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Old Dec 29, 2012, 01:33 AM   #1
jnpy!$4g3cwk
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There's Only One Way To Fix The Deficit And Actually It's Totally Painless

A thought-provoking article in Business Insider:

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There's Only One Way To Fix The Deficit And Actually It's Totally Painless
Joe Weisenthal, Dec. 28, 2012, 1:51 PM

People who insist that the US has a gigantic "spending problem" are ignorant of what really drives the deficit and the national debt, as Henry Blodget easily demonstrated in a series of charts.

Closing the deficit is not just about lowering spending, relative to GDP, but also about increasing revenue from our very low levels.

So how is that accomplished?

When people talk about the deficit, they almost always use the "pain" metaphor.

In almost any op-ed extolling the wisdom of the Simpson-Bowles plan, it's pointed out that we're going to need to take some pain. Obama has said that the Federal Government needs to tighten its belt, which is something that is painful. Conservatives say the government needs to go on a diet. Diets are painful. A recent USA Today headline was very standard: "Nation's soaring deficit calls for painful choices."

It's understandable why the pain metaphor is so popular. One, it's logical to think that the answer to big deficits is cuts, and cuts are painful. More importantly, it appeals to an innate sense that pain is frequently a long-run redeeming thing to experience. You go to do Crossfit, and you feel pain. But then pretty soon you're a beast that's never felt better. Some religious groups use to mutilate their own flesh to show proper respect to The Lord.

So this is just a popular idea: Take the pain now, be redeemed.

The good news is that in economics and when talking about the deficit it doesn't need to work that way! Fixing the debt is painless!

That's because the primary driver of deficits is a lack of growth.

A chart that everyone needs to have seared into their brains is this one, which shows the deficit as a percentage of GDP (red line) vs. the unemployment rate (blue line).
http://www.businessinsider.com/closi...inless-2012-12

The article explains the overwhelming importance of unemployment. I recommend that every proponent of "austerity" read it.

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Old Dec 29, 2012, 01:43 AM   #2
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Yeah, yeah everyone knows that is true (unemployment vs. deficit) !

Problem is there still was&is a deficit even when unemployment was very low.

The US (like most other industrilized countries) has been acting like someone addicted to caffeine (borrowed money) for the past 50 years.

Sure in the at the beginning your wide awake in the morning and maybe even more productive but once you got used to it your no better than someone just drinking tap-water.

Now we're in a situation where we got severe bowel-problem and the doctor tells us we gonna have a stroke pretty soon if we don't cut down our intake....


Feel free to propose a way to create more jobs without spending more money and we might have somethink to talk about, but sofar all I've heard is varying the caffeine-dosis
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Old Dec 29, 2012, 04:53 AM   #3
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It's easy to not be poor, just earn more money. What's so hard to understand about that?

I hope no one is paying this economist for his "knowledge" about economics.
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Old Dec 29, 2012, 05:41 AM   #4
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Originally Posted by thewitt View Post
It's easy to not be poor, just earn more money.
Yeah, that's usually trivial.
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Old Dec 29, 2012, 09:18 AM   #5
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For all the graphs and information in that article, I'm amazed at the stupidity of the author's position. "Make more money, grow the economy, and we'll have less debt." Well, Jesus Christ! I had no idea it was that easy. Someone should have thought of that earlier.

There are things we can control, and things we can't. Government has little or no control over actual real economic growth, and what little they can control comes in the form of misallocated short-term stimulus or redistributive jobs bills which do nothing except shuffle money around through a bureaucratic middle man. Society controls growth, and they don't do it at a point of a gun... they do it because they think it will benefit them financially. What government can control is revenue and spending.

Most middle-class Americans are already paying well over 50% of their income in taxes, be it in the form of income tax, property tax, sales tax, or price increases passed along to reflect corporate tax. We don't have a revenue problem, we have a major spending problem.

There is no 'easy solution'.
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Old Dec 29, 2012, 10:34 AM   #6
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Originally Posted by classicaliberal View Post
For all the graphs and information in that article, I'm amazed at the stupidity of the author's position. "Make more money, grow the economy, and we'll have less debt." Well, Jesus Christ! I had no idea it was that easy. Someone should have thought of that earlier.
Classic Joe Weisenthal link bait, as are most of BI articles.
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Old Dec 29, 2012, 10:43 AM   #7
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It's amazing how little people understand about economics, even economic writers. His theory is similar to giving every one a 50% raise so the consumer will be stimulated to spend. The problem is that money has to come from somewhere. Right now, we are shielded from that reality because we are the reserve currency in the world and we print our own currency.

