Consumption vs. Production

You are correct, the legislation and regulation written and enforced by the state is killing competition.

Economic and fiscal policy is what's killing the economy. Artificially low interest rates and trillions of new dollars created is wiping out savings. Savings, and real interest rates, is what's needed to turn this thing around.

 

Have you NOT heard of QE1 and QE2? In the extremely short but eons too long, time period, b.o. has been in office, the Federal reserve has printed more money than previously existed. We have deflation. It is of the US currency, not the goods of the US.

And logic and math so simple a liberal should be able to understand it, says the government MUST return LESS to the economy than it takes out. If the government operated at 98% efficiency, and that is a joke number, it could only return $.98 cents on every tax dollar taken out of the economy.

 

Lol, sure...the Fed pumps enough money into the system annually to cover 80% government waste and allow for inflation to boot.

Maybe you should try again.

 

The US economy has been driven primarily by consumption since WW2. As median income rose consumption demand rose with it. By the early 1970s median income had stagnated and has slowly declined ever since. A long expansion of consumer credit allowed consumer demand to continue to grow through the 1980s and 1990s. The entry of unregulated non-bank lenders, and their financiers, into the housing market, which generates 40% of US economic activity in the 2000s vastly expanded housing credit which fueled even greater consumer demand.

Meanwhile consumer incomes continued to decline as economic gains became concentrated at the top. In the 2000s all economic gains in the US were garnered by the top 10% of households. This is completely unsustainable over the long term and in 2008 the long term arrived. Markets collapsed, millions lost their jobs and the time of easy consumer credit came to a close. The US economy has finally reached the state that should be expected from a decline in consumer incomes.

The economy cannot grow any more without growth in consumer incomes and that is unlikely since all economic gains are going to the top and income increases at the top do not increase consumption much at all. There is really only one way for the US to get out of this for the long term, median income growth. You can argue all you want about the how and why but this is the what.

 

Excellent post. 2 thumbs up.

 

consumption wins

/signed

 

Its in the post right above yours. The Fed did QE1 and QE2. They printed and pumped into the economy more US currency than ever existed before. They more than doubled all the US currency people were holding and using worldwide.

Total US currency in circulation in 2008 was under $900 billion. The 2 QE's added over a TRILLION more.

 

That was necessary because of abuse and corruption in the private financial sector, and certainly doesn't validate the claim that for every dollar the government takes in only $.50 comes back out into the economy, let alone $.20.

Now, I don't believe by any stretch that the government is efficient in any and everything they do, and I fully support the idea that the government spends way more money than it should, but I am not a blind ideologue and I know that it is far more complicated than merely saying the government needs to spend less money. When the government puts money into ports and roads and education, etc., the economy grows.

 

Great post. So how do we increase median income and thus consumer demand. I would suggest the most efficient way would be to pump money into the bottom of the economy, spur small business entrepreneurship, and increase and expand educational opportunities.

 

Agreed, but the middle and poor classes can hardly save, and its fruitless to do so because their money loses value over time. I would also suggest that the influence of money upon the outcome of the legislation

 

Money into ports and roads, you forgot schools. That is also part of the propaganda mantra of liberals wanting money to repair the infrastructure.

I have no problem with the government repairing, building and maintaining the infrastructure. I have a LARGE problem with them wanting more borrowed money to do it with.

We have a Fed Dept of Ed. and every state has a Dept of Ed. The Fed dept has a budget. The state depts have budgets. They are supplied by property taxes.

We have a Fed Dept of Trans. Every state has a Dept of Trans. They are funded with use taxes and fuel taxes amounting to over $.50 for every gallon of fuel sold and that is 500,000+ million gallons per day.

That money is supposed to have BEEN budgeted for infrastructure for decades. BUDGET, not borrow!

 

I am absolutely a proponent of delegating more control and influence to the state governments, both in the area of taxation AND spending. I would absolutely support a transitioning of the Federal income tax dependence to a variety of more direct taxes such as import tariffs, consumption taxes, and taxes on corporate interests.

I am not a liberal by any stretch. I am not regurgitating some mantra. The fact of the matter is that government spending on infrastructure puts money into the economy through jobs and creates an environment more favorable to economic development.

 

Did you miss this part?

"That money is supposed to have BEEN budgeted for infrastructure for decades. BUDGET, not borrow!"

We pay every day for infrastructure. My complaint is the govt's claim that our infrastructure is falling apart and we have to BORROW additional billions to fix it. We PAID that bill already, wheres the money?
It is the New Orleans levees all, over again. For 100+ years we spent billions to repair, build, and maintain the levees around NO. Katrina came and we found out we had spent hundreds of billions for loosely packed mounds of dirt.
That's what has happened to the infrastructure, waste and corruption. Like the Ca high school with no students. Cost $500 million dollars. Even if the school was sorely needed and packed with students, $500,000,000.00 for one school. The Oasis of the Seas, the largest cruise ship afloat. Larger than that high school and takes over 5000 people cruising each week cost $800 million. The interior space of that ship is 220 thousand cubic feet and the whole thing is made out of metal, and a school cost $500 million!!!!

 

40% of 15 trillion GDP would be $6 trillion.

Give that outlays last year were $3.5 trillion and transfers (SS/medicare) aren't counted towards GDP, I'd say you're off 25-30 percentage points.

 

That's not how GDP is measured.

Govt expenditure, excluding transfers, is counted, not "deficit spending" whatever that means.

 

The government does not budget money as if they have money saved up that they are spending. Everything the federal government spends is borrowed from the Fed and then paid back, with interest. People who cry about and continually champion tax cuts have no leg to stand on when the government borrows money it has to spend. Government budgets are largely based on predictions of income. When taxes are cut, the government brings in less money the overwhelming majority of the time.

