Justice. This one SHOULD be easy, but we actually HAVE a for-profit prison system. Oh, it "works," meaning it saves us money, provided that the jails remain FULL. Well, one "three strike and you're out" law signed by that great "Liberal" Bill Clinton, and we're now incarcerating a greater percentage of our population than CHINA does! (What, did you think that bill had something to do with CRIME?! OH, HELLS' NO!: It was entirely created by ALEC to make the for-profit prison system "work!" Look it up!) In any case, I don't think even the idiotic Conservatives who thought that "3-strikes" had something to do with being "tough on crime" would want to have a Judge making a decision that affected them based on economics rather that the evidence presented before the court.
and...
4) The Military. Duh. Private contractors in Iraq and Afghanistan have been expensive, wasteful and (in some eyes) guilty of War Crimes. They cost more than our troops and do a worse job. Not to mention... All the top Republican brass all now admit that Iraq was all about OIL and MONEY in the first place! What do you know? EISENHOWER WAS RIGHT. And the profit-motive makes for REALLY FUCKING TERRIBLE foreign policy decisions.
Aside from those four areas?
I'm 100% a Capitalist. Just like President Obama & company are.
-----------------------------
(One more thing... Something funny... every time I read about President Obama being described as a "Kenyan" I always read it, "Keynesian." Which becomes REALLY wierd when he'd called a "SECRET Kenyan." Because I read it "Secret Keynesian" and think, "Shit, that's not a particularly well-kept secret, is it?!")
Who IS this guy?!
Political Talk Show Host and Internet Radio Personality. My show, In My Humble Opinion, aired on RainbowRadio from 2015-2017, and has returned for 2021! Feel free to contact me at niceguy9418@usa.com. You can also friend me on Facebook.
---------------------------------------------------------------------------------------------------------------
Showing posts with label keynes. Show all posts
Showing posts with label keynes. Show all posts
Monday, March 18, 2013
Thursday, December 22, 2011
Meant to post this ealier...
Someone posted this infographic on MMFA lasty week, and I had meant to post it here and forgot about it until now. It comes from [IMHO HoF'er] Newscorpse and it serves as a pretty handy reference should you find yourself in a debate with any C-Students about taxes or economics. Please feel free to download it and pass it on.
Monday, October 10, 2011
Occupy Reality, part one
The Dow Jones Industrial Average "soared" 330 points today. What does that mean? Well... nothing, actually. But there's an interesting story to the DJIA when take in context. Here are the numbers over the past two months:
From July 21st to August 8th it lost 1914.26 points. That's... a pretty substantial drop. Now... Seeing as how it had been an almost consistently upward trend for over a year leading up to that point - up 6097.27 points since its low, about six weeks or so after Obama took office. So... What was going on during that time period that might have given the economy some jitters? Hmmm.... Let me think...
OH YEAH!
The whole stupid DEBT CEILING DEBATE! Thank you, REPUBLICANS! I mean, GOD FORBID the recovery happen when there's a DEMOCRAT in the White House! Keynes might make a comeback or something! (Of course, by stiflingng the stimulus packages, and seeing the recovery falter, they basically PROVED Keynes was right, but don't expect that liberal media (*barf*) to tell you that!) They couldn't bear to see that Obama (and Keynes) were RIGHT, so they invented an issue in order to shit-can the economy. Way to go, Republicans!
And since then, check it out:
UP 429.82
DOWN 519.83
UP 423.37
UP 125.71
UP 213.88
DOWN 77.707
UP 5.017
DOWN 419.63
DOWN 172.93
UP 37
UP 322.11
UP 143.95
DOWN 170.89
UP 134.72
UP 254.71
UP 20.7
UP 53.58
DOWN 119.96
DOWN 369.31
UP 15.04
UP 275.56
DOWN 119.05
DOWN 303.68
UP 68.99
UP 44.73
UP 140.88
UP 186.45
UP 75.91
DOWN 108.08
UP 7.65
DOWN 283.82
DOWN 391.01
UP 37.65
UP 272.38
UP 146.83
DOWN 179.79
UP 143.08
DOWN 240.6
DOWN 258.08
UP 153.41
UP 131.24
UP 183.38
DOWN 20.21
UP 330.06
Now, the trend? On average? Since, August 8th? Is DOWNWARD. OK, yeah, the index is actually UP 193.41 points since the start period, but the trend-line says that we'll lose about 4.65 points per trading day. The thing is? Do you notice how many days there are that the CHANGE (up or down) was in the triple digits? Because I did. Don't bother counting, I'm going to tell you: 32 out of 44. That 72% of the time that the Index changed by roughly 1% of it's overall value. To put that in context - a 1% change in a single day - if it went UP every day by 1%, in a year you'd have roughly THIRTEEN TIMES the money you started with. Now, obviously, that's never going to happen. Down days will cancel out up days and vice-versa. But more than EVER OTHER DAY? THREE OUT OF EVERY FOUR?! That's extraordinary.
So... what does it mean?
Well... You have to understand that the DJIA is nothing but a handful of stocks (30) that the Dow Jones Company picks because they feel that they are a good indicator of the countries overall economic health. (It's actually one of THREE indices for this purpose, but it the only one anyone every talks about, so it's what we're going to talk about.) And you also have to understand what a stock's price actually means. What it is, is the net present value (which assumes some arbitrary inflation rate) of all future dividends (profits) divided by the number of shares. IOW, it's a predictive value of how a company will do. And, obviously, as new information comes in (like quarterly reports?) both that projection, and the price, will change accordingly.
So... what does it mean that "the experts" keep changing their prediction by such a significant amount every day, up and down?
Well, for a start, it may seem that they don't what the hell they're bloody doing! But ACTUALLY, it merely means that there's a lot of economic instability at the moment. Now the Republcians will balme it on all kinds of things that eitehr haven't happened yet (like tax increases) or things that have no chance of happeneing. (Like tax increases.)
But I have an alternate theory, and it's fairly simple.
The economy is trying to recover. It really wants to. There is pent up demand and people are starting to spend money again. Sales of Halloween Candy/Decorations/Cosutems/etc..., for example, is WAY up from the last two years. I can tell you that Automotive sales (and profits) are generally up as well. But then...
HERE COME THE REPUBLICANS...
Debt crisis = higher interest rates = harder to borrow = lousy economy
No More Stimulus = hampers demand = lousy economy
Raise taxes on THE POOR (a favorite of Fox News these days!) = hampers demand = lousy economy
Cut Social Security and Entitlements = hampers demand = lousy economy
Cut Government Salaries and jobs = hampers demand = lousy economy
You see the trend?
The ECONOMY? Would be doing just fine if the Republicans did what they always say the Government should do: STOP FUCKING WITH IT!
All of this instability is due to Washington's (read: REPUBLICANS) refusal to simply DO WHAT IS NECESSARY to make things better.
Now... You might hear the Right tell you that their thinking LONG TERM instead of SHORT TERM.
To which I'll answer, "Yeah..." and point out that, to a Republican, "Short term" means the next fourteen months, while "Long term" meand 2013 through 2016.