The only way out of our mess is to create sustainable jobs that actually produce something of VALUE that people are willing to pay for. That increases wealth for everyone as the standard of living improves.

Every other approach is a shell game moving money from one place to another or borrowing from the future.
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Old Dec 29, 2012, 12:10 PM   #8
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"Easy" solution:
- pull out of iraq
- pull out of Afghanistan (actually, cease all military operations other than local defense of the homeland. no, invading countries on the other side of the world is not homeland security)
- cull the F22 and F35 programs
- mothball half the B2s and half the carriers
- stop trying to spend your way out of the problem
- stop bailing out the banks
- give tax incentives for companies that produce their stuff entirely in the USA
- reduce the legal culture of being able to sue for any retarded stuff and usually win a massive payout from a potential employer. a company considering setting up a business in the US at the moment has a massive legal liability and some will simply not bother and set up shop elsewhere.


Of course it won't be easy, it will be extremely painful for a decade or more.

But, when you've had 50 years of freeloading** off the rest of the world due to the reserve status of your currency, unwinding that and getting debt back under control is going to take time.

There is no magic bullet here folks.


edit:
** maybe that's a harsh word, but fact is the US has been buying more than it has been selling for a long time, and the way the reserve currency setup currently works, that means the rest of the world has been giving you more than they get back for a long time now. hence your debt levels. eventually, the debt needs to be re-paid, and issuing more currency (debt/printing more money) isn't going to fix it.
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Old Dec 29, 2012, 12:20 PM   #9
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Originally Posted by Dmunjal View Post
His theory is similar to giving every one a 50% raise so the consumer will be stimulated to spend.
Crudely, that's what Keynesian economics is all about. That's what the Chinese did in 2008 to great effect.
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Old Dec 29, 2012, 12:31 PM   #10
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50% pay rise all-round just means prices go up 50% locally, and you halve your purchasing power for overseas goods.

It also kills the value of any savings that your people already have.

Keynesian economics is actually a large contributor to the current economic problems the world has....
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Old Dec 29, 2012, 12:36 PM   #11
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Keynesian economics is actually a large contributor to the current economic problems the world has....
How is having greater economic success than at any point in the history of the world a "current economic problem"?
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Old Dec 29, 2012, 01:30 PM   #12
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How is having greater economic success than at any point in the history of the world a "current economic problem"?
I can live pretty well with an unlimited credit line without working too. Does that mean I'm the most successful man in the world?

Keynes assumed we'd pay our debt during the boom time. We have yet to do that in over 40 years.

That day is coming and will be bigger than we can handle because we didn't take care of it earlier when the problem was smaller.

I don't blame Keynes for that. That's our short term kick the can down the road politicians. In both parties.

Last edited by Dmunjal; Dec 29, 2012 at 01:36 PM.
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Old Dec 29, 2012, 02:01 PM   #13
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Originally Posted by thewitt View Post
It's easy to not be poor, just earn more money. What's so hard to understand about that?
There's so much ignorance in this statement it's not even funny. Sounds like something Mitt Romney would say, akin to "just borrow money from your parents."

Some people will never understand what life is like for other people outside of their own little bubble they live in.

Can I borrow your magic money making wand?

Quote:
I hope no one is paying this economist for his "knowledge" about economics.
Irony is delicious.
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Old Dec 29, 2012, 02:28 PM   #14
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There's so much ignorance in this statement it's not even funny.
On an individual scale it can work. But on the whole, it can't.

We need to find out if thewitt is merely encouraging individual accomplishment or irrationally indulging in utopian fantasy.

Then it would be clearer as to how much ignorance was contained in his statement.
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Old Dec 29, 2012, 02:38 PM   #15
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Keynes assumed we'd pay our debt during the boom time. We have yet to do that in over 40 years.
I agree that most of the developed needs to do that.

I still stand by my comment that the world as a whole (which also includes all the developing countries) is richer than at any previous time in its history.
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Old Dec 29, 2012, 03:49 PM   #16
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On an individual scale it can work. But on the whole, it can't.

We need to find out if thewitt is merely encouraging individual accomplishment or irrationally indulging in utopian fantasy.

Then it would be clearer as to how much ignorance was contained in his statement.
Good points.

Individual accomplishments are obviously good and it's great when people can go out and do something to earn more money, but the thing I think he doesn't realize is that for many people, they are already doing all that they can do. It's not easy being poor. There's a finite number of hours in a week and when you are already working 2-3 jobs and 70, 80, 90 hours a week just trying to earn enough money to pay rent, put food on the table, and clothes on your kids there's not much else these people can do.