I'm not familiar with a school in California that cost $500 million and has no students. It sounds more like a talking point for demagoguery than a legitimate example of what's wrong with the system.

 

Having a trade surplus is better than having a trade deficit.

 

Long term problems like this are not solved by short term fixes. In fact some sort of long term policy needs to be adopted because the US cannot continue lurching from one direction to another and dealing with crises after crises with half hearted short term actions that partly alleviate the immediate crises but set the wheels in motion for the next one.

Current tax policy makes it more profitable to direct excess income into speculative markets because capital gains are taxed at a lower rate than ordinary income. There are a few results of this policy, all of them bad for median income earnings growth.

For one, it made the takeover and asset stripping of public companies by corporate raiders extremely profitable. For another it attracted small savers to put their money into the markets. The result of the vast new flow of small savings into the markets boosted the wealth and incomes of those already there, i.e. the wealthy who still own 80% of all equities. It also gave rise to the giant mutual funds and their deliberate disinterest in anything but short term share price increases. Thus, a low capital gains tax was a deliberate policy decision to redirect the interest of wealth holders into speculation by penalizing them for using their wealth for direct investment in business growth and expansion where gains would be taxed at a higher rate as ordinary income.

If policy was changed to tax capital gains at a higher rate than ordinary income there would be more incentive to use excess income in direct investment rather than indirect investment through the equity markets.

In other words, if the wealthy wanted to make the most of their money, and pay lower taxes on the income from it, the best way would be to buy a business and grow it, like flipping fixer upper houses.

The crazy thing is, there are a lot of fixer upper manufacturers in the US, barely surviving and in need of some investor to put in the money which will turn them around rather than gut them and move their machines overseas which is how Mitt Romney made his money.

Anyway, investing in turning around a manufacturers would need to invest heavily in new plant and equipment to increase efficiency of operations. This would increase the demand for engineering services and capital equipment manufacturers who would expand and compete for skilled workers, engineers, designers etc by offering higher wages. As efficiency increased workers could be paid more.

A 50% capital gains tax would accomplish this along with the adoption of a formal long term policy that directs investment towards, rather than away from industrial development.

The US is the only developed, or rapidly developing nation in the world without a formal long term industrial development policy. Something to think about.....

 

The only way we are going to get the government to hold a policy that is in the interest of the nation where it would contradict the interests of the corporate oligarchy is to eliminate the influence of money on the electoral and legislative processes through radical and sweeping changes to campaign finance and lobbying rules.

 

Pray tell, how do we do that when said corrupt government is the only one who can change policy? All legal means for the people to get true representation have been exhausted.

 

We have to run for office independently and support each other's efforts to do so. We need to get independents elected to office who refuse to take corporate campaign funds. It won't be easy, but if enough people get on board, it is certainly possible. The single most important measure would be to take a platform that would appeal to supporters of both parties while marginalizing neither. The majority of Americans have far more interests in common than they don't.

 

I appreciate your sentiment. However, I think you underestimate the level of globalist corruption into every facet of our nation. Even if we could compromise the countless mountains, roadblocks and hurdles, the election process in itself is easily tainted. From electronic voting machines, to the fact that states like my own, Idaho, do not even put 3rd parties or independents on the ballot. Nor is there a place to "write a name in". If we could have shown the public a crystal ball 50 years ago, the steps you wish to take could have been done, and maybe, by now, we could have changed the system. The length of time it would take to make the change we want, within the system said globalists invented and dominate, would mean America long gone in the time being.

 

I ran for state legislature last summer. It was a last minute spur of the moment decision and I had no delusions of winning. I worked two weeks getting the required 50 signatures to get on the ballot and literally spent zero dollars and didn't campaign at all after getting on the ballot and garnered 8% of the vote. 8% without campaigning...against the incumbent Democrat majority leader in the state legislature and the head of the city Republican party. If I'd have campaigned, I would have definitely been able to effect the outcome of the election at the very least. I was at least enough of a peceived threat that the Republican candidate met with me and offered me the party nomination for the upcomjng state senate seat if I agreed to drop out.

If we don't try, we surely won't succeed.

 

Good on you. While I think people have tried what you suggest for decades and have gotten nowhere against the machine, I applaud you for obviously being a capitalist who is loyal. And know that I would support such efforts, I just think it is time to start rallying the troops, so to speak. We can't have revolution off the table, it not only cripples nationalist wants, but it is a natural way of keeping those with absolute power at least remotely conscious of negative results from their policies. If there is no chance for people to revolt in a nation you control, why not do whatever you want?

 

Policy will not change from the appeal of fringe candidacy. Policy will only change by making it such a popular issue that mainstream politicians have no choice but to go along. If the constituency makes something "the issue" no amount of corporate lobbying can change a reps vote. It is time to make US tax policy "the issue".

There is a reason why republicans have gotten elected for years, they take up some trivial social problem, like abortion or gay rights, get people emotionally involved in it, and it becomes "the issue" of the election.

It is time to make economic problems "the issue" of the upcoming elections. The tea party wing of the republicans have been fairly successful in tying the harness of emotions to economic issues that thye blame on too much government control.

Now would be a good time to turn the generalized anger the tea partiers have generated against government into specifics since they have nothing that addresses the concerns of the average worker, only some violently anti-worker ideas like eliminating the minimum wage, social security, and medicare.

A demand that the government remake its policy to one that makes the US a better place for everyone, not just the wealthy businessmen, by adopting specific long term industrial, financial, monetary, and social policies that will steadily improve the standard of liviing for everyone as opposed to tax cuts for the wealthy and the elimination of the EPA that will make everyone else's life more miserable.