If I had my way, I'd execute every one of these scumbags for treason. As it is, they should be impeached and jailed for theft, fraud and corruption. But, at a minimum? THEY SHOULD ALL BE VOTED OUT OF OFFICE. EVERY LAST MOTHERFUCKING ONE OF THEM!
I've said it many times on MMFA, and probably once or twice here, and I'll say it again:
Anyone making less than $250,000 a year who votes Republican is either clinically psychotic or functionally retarded. The rest? Are just greedy.
From July 21st to August 8th it lost 1914.26 points. That's... a pretty substantial drop. Now... Seeing as how it had been an almost consistently upward trend for over a year leading up to that point - up 6097.27 points since its low, about six weeks or so after Obama took office. So... What was going on during that time period that might have given the economy some jitters? Hmmm.... Let me think...
OH YEAH!
The whole stupid DEBT CEILING DEBATE! Thank you, REPUBLICANS! I mean, GOD FORBID the recovery happen when there's a DEMOCRAT in the White House! Keynes might make a comeback or something! (Of course, by stiflingng the stimulus packages, and seeing the recovery falter, they basically PROVED Keynes was right, but don't expect that liberal media (*barf*) to tell you that!) They couldn't bear to see that Obama (and Keynes) were RIGHT, so they invented an issue in order to shit-can the economy. Way to go, Republicans!
And since then, check it out:
UP 429.82
DOWN 519.83
UP 423.37
UP 125.71
UP 213.88
DOWN 77.707
UP 5.017
DOWN 419.63
DOWN 172.93
UP 37
UP 322.11
UP 143.95
DOWN 170.89
UP 134.72
UP 254.71
UP 20.7
UP 53.58
DOWN 119.96
DOWN 369.31
UP 15.04
UP 275.56
DOWN 119.05
DOWN 303.68
UP 68.99
UP 44.73
UP 140.88
UP 186.45
UP 75.91
DOWN 108.08
UP 7.65
DOWN 283.82
DOWN 391.01
UP 37.65
UP 272.38
UP 146.83
DOWN 179.79
UP 143.08
DOWN 240.6
DOWN 258.08
UP 153.41
UP 131.24
UP 183.38
DOWN 20.21
UP 330.06
Now, the trend? On average? Since, August 8th? Is DOWNWARD. OK, yeah, the index is actually UP 193.41 points since the start period, but the trend-line says that we'll lose about 4.65 points per trading day. The thing is? Do you notice how many days there are that the CHANGE (up or down) was in the triple digits? Because I did. Don't bother counting, I'm going to tell you: 32 out of 44. That 72% of the time that the Index changed by roughly 1% of it's overall value. To put that in context - a 1% change in a single day - if it went UP every day by 1%, in a year you'd have roughly THIRTEEN TIMES the money you started with. Now, obviously, that's never going to happen. Down days will cancel out up days and vice-versa. But more than EVER OTHER DAY? THREE OUT OF EVERY FOUR?! That's extraordinary.
So... what does it mean?
Well... You have to understand that the DJIA is nothing but a handful of stocks (30) that the Dow Jones Company picks because they feel that they are a good indicator of the countries overall economic health. (It's actually one of THREE indices for this purpose, but it the only one anyone every talks about, so it's what we're going to talk about.) And you also have to understand what a stock's price actually means. What it is, is the net present value (which assumes some arbitrary inflation rate) of all future dividends (profits) divided by the number of shares. IOW, it's a predictive value of how a company will do. And, obviously, as new information comes in (like quarterly reports?) both that projection, and the price, will change accordingly.
So... what does it mean that "the experts" keep changing their prediction by such a significant amount every day, up and down?
Well, for a start, it may seem that they don't what the hell they're bloody doing! But ACTUALLY, it merely means that there's a lot of economic instability at the moment. Now the Republcians will balme it on all kinds of things that eitehr haven't happened yet (like tax increases) or things that have no chance of happeneing. (Like tax increases.)
But I have an alternate theory, and it's fairly simple.
The economy is trying to recover. It really wants to. There is pent up demand and people are starting to spend money again. Sales of Halloween Candy/Decorations/Cosutems/etc..., for example, is WAY up from the last two years. I can tell you that Automotive sales (and profits) are generally up as well. But then...
HERE COME THE REPUBLICANS...
Debt crisis = higher interest rates = harder to borrow = lousy economy
No More Stimulus = hampers demand = lousy economy
Raise taxes on THE POOR (a favorite of Fox News these days!) = hampers demand = lousy economy
Cut Social Security and Entitlements = hampers demand = lousy economy
Cut Government Salaries and jobs = hampers demand = lousy economy
You see the trend?
The ECONOMY? Would be doing just fine if the Republicans did what they always say the Government should do: STOP FUCKING WITH IT!
All of this instability is due to Washington's (read: REPUBLICANS) refusal to simply DO WHAT IS NECESSARY to make things better.
Now... You might hear the Right tell you that their thinking LONG TERM instead of SHORT TERM.
To which I'll answer, "Yeah..." and point out that, to a Republican, "Short term" means the next fourteen months, while "Long term" meand 2013 through 2016.
If I had my way, I'd execute every one of these scumbags for treason. As it is, they should be impeached and jailed for theft, fraud and corruption. But, at a minimum? THEY SHOULD ALL BE VOTED OUT OF OFFICE. EVERY LAST MOTHERFUCKING ONE OF THEM!
I've said it many times on MMFA, and probably once or twice here, and I'll say it again:
Anyone making less than $250,000 a year who votes Republican is either clinically psychotic or functionally retarded. The rest? Are just greedy.
Monday, July 19, 2010
Lies du Jour, Part One
There are two particularly annoying meme’s being pushed right now by the Right about Obama and the Democrats:
But let me put that aside for the moment, and first point out the absurdity of the idea that the deficit can be your #1 issue when you’re calling for TAX CUTS! Now… am I saying tax cuts are BAD? No. Not at all. They stimulate the economy. That’s right. You read that right. They DO. In fact the idea that cutting taxes can stimulate the economy if every bit as much part of the Keynsian economic model as the fact that increasing spending stimulates the economy is. And both work the same way: The multiplier. If you cut taxes, or increase spending you increase the income of America by [some multiplier, greater than 1] times the amount of the change. And like wise raising taxes and cutting spending will have the same negative effect: the income of America will change by [some negative multipler, greater than -1] times the amount fo the change. Conservatives are more than happy to accept the tax half of the Keynsian model, but for some reason they can never seem to swallow the spending side of it. And the real kicker is that the multiplier ofr spending are GREATER than the multipliers for taxes. The end results is that a balanced budget always has a multiplier of “1.” If you raise taxes AND raise spending by [X] collective income will INCREASE by [X]. If you cut taxes AND cut spending by [X] collective income will DECREASE by [X]. They never buy it, but if you take an economics course, regardless of the ideology of the professor, you will learn this. It’s a FACT.