These types of scenarios are only going to get worse though. Inflation and the costs associated with a basic living keep going up while wages remain stagnant, meanwhile technology keeps replacing jobs and putting more and more people out of work while our population is constantly growing. We as a society just can't keep this up. It just won't work.

I don't think anyone currently has a solution to these problems either.
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Old Dec 29, 2012, 04:00 PM   #17
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I agree that most of the developed needs to do that.

I still stand by my comment that the world as a whole (which also includes all the developing countries) is richer than at any previous time in its history.
The last 10 years have shown the greatest transfer of wealth from developed countries to developing countries.

The western world's wealth is based on debt. Since we can't pay honestly for our consumption or offer enough in trade, we are slowly losing our gold.

Same thing happened in 1970 with De Gaulle before we abandoned the gold standard.
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Old Dec 29, 2012, 04:18 PM   #18
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Good points.

Individual accomplishments are obviously good and it's great when people can go out and do something to earn more money, but the thing I think he doesn't realize is that for many people, they are already doing all that they can do. It's not easy being poor. There's a finite number of hours in a week and when you are already working 2-3 jobs and 70, 80, 90 hours a week just trying to earn enough money to pay rent, put food on the table, and clothes on your kids there's not much else these people can do.

These types of scenarios are only going to get worse though. Inflation and the costs associated with a basic living keep going up while wages remain stagnant, meanwhile technology keeps replacing jobs and putting more and more people out of work while our population is constantly growing. We as a society just can't keep this up. It just won't work.

I don't think anyone currently has a solution to these problems either.
To understand the plight of the poor and why we have income disparity, you have to look at our monetary policy and not blame those who have succeeded through hard work and good fortune.

The deficit spending actually contributes to greater disparity for the poor and benefits the rich because it forces QE.

http://reason.com/archives/2012/09/13/occupy-the-fed

The core of this country's problem is the banking system and especially the Federal Reserve.

Unfortunately, all of our politicians on both sides of the aisle are bought and paid for by the banking lobby.

Last edited by Dmunjal; Dec 29, 2012 at 04:30 PM.
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Old Dec 29, 2012, 04:56 PM   #19
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Originally Posted by Dmunjal View Post
[

To understand the plight of the poor and why we have income disparity, you have to look at our monetary policy and not blame those who have succeeded through hard work and good fortune.

The deficit spending actually contributes to greater disparity for the poor and benefits the rich because it forces QE.

http://reason.com/archives/2012/09/13/occupy-the-fed

The core of this country's problem is the banking system and especially the Federal Reserve.

Unfortunately, all of our politicians on both sides of the aisle are bought and paid for by the banking lobby.
You speak too much sense.
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Old Dec 29, 2012, 05:22 PM   #20
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The deficit spending actually contributes to greater disparity for the poor and benefits the rich because it forces QE.
How does QE benefit the rich? Surely it dilutes their (usually large) savings more than the poor, who don't have any savings?

And the flaw with your link is that rising commodity prices in recent years is largely caused by the massive increase in Asian demand.
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Old Dec 29, 2012, 05:24 PM   #21
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How does QE benefit the rich?
Did you read the article?
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Old Dec 29, 2012, 05:25 PM   #22
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Did you read the article?
Apologies, see my edit.

EDIT: With further thought the comment about stocks may be fair, and may override the increased inflation caused by QE.
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Old Dec 29, 2012, 05:35 PM   #23
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How does QE benefit the rich? Surely it dilutes their (usually large) savings more than the poor, who don't have any savings?

And the flaw with your link is that rising commodity prices in recent years is largely caused by the massive increase in Asian demand.
It raises all asset prices primarily benefiting the rich. Poor don't own stocks and real estate.

----------

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Originally Posted by Eraserhead View Post
How does QE benefit the rich? Surely it dilutes their (usually large) savings more than the poor, who don't have any savings?

And the flaw with your link is that rising commodity prices in recent years is largely caused by the massive increase in Asian demand.
Inflation has been a constant for 40 years. Asian demand is a recent phenomenon. That excuse is a red herring meant to deceive as our QE ends up going all over the world driving up commodities even more than straight demand would otherwise.

http://www.ritholtz.com/blog/2012/09...everyone-else/

The primary purpose of QE is to bail out the banks after their bad decisions in the housing mess. Second, it is to finance deficit spending while keeping interest rates low. The rich just happen to leech on the strategy. The poor get screwed because they are always late to the game.

Last edited by Dmunjal; Dec 29, 2012 at 05:41 PM.
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Old Dec 29, 2012, 05:44 PM   #24
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The big increase in commodity prices is recent...
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Old Dec 29, 2012, 08:55 PM   #25
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The big increase in commodity prices is recent...
We've been doing a lot of QE recently!
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