Now… some will argue that the multiplier effect I mentioned earlier can fix this. That if we cut taxes (for example) the resulting growth will result in more tax revenue. (Or at least as much as we had before.) That’s the idea behind the now widely discredited Laffer Curve. Personally I think Laffer had a legitimate point, but he his partisanship caused him err when trying to figure out where exactly on the curve we were, as well as what the exact shape (slope) of the curve is, and where the center of it is. In any case, let me demonstrate why tax cuts (or spending icreases, for that matter) will never “pay for themselves,” why they will ALWAYS contribute to the deficit, unless offset by spending cuts (or tax increases):
Let say you’ve got a company with $100 in taxable income (profit) and we’re taxing them at 30%. (That a bit higher than most US corporations pay, but it makes the math easier.) SO you get $30 in tax revenue from them. How much growth would they need to see for a 5% reduction in taxation to “pay for itself.” (Meaning: for it to be deficit neutral.) Well… to get that same $30 at just a 25% rate of taxation, they’d need to make $120 in pre-tax profit. IOW: they’d have to see 20% growth! Note: Few companies EVER see 20% growth, and a 5% tax cut on it's opwn just ain’t going to do it! How do I know this? First of all, most companies require a Return on Investment of just 10%, 15%, 20%... something on that order. To turn that $5 of tax savings into $20 of income would require a 300% return! And if a company had a way to get a 300% return on their money? They’d do it. Period. Right now. They’d find a way to beg, borrow or steal that $5 they needed. But guess what? There are not a whole lot of projects out there with a 300% ROI. None really. At 20%, that company would made $101 in taxable income from that $5 investment and pay $25.25 in taxes. IWO – we added $4.75 to the deficit by doing this.
Even IF one considered the multiplier effect, the results are still nowhere near where they need to be. To turn a $5 tax cut into $20 of taxable income requires a multiplier of FOUR. And no legitimate economist goes throwing numbers like THAT around lightly. I'm not saying it's impossible, just that your going WAAAY out on a limb to assume it. Here, for example, is a graph by Mark Zandi of Moody’s showing the benefit of each dollar spent on various parts of the stimulus package in 2008:
Now, granted one could claim this is “just some liberal rubbish,” but do you notice how the highest multiplier is still under TWO? (~1.7) Even for the “liberal” stuff that he'd be trying to sell?! Nothing ANYWHERE NEAR the four that we'd need.
Now, that 300% return (multipler of 4) only applies to a 5% cut from a 30% base tax rate. Here’s a chart I worked up, showing how much growth you’d need (and the required multiplier) for a given tax cut to pay for itself. Feel free to go in there and monkey with the numbers if you want. The point still stands. You can see that unless you’re talking about very small tax decreases, from very large rates, you’re talking about growth rates that are only ever talked about in classroom examples. They have no place in business projections (indeed any business would go broke VERY FAST if it relied on this kind of growth assumption) and should have no place in policy discussions.
"Part Two" will show why, in addition to being assinine when taken together, both a flat out FALSE individually as well.
- That Obama created the deficit
- That Obama raised taxes.
- There are both true and both bad and thus both are reasons to vote Republican.
But let me put that aside for the moment, and first point out the absurdity of the idea that the deficit can be your #1 issue when you’re calling for TAX CUTS! Now… am I saying tax cuts are BAD? No. Not at all. They stimulate the economy. That’s right. You read that right. They DO. In fact the idea that cutting taxes can stimulate the economy if every bit as much part of the Keynsian economic model as the fact that increasing spending stimulates the economy is. And both work the same way: The multiplier. If you cut taxes, or increase spending you increase the income of America by [some multiplier, greater than 1] times the amount of the change. And like wise raising taxes and cutting spending will have the same negative effect: the income of America will change by [some negative multipler, greater than -1] times the amount fo the change. Conservatives are more than happy to accept the tax half of the Keynsian model, but for some reason they can never seem to swallow the spending side of it. And the real kicker is that the multiplier ofr spending are GREATER than the multipliers for taxes. The end results is that a balanced budget always has a multiplier of “1.” If you raise taxes AND raise spending by [X] collective income will INCREASE by [X]. If you cut taxes AND cut spending by [X] collective income will DECREASE by [X]. They never buy it, but if you take an economics course, regardless of the ideology of the professor, you will learn this. It’s a FACT.
BUT… that’s all about the effect on the ECONOMY. If you’re concerned about the ECONOMY? Fine, cut taxes. (Or increase spending, whatever.) But you can’t be expected to be taken seriously if you’re talking about cutting taxes to decrease the DEFICIT. (Well, OK, yeah you CAN, only because there are a lot of real idiots in this country. In any case you SHOULDN’T BE taken seriously by ANYONE.) Because that’s like saying, “My credit card debt is getting too high, so I better quit my job.” The deficit is SPENDING minus TAXES. So… if you lower taxes, you can ONLY increase the deficit!
Duh!
Now… some will argue that the multiplier effect I mentioned earlier can fix this. That if we cut taxes (for example) the resulting growth will result in more tax revenue. (Or at least as much as we had before.) That’s the idea behind the now widely discredited Laffer Curve. Personally I think Laffer had a legitimate point, but he his partisanship caused him err when trying to figure out where exactly on the curve we were, as well as what the exact shape (slope) of the curve is, and where the center of it is. In any case, let me demonstrate why tax cuts (or spending icreases, for that matter) will never “pay for themselves,” why they will ALWAYS contribute to the deficit, unless offset by spending cuts (or tax increases):
Even IF one considered the multiplier effect, the results are still nowhere near where they need to be. To turn a $5 tax cut into $20 of taxable income requires a multiplier of FOUR. And no legitimate economist goes throwing numbers like THAT around lightly. I'm not saying it's impossible, just that your going WAAAY out on a limb to assume it. Here, for example, is a graph by Mark Zandi of Moody’s showing the benefit of each dollar spent on various parts of the stimulus package in 2008:
(And yes, I know that looks like crap bleeding over like that, but it look worse shrunk down. So just deal.)
Now, granted one could claim this is “just some liberal rubbish,” but do you notice how the highest multiplier is still under TWO? (~1.7) Even for the “liberal” stuff that he'd be trying to sell?! Nothing ANYWHERE NEAR the four that we'd need.
Now, that 300% return (multipler of 4) only applies to a 5% cut from a 30% base tax rate. Here’s a chart I worked up, showing how much growth you’d need (and the required multiplier) for a given tax cut to pay for itself. Feel free to go in there and monkey with the numbers if you want. The point still stands. You can see that unless you’re talking about very small tax decreases, from very large rates, you’re talking about growth rates that are only ever talked about in classroom examples. They have no place in business projections (indeed any business would go broke VERY FAST if it relied on this kind of growth assumption) and should have no place in policy discussions.
"Part Two" will show why, in addition to being assinine when taken together, both a flat out FALSE individually as well.
Monday, March 29, 2010
Remedial Economics - For those who either don't believe or don't understand
Hoo-boy. Glenn Beck’s got a plan to “save” America. You can read a little about it HERE. It’s the typical Right Wing garbage and for all his praying and crying about it, it won’t in fact save the country. All it will do is DESTROY the economy, while being deficit neutral at best. Perhaps the biggest irony in all of this is that it’s really just another cynical attempt by the Right to let the Rich grab (and keep) a whole lot more money. The IRONY is that, were this implemented, it would be as DISASTROUS for the Rich as it would for the poor. It would, in fact, BRING ABOUT the very economic calamity that Beck is trying to avoid. Although… given that Beck has repeatedly revealed himself as an anarchistic, nihilist LOON, maybe he’s TRYING to being this calamity about! I mean, if the world DOES end, suddenly that guy on the corner wearing the sign doesn’t seem so crazy! But I digress. The reason that all these conservatives keep saying “CUT Taxes, CUT Spending” as a recipe for both fiscal and economic success is that they (1) don’t understand Keynesian Economics and (2) they’re blinded by their ideals (and their greed) and can’t stand the idea that someone (other than them) gets any money that these guys don’t think the recipient “earned.”
Now… last year I promised a primer on Keynesian economics that I never quite got around to. Well... with Glenn Beck in full-on crazy mode, maybe a little education for everyone is in order. And I think I’ve got an example that will make this clear. It’s oversimplified, so it’s NOT intended to convince those who don’t believe it. but rather to explain it to those who don’t understand. So if you think stuff is really complex: THIS BLOG POST IS FOR YOU! I’ll show you how it’s not as hard as you think.
We’ll start off by putting out a couple of “givens.” These are FACTS, not talking points, and there’s no legitimate economist anywhere who will disagree with them. There are FOUR THINGS a government can do, relative to its ECONOMY and its DEFICT:
The important part of the Keynesian model is what happens when you do both in unison. Now, obviously if you did (1) and (2) you could erase the deficit, but you’d destroy the economy doing so. I’m sure lib’s and con’s alike would agree with that. Likewise, if you did (3) and (4) together, you’d have a BOOMING economy… but before long you’d have some pretty crippling debt. I’m sure we can all see why that won’t work either, but I’ll include in my example anyway. Where Keynes get’s controversial (though he’s absolutely right, and I’m going to show you why) is the following:
How does this work? I’ll demonstrate:
Let’s say we have a country with just two people living in it: Connie and Libby. Connie is a retailer and real estate developer. She owns all the stores and all the land. Libby is broke and unemployed. She doesn’t have a pot to squat in or a window to dump it out of.
Now, in Fiscal Year One (FY1) Connie makes an income of $100 and Libby made $0. Our starting deficit is $0 and the collective income earned was $100. (100 + 0)
Seeing as how Libby is on the verge of starving to death, naked, sleeping under the stars, the government of this fine country is going to implement a relief program if Fiscal Year Two (FY2.) We are going to RAISE TAXES on anyone making over $50 (Connie) by $10 and give Libby a check for $10 to live on. Now… you may be tempted to say, “Connie now has $90, Libby now has $10, and all you did was rob from the rich and give to the poor and society is no better off.” But you’re wrong. Libby was living in poverty. Now that she has some money to spend, she’s going to buy some food clothing and shelter. IOW – she’s going to SPEND he $10. And since Connie owns the only store and the only apartment complex, she’s going to spend that $10 at Connie’s businesses. So Connie’s income will actually be: $110 (pre-tax), $100 (after-tax.) Despite the tax, her after-tax income didn’t change. Meanwhile Libby enjoyed an income of $10. So our society income is now $110: Connie income ($110 minus $10 in taxes) plus Libby’s income ($10). I managed to raise one person out of poverty without incurring any deficit or debt and without really lowering anyone else’s income! Pretty cool, huh?
Now… if I did that WITHOUT raising taxes? Sure, things would have even better: Connie would have had $110 and Libby $10 and or society would now have an income of $120… but would also now have $10 worth of debt as well. I’ll now demonstrate why that doesn’t work, in the long run.
Let’s say that in FY3, word of our great society begins to spread and another unemployed dead beat, Demi, moves in. Now… I COULD raise Connie’s taxes by $10 again, pay Libby and Demi $10 each and we’d be (collectively) up to $120 in the same manner:
Demi and Libby will get their $10 checks, and spend them with Connie. Connie will thus get $120 in income, and pay only $10 in taxes. So $10 + $10 + $110 = $130 in collective income, and $10 in debt. ($10 in taxes, $20 in spending = $10 of debt.)
So now we're in FY4. Connie still makes $120 and pays $10 in takes. Libby and Demi still get their $10 checks. (Collective income of $130) BUT I have to pay interest on that $10 I owe. Let’s assume the interest is 10%, and that the bonds aren’t held by Connie, Libby or Demi. So I take in $10 in taxes, but I have to pay $1 in INTEREST. That leaves me $9, to pay out $20 in benefits with. So my deficit (now $11) gets added to my debt ($10) and I now OWE $21.
FY5: Connie makes $120 and pays $10 in Taxes. Libby and Demi get their $10 checks. Out of the $10 in taxes I collect, I now need to pay $2.10 in interest (10% times the $21 I now owe.) That leaves me just $7.90 to pay $20 in benefits with! So my defict is now $12.10, which gets added to my debt of $21. I now owe $33.12.
I’m sure by now, you can see the trouble we’re in. Despite maintaining my country’s income at $130 (instead of the $120 there would be if I had just raised Connie’s taxes) our debt is quickly spiraling out of control. Without cutting spending, or raising taxes, in just a few years, all of my tax revenue will be going to pay the interest on my debt! So either I have to raise taxes or cut spending, and both will harm my economy.
So let’s do the CONSERVTAIVE thing, and get rid of those benefits. We still owe $33.12, but in FY6 we won’t pay out any benefits. So Libby and Demi will go back to making $0, and since they won’t be spending anything, Connie’s income will also drop to $100. Now… she’ll still have to pay her $10 in taxes, so her income is now $90. And my country’s income went from $130 down to just $90. A FORTY dollar drop, due to a $20 reduction in gov’t spending. Even if we cushioned it with a $6.69 tax break for Connie (so I can still pay the $3.31 in interest I owe) her income only goes up to $96.69. So my contry loses $33.31 in income, when I cut taxes by $6.69 and cut spending by $20.
So let’s go back to FY4 and pretend we raised Connie’s taxes to $20, and maintained our balanced budget. Connie will have [$120-$20] $100 in income, and Libby and Demi each get $10. So my country has an income of $120, and NO DEBT. And we get a new president who want to CUT taxes and CUT spending by $10 Each. So, in FY5 Libby and Demi only get $5 each, and Connie goes back to paying $10 in taxes. Because of thier reduced incomes, Libby and Demi can only spend $5 each. So Connie pre-tax income dropped to $110. She pay $10 in taxes, so she’s back $100. Combine that with Libby’s $5 and Demi’s $5 and my country’s income is now $110.
It went DOWN by $10 after I cut taxes by $10 and cut spending by $10!
And, if you recall from way back in FY2 (and what I first proposed for FY3,) it went UP by $10 when I RASIED taxes and RAISED spending by $10!
And that’s how (and why) the Keynesian model works! It recognizes that an economy is more than just production. Production is necessary, of course, but without CONSUMPTION all the production in the world won’t make you a penny. You need to MAKE STUFF and you need to SELL IT. If people can’t buy it, it doesn’t matter how much you produce. It also recognizes that people don’t KEEP all, or even most, of their income. They SPEND it, and it then becomes someone else’s income! (And so on, and so on…)
Now… there are two legitimate criticisms of the Keynesian model - one from Professor Arthur Pigou and one from Nobel Laureate Milton Freedman, both of whom are conservatives, economically and fiscally speaking. As I said, they’re legitimate… but IMHO they’re also misguided and thus not applicable outside of academic discussions. If anyone is interested, I can explain them, and explain with they’re wrong. Otherwise, I’d like to hear what y’all think of this, and answer any questions (or criticisms) you have first.
In any case, given the TRUTH and FACT of the Keynesian model, it should be pretty clear that Beck's "plan" would destroy the economy and not really help the deficit. Nice plan, huh? I'm serious when I say that he's not really even TRYING to save anything. He a nihlist. And his every word demonstrates this.
Now… last year I promised a primer on Keynesian economics that I never quite got around to. Well... with Glenn Beck in full-on crazy mode, maybe a little education for everyone is in order. And I think I’ve got an example that will make this clear. It’s oversimplified, so it’s NOT intended to convince those who don’t believe it. but rather to explain it to those who don’t understand. So if you think stuff is really complex: THIS BLOG POST IS FOR YOU! I’ll show you how it’s not as hard as you think.
We’ll start off by putting out a couple of “givens.” These are FACTS, not talking points, and there’s no legitimate economist anywhere who will disagree with them. There are FOUR THINGS a government can do, relative to its ECONOMY and its DEFICT:
- Raise Taxes
- Cut Spending
- Cut Taxes
- Raise Spending
- If you (1) Raise Taxes or (2) Cut Spending, you will harm (shrink) the economy and you will help (shrink) the deficit.
- If you (3) Cut Taxes or (4) Raise Spending, you will help (grow) the economy and you will harm (grow) the deficit.
The important part of the Keynesian model is what happens when you do both in unison. Now, obviously if you did (1) and (2) you could erase the deficit, but you’d destroy the economy doing so. I’m sure lib’s and con’s alike would agree with that. Likewise, if you did (3) and (4) together, you’d have a BOOMING economy… but before long you’d have some pretty crippling debt. I’m sure we can all see why that won’t work either, but I’ll include in my example anyway. Where Keynes get’s controversial (though he’s absolutely right, and I’m going to show you why) is the following:
- If you (1) RAISE taxes by, for example, $1 Billion and you (4) RAISE spending by $1 Billion, you will, in fact, RAISE the collective income of everyone in the economy by $1 Billion, while not changing (or creating) a deficit AT ALL.
- If you (3) CUT taxes by $1 Billion and (2) CUT spending by $1 Billion, you will LOWER the collective income of everyone in the economy by $1 Billion, while not changing (or creating) a deficit AT ALL.
How does this work? I’ll demonstrate:
Let’s say we have a country with just two people living in it: Connie and Libby. Connie is a retailer and real estate developer. She owns all the stores and all the land. Libby is broke and unemployed. She doesn’t have a pot to squat in or a window to dump it out of.
Now, in Fiscal Year One (FY1) Connie makes an income of $100 and Libby made $0. Our starting deficit is $0 and the collective income earned was $100. (100 + 0)
Seeing as how Libby is on the verge of starving to death, naked, sleeping under the stars, the government of this fine country is going to implement a relief program if Fiscal Year Two (FY2.) We are going to RAISE TAXES on anyone making over $50 (Connie) by $10 and give Libby a check for $10 to live on. Now… you may be tempted to say, “Connie now has $90, Libby now has $10, and all you did was rob from the rich and give to the poor and society is no better off.” But you’re wrong. Libby was living in poverty. Now that she has some money to spend, she’s going to buy some food clothing and shelter. IOW – she’s going to SPEND he $10. And since Connie owns the only store and the only apartment complex, she’s going to spend that $10 at Connie’s businesses. So Connie’s income will actually be: $110 (pre-tax), $100 (after-tax.) Despite the tax, her after-tax income didn’t change. Meanwhile Libby enjoyed an income of $10. So our society income is now $110: Connie income ($110 minus $10 in taxes) plus Libby’s income ($10). I managed to raise one person out of poverty without incurring any deficit or debt and without really lowering anyone else’s income! Pretty cool, huh?
Now… if I did that WITHOUT raising taxes? Sure, things would have even better: Connie would have had $110 and Libby $10 and or society would now have an income of $120… but would also now have $10 worth of debt as well. I’ll now demonstrate why that doesn’t work, in the long run.
Let’s say that in FY3, word of our great society begins to spread and another unemployed dead beat, Demi, moves in. Now… I COULD raise Connie’s taxes by $10 again, pay Libby and Demi $10 each and we’d be (collectively) up to $120 in the same manner:
- Connie would make $120 and pay $20 in taxes, for $100.
- Libby would have $10 in income (that she’d spend with Connie)
- Demi would have $10 in income (that she’d also spend with Connie)
Demi and Libby will get their $10 checks, and spend them with Connie. Connie will thus get $120 in income, and pay only $10 in taxes. So $10 + $10 + $110 = $130 in collective income, and $10 in debt. ($10 in taxes, $20 in spending = $10 of debt.)
So now we're in FY4. Connie still makes $120 and pays $10 in takes. Libby and Demi still get their $10 checks. (Collective income of $130) BUT I have to pay interest on that $10 I owe. Let’s assume the interest is 10%, and that the bonds aren’t held by Connie, Libby or Demi. So I take in $10 in taxes, but I have to pay $1 in INTEREST. That leaves me $9, to pay out $20 in benefits with. So my deficit (now $11) gets added to my debt ($10) and I now OWE $21.
FY5: Connie makes $120 and pays $10 in Taxes. Libby and Demi get their $10 checks. Out of the $10 in taxes I collect, I now need to pay $2.10 in interest (10% times the $21 I now owe.) That leaves me just $7.90 to pay $20 in benefits with! So my defict is now $12.10, which gets added to my debt of $21. I now owe $33.12.
I’m sure by now, you can see the trouble we’re in. Despite maintaining my country’s income at $130 (instead of the $120 there would be if I had just raised Connie’s taxes) our debt is quickly spiraling out of control. Without cutting spending, or raising taxes, in just a few years, all of my tax revenue will be going to pay the interest on my debt! So either I have to raise taxes or cut spending, and both will harm my economy.
So let’s do the CONSERVTAIVE thing, and get rid of those benefits. We still owe $33.12, but in FY6 we won’t pay out any benefits. So Libby and Demi will go back to making $0, and since they won’t be spending anything, Connie’s income will also drop to $100. Now… she’ll still have to pay her $10 in taxes, so her income is now $90. And my country’s income went from $130 down to just $90. A FORTY dollar drop, due to a $20 reduction in gov’t spending. Even if we cushioned it with a $6.69 tax break for Connie (so I can still pay the $3.31 in interest I owe) her income only goes up to $96.69. So my contry loses $33.31 in income, when I cut taxes by $6.69 and cut spending by $20.
So let’s go back to FY4 and pretend we raised Connie’s taxes to $20, and maintained our balanced budget. Connie will have [$120-$20] $100 in income, and Libby and Demi each get $10. So my country has an income of $120, and NO DEBT. And we get a new president who want to CUT taxes and CUT spending by $10 Each. So, in FY5 Libby and Demi only get $5 each, and Connie goes back to paying $10 in taxes. Because of thier reduced incomes, Libby and Demi can only spend $5 each. So Connie pre-tax income dropped to $110. She pay $10 in taxes, so she’s back $100. Combine that with Libby’s $5 and Demi’s $5 and my country’s income is now $110.
Did you see that?
It went DOWN by $10 after I cut taxes by $10 and cut spending by $10!
And, if you recall from way back in FY2 (and what I first proposed for FY3,) it went UP by $10 when I RASIED taxes and RAISED spending by $10!
And that’s how (and why) the Keynesian model works! It recognizes that an economy is more than just production. Production is necessary, of course, but without CONSUMPTION all the production in the world won’t make you a penny. You need to MAKE STUFF and you need to SELL IT. If people can’t buy it, it doesn’t matter how much you produce. It also recognizes that people don’t KEEP all, or even most, of their income. They SPEND it, and it then becomes someone else’s income! (And so on, and so on…)
Now… there are two legitimate criticisms of the Keynesian model - one from Professor Arthur Pigou and one from Nobel Laureate Milton Freedman, both of whom are conservatives, economically and fiscally speaking. As I said, they’re legitimate… but IMHO they’re also misguided and thus not applicable outside of academic discussions. If anyone is interested, I can explain them, and explain with they’re wrong. Otherwise, I’d like to hear what y’all think of this, and answer any questions (or criticisms) you have first.
In any case, given the TRUTH and FACT of the Keynesian model, it should be pretty clear that Beck's "plan" would destroy the economy and not really help the deficit. Nice plan, huh? I'm serious when I say that he's not really even TRYING to save anything. He a nihlist. And his every word demonstrates this.
Thursday, October 29, 2009
Macro versus Micro, Personal vs. Public
There's something I've noticed lately, both in media stories and online threads. It seems to me that there's a lot of confusion about the difference between what makes good public policy versus what makes good private practice. And when speaking about economics I do think that the conservatives make this mistake more ofter, but I don't think it's entirely a conservative problem. To start, I'll use an example that (I THINK) will be non-partisan, and use it to illustrate my concern. Then I'll move onto economics. ;) LOL
CIRCUMCISION and AIDS in AFRICA
I recently read an article about two clinical studies being done in Africa, one with 5000 men and one with around 2800. Roughly half of each group volunteered to undergo medical circumcision as part of the study. After two years, the circumcised group was found to be 48% less likely to be infected with HIV. It was such an effective reduction in transmission that the doctors felt it would be unethical to continue the study, opting instead to allow the reminder to get circumcised right away instead. (Just as an aside, the study went on to say that this reduction was only effective in heterosexual intercourse, and was not effective in homosexual sex. But that's peripheral to what I'm addressing here.)
Now, I'll say it right up front: I've always been against circumcision. IMHO, it's just an unnecessary procedure (mutilation, really) driven by societal pressure and motivated by religious nonsense. There is simply no reason to do it. Period. Do I still feel this way? Well, I have to admit that with something on the order of 1 in 4 or 1 in 3 Africans infected with HIV in certain areas, as a matter of PUBLIC HEALTH POLICY, it makes a hell of a lot of sense. And in that context I can't say that I'm justified in opposing it. Clearly, in that circumstance, there is a overding benefit.
But here is where public policy ends and good private practice begins. It accounted for a 48% reduction. Well, sure, if I'm setting public health policy, a 48% reduction in new cases would be a godsend. But what about ME, the individual? Well, we KNOW there's only ONE WAY to not get HIV via sex: Don't have sex. We also know as a matter of PUBLIC POLICY that this just doesn't work. Condom use is also basically 100% effective. (Or what? 99.9%?) I don't know, but it's a helluva lot higher than 48%. So for ME, I can choose to abstain, or to consistently use condoms, and then there's just no reason for me, the individual, to get circumcised. What's more, if I DID... but did nothing else, does that really help me?
Let's say I sleep around, with a different girl every week. In Africa. And of those ~51 different girls 17 are HIV positive. Now... lets say that there's a 30% chance of me getting HIV from one of them. My chances are about 10% that I'll have HIV within any given year. Now... if you cut my chance in HALF (the ~48% reduction that circumcision gives), then I'm ~5% likely in any given year. Big deal. In the first scenario, I'll be at about a 50% chance after about 7 years. (Buy the time I'm 25, if I become sexually active when I 18.) In the second scenario I'll last about 13-14 years, or until I'm about 31-32. Well, if the average life expectancy (without HIV) is ~72, I'm still losing 40 years or more - over half my life! On the other hand, with a 99% reduction (condoms), I'd have only a 0.3% within any given year, and I would only be about 15% likely to contract it by the time I turned 72! (ANd that assumes I'm still having sex once a week, with a different girl, every week! Not bad for such an old fart, huh?) So clearly condoms are the better PRIVATE PRACTICE, and abstinence the BEST, but we know from experience that neither of these work on a large scale, because none are consistently PRACTICE on a large scale, hence we have a PUBLIC POLICY that, while it would be disastrous as a personal practice, makes far more effective prevention strategy.
See the distinction? (OK, I'll admit that I really have no idea what the transmission rate of HIV is, nor how effective Condoms are. I'm guessing. But the actual numbers aren't really that important. The POINT is that something that can be a very good idea for individual people to do, can be a disaster as a matter of public policy. And YES, I think abstinence-only sex education is the single stupidest idea that our previous president and his merry band of funny-mentalist puppeteers ever came up with. But I wanted to first demonstrate the point with something a little less partisan before I got into...
ECONOMICS
Right off the bat I want to tell you what caused the GREAT DEPRESSION. And believe it or not, it was NOT all (Republican) Herbert Hoover's fault! (How's about that? That surprise anyone?) It WAS the fault of his policies though. After Black Tuesday and the resulting recession he did two things which are TERRIBLE things to do in a recession. He RAISED taxes, AND (and the AND is important here!) he CUT spending. Either one by itself is bad to do in hard times, but the double whammy took us (and the world) over a decade to recover from. You see... GOVERNMENT SPENDING supports people's incomes. Whether you think it SHOULD or not is irrelevant, it DOES. SO CUTTING it cuts people's income, which cuts their consumption, which cuts OTHER people's incomes, etc, etc... Vicious cycle. The same thing goes for raising taxes. In much the same way.
Now, without turning this into a treatise on Keynes (which I promised you awhile back, but still haven't delivered!) You can raise taxes, and raise spending by the same amount and everyone's collective income will go UP by that same amount. (Keynes' models demonstrate this.) Likewise if you cut taxes and cut spending by the same amount everyone's collective income will go DOWN by that same amount. This is because the effect, both positive and negative, of spending is slightly greater than the effect of taxes, AND: the BALANCED BUDGET multiplier is "1." That's an economic fact in every school, even Friedman's. But, as you can imagine, raising taxes and cutting spending would have a DOUBLY NEGATIVE effect. And Hoover did this at the worst possible time! So why is it not his fault? And why did he do this in the first place?
First things last...
He did this because he was committing the very error that I've described above. He assumed that good private practice would make good pubic policy. After all... When a FAMILY hits hard times, they try to do odd jobs to take in more money when the can, and they tighten their budget, so they don't go broke and lose everything. That's common sense. And what's surprising - and a little bit depressing, because it shows how good a job Fox News has done mis-educating people about economics - is that so many Conservatives still think this way! If you listen to them talk about Obama's huge deficits (only about 30% bigger than Bush's really, because Bush never budgeted for the two WARS, so his deficit figures were consistently understated... damned liberal media... Obama IS putting the Wars into his regular budget, and that makes his deficit look so much bigger.) ANYWAY, when you hear them complain about Obama's budget, they all say something to the effect of, "What do YOU do when you get laid off? SPEND MORE?!" No. Of course not. But that's just it: Good private practice does not necessarily make make for good public policy! If the gov't did what individual families do in hard times, tens of millions more would be out of work, consumption (which means, INCOME for the rest of us!) would be even less, etc, etc... Vicious cycle.... Great Depression II. Even the most hard-core supply siders understand this... Why do you think Reagan and Bush never cut overall spending even ONE SINGLE TIME in the sixteen years of their presidencies?!
Now... Contrary to what the Conservative may believe I, and many liberals, ARE concerned about the NATIONAL DEBT. But Deficit reduction is something that's better left when the economy is on better footing. For now? President Obama is doing EVERYTHING RIGHT economically. And the markets have borne that out.
I'll give you another example. Personal Savings. Now, I save. I hope you save. We ALL need to save as much as we can. Max out the 401-K's and IRA's; have six months worth of expenses stashed away in relatively liquid form... We all should do this... And THANK GOD we DON'T! Because if everyone starts pinching every pennies, WE'LL NEVER GET OUT OF THIS ECONOMIC MESS! The fact is, that for ANY of us to get PAID, someone else needs to consume! If everyone cuts consumption, because their worried about their jobs, then companies will loose money, and get what happens next? YOU LOSE YOUR JOB!!! This is why I HATE HATE HATE it when the media report on "consumer confidence."
Most people don't even know what tha term really means. But they hear it's LOW, and suddenly they worry about their job.. so they cut back... and so does everyone else... and POW! Now we have a recession. So companies shed workers. Less income, less 'confidence' about the remaining jobs, less consumption... BOOM! Another bad quarter! It's a wonder we ever get out of these things!
And THAT's where stimulus comes in. People say, "yeah but stimulus money's just temporary." It doesn't matter. Get some income out there, stop the bleeding... companies meet some of their numbers and targets, and stop cutting jobs... people feel a little better about their own job, so THEY spend a little more money... more companies start having higher revenues coming in again... they hire a few more people to help meet the new damand... POW... more income, more consumption, more revenue, more jobs, repeat, repeat, repeat...
Good private practice can often make disastrous public policy and good public policy can be disastrous private practice. We need to get beyond the idea that what's good for US is necessarily good for EVERYONE.
-----------------------------------------------------------------------------------------------
Oh yeah... and WHY wasn't it all Hoover's fault? Well much as I'd like to lay it all on him, the fact is that he got some bad advice... from FRANKLIN ROOSEVELT! That's right! You see, after Black Tuesday, Hoover was kicking around some of the ideas that Keynes had proposed. He basically had a 'new deal' proposal of his own. ROOSEVELT actually talked him out of it! And later, when Roosevelt became president himself, he saw how badly the conventional wisdom had failed (IOW - he learned the very lesson I'm talking about here!) and he reversed his position and put into place many of the very programs he talked Hoover out of! (The New Deal.) (Yeah - it was HOOVER'S idea!)
Now Roosevelt came around, and the New Deal made life better for millions, put many to work, and there were really only two things he did wrong: 1) He tried to balance the budget too soon. We weren't out of it yet, and I've already explained why raising taxes and/or cutting spending is BAD when doen in bad times. 2) He didn't go nearly far enough. That's obvious when you consider that it really took WWII to end the great depression. Why? REALLY MASSIVE GOVERNMENT SPENDING! Totally dwarfed the New Deal. And yet it was still paid for within a decade and a half of the war ending, recostruction and all. (Because when times are going good, you can have a 95% top marginal tax bracket and still grow! But we'll save taxation, spending and Keynes for another time. I'm still trying to make a decent, accurate, simple explanation of Keynes. It's not THAT hard, but I've been lazy about it. I'll work on it! I promise!) ;)
CIRCUMCISION and AIDS in AFRICA
I recently read an article about two clinical studies being done in Africa, one with 5000 men and one with around 2800. Roughly half of each group volunteered to undergo medical circumcision as part of the study. After two years, the circumcised group was found to be 48% less likely to be infected with HIV. It was such an effective reduction in transmission that the doctors felt it would be unethical to continue the study, opting instead to allow the reminder to get circumcised right away instead. (Just as an aside, the study went on to say that this reduction was only effective in heterosexual intercourse, and was not effective in homosexual sex. But that's peripheral to what I'm addressing here.)
Now, I'll say it right up front: I've always been against circumcision. IMHO, it's just an unnecessary procedure (mutilation, really) driven by societal pressure and motivated by religious nonsense. There is simply no reason to do it. Period. Do I still feel this way? Well, I have to admit that with something on the order of 1 in 4 or 1 in 3 Africans infected with HIV in certain areas, as a matter of PUBLIC HEALTH POLICY, it makes a hell of a lot of sense. And in that context I can't say that I'm justified in opposing it. Clearly, in that circumstance, there is a overding benefit.
But here is where public policy ends and good private practice begins. It accounted for a 48% reduction. Well, sure, if I'm setting public health policy, a 48% reduction in new cases would be a godsend. But what about ME, the individual? Well, we KNOW there's only ONE WAY to not get HIV via sex: Don't have sex. We also know as a matter of PUBLIC POLICY that this just doesn't work. Condom use is also basically 100% effective. (Or what? 99.9%?) I don't know, but it's a helluva lot higher than 48%. So for ME, I can choose to abstain, or to consistently use condoms, and then there's just no reason for me, the individual, to get circumcised. What's more, if I DID... but did nothing else, does that really help me?
Let's say I sleep around, with a different girl every week. In Africa. And of those ~51 different girls 17 are HIV positive. Now... lets say that there's a 30% chance of me getting HIV from one of them. My chances are about 10% that I'll have HIV within any given year. Now... if you cut my chance in HALF (the ~48% reduction that circumcision gives), then I'm ~5% likely in any given year. Big deal. In the first scenario, I'll be at about a 50% chance after about 7 years. (Buy the time I'm 25, if I become sexually active when I 18.) In the second scenario I'll last about 13-14 years, or until I'm about 31-32. Well, if the average life expectancy (without HIV) is ~72, I'm still losing 40 years or more - over half my life! On the other hand, with a 99% reduction (condoms), I'd have only a 0.3% within any given year, and I would only be about 15% likely to contract it by the time I turned 72! (ANd that assumes I'm still having sex once a week, with a different girl, every week! Not bad for such an old fart, huh?) So clearly condoms are the better PRIVATE PRACTICE, and abstinence the BEST, but we know from experience that neither of these work on a large scale, because none are consistently PRACTICE on a large scale, hence we have a PUBLIC POLICY that, while it would be disastrous as a personal practice, makes far more effective prevention strategy.
See the distinction? (OK, I'll admit that I really have no idea what the transmission rate of HIV is, nor how effective Condoms are. I'm guessing. But the actual numbers aren't really that important. The POINT is that something that can be a very good idea for individual people to do, can be a disaster as a matter of public policy. And YES, I think abstinence-only sex education is the single stupidest idea that our previous president and his merry band of funny-mentalist puppeteers ever came up with. But I wanted to first demonstrate the point with something a little less partisan before I got into...
ECONOMICS
Right off the bat I want to tell you what caused the GREAT DEPRESSION. And believe it or not, it was NOT all (Republican) Herbert Hoover's fault! (How's about that? That surprise anyone?) It WAS the fault of his policies though. After Black Tuesday and the resulting recession he did two things which are TERRIBLE things to do in a recession. He RAISED taxes, AND (and the AND is important here!) he CUT spending. Either one by itself is bad to do in hard times, but the double whammy took us (and the world) over a decade to recover from. You see... GOVERNMENT SPENDING supports people's incomes. Whether you think it SHOULD or not is irrelevant, it DOES. SO CUTTING it cuts people's income, which cuts their consumption, which cuts OTHER people's incomes, etc, etc... Vicious cycle. The same thing goes for raising taxes. In much the same way.
Now, without turning this into a treatise on Keynes (which I promised you awhile back, but still haven't delivered!) You can raise taxes, and raise spending by the same amount and everyone's collective income will go UP by that same amount. (Keynes' models demonstrate this.) Likewise if you cut taxes and cut spending by the same amount everyone's collective income will go DOWN by that same amount. This is because the effect, both positive and negative, of spending is slightly greater than the effect of taxes, AND: the BALANCED BUDGET multiplier is "1." That's an economic fact in every school, even Friedman's. But, as you can imagine, raising taxes and cutting spending would have a DOUBLY NEGATIVE effect. And Hoover did this at the worst possible time! So why is it not his fault? And why did he do this in the first place?
First things last...
He did this because he was committing the very error that I've described above. He assumed that good private practice would make good pubic policy. After all... When a FAMILY hits hard times, they try to do odd jobs to take in more money when the can, and they tighten their budget, so they don't go broke and lose everything. That's common sense. And what's surprising - and a little bit depressing, because it shows how good a job Fox News has done mis-educating people about economics - is that so many Conservatives still think this way! If you listen to them talk about Obama's huge deficits (only about 30% bigger than Bush's really, because Bush never budgeted for the two WARS, so his deficit figures were consistently understated... damned liberal media... Obama IS putting the Wars into his regular budget, and that makes his deficit look so much bigger.) ANYWAY, when you hear them complain about Obama's budget, they all say something to the effect of, "What do YOU do when you get laid off? SPEND MORE?!" No. Of course not. But that's just it: Good private practice does not necessarily make make for good public policy! If the gov't did what individual families do in hard times, tens of millions more would be out of work, consumption (which means, INCOME for the rest of us!) would be even less, etc, etc... Vicious cycle.... Great Depression II. Even the most hard-core supply siders understand this... Why do you think Reagan and Bush never cut overall spending even ONE SINGLE TIME in the sixteen years of their presidencies?!
Now... Contrary to what the Conservative may believe I, and many liberals, ARE concerned about the NATIONAL DEBT. But Deficit reduction is something that's better left when the economy is on better footing. For now? President Obama is doing EVERYTHING RIGHT economically. And the markets have borne that out.
I'll give you another example. Personal Savings. Now, I save. I hope you save. We ALL need to save as much as we can. Max out the 401-K's and IRA's; have six months worth of expenses stashed away in relatively liquid form... We all should do this... And THANK GOD we DON'T! Because if everyone starts pinching every pennies, WE'LL NEVER GET OUT OF THIS ECONOMIC MESS! The fact is, that for ANY of us to get PAID, someone else needs to consume! If everyone cuts consumption, because their worried about their jobs, then companies will loose money, and get what happens next? YOU LOSE YOUR JOB!!! This is why I HATE HATE HATE it when the media report on "consumer confidence."
Most people don't even know what tha term really means. But they hear it's LOW, and suddenly they worry about their job.. so they cut back... and so does everyone else... and POW! Now we have a recession. So companies shed workers. Less income, less 'confidence' about the remaining jobs, less consumption... BOOM! Another bad quarter! It's a wonder we ever get out of these things!
And THAT's where stimulus comes in. People say, "yeah but stimulus money's just temporary." It doesn't matter. Get some income out there, stop the bleeding... companies meet some of their numbers and targets, and stop cutting jobs... people feel a little better about their own job, so THEY spend a little more money... more companies start having higher revenues coming in again... they hire a few more people to help meet the new damand... POW... more income, more consumption, more revenue, more jobs, repeat, repeat, repeat...
Good private practice can often make disastrous public policy and good public policy can be disastrous private practice. We need to get beyond the idea that what's good for US is necessarily good for EVERYONE.
-----------------------------------------------------------------------------------------------
Oh yeah... and WHY wasn't it all Hoover's fault? Well much as I'd like to lay it all on him, the fact is that he got some bad advice... from FRANKLIN ROOSEVELT! That's right! You see, after Black Tuesday, Hoover was kicking around some of the ideas that Keynes had proposed. He basically had a 'new deal' proposal of his own. ROOSEVELT actually talked him out of it! And later, when Roosevelt became president himself, he saw how badly the conventional wisdom had failed (IOW - he learned the very lesson I'm talking about here!) and he reversed his position and put into place many of the very programs he talked Hoover out of! (The New Deal.) (Yeah - it was HOOVER'S idea!)
Now Roosevelt came around, and the New Deal made life better for millions, put many to work, and there were really only two things he did wrong: 1) He tried to balance the budget too soon. We weren't out of it yet, and I've already explained why raising taxes and/or cutting spending is BAD when doen in bad times. 2) He didn't go nearly far enough. That's obvious when you consider that it really took WWII to end the great depression. Why? REALLY MASSIVE GOVERNMENT SPENDING! Totally dwarfed the New Deal. And yet it was still paid for within a decade and a half of the war ending, recostruction and all. (Because when times are going good, you can have a 95% top marginal tax bracket and still grow! But we'll save taxation, spending and Keynes for another time. I'm still trying to make a decent, accurate, simple explanation of Keynes. It's not THAT hard, but I've been lazy about it. I'll work on it! I promise!) ;)
Subscribe to:
Posts (Atom)