Well, here we go again. The Senate has voted to raise the federal debt limit by $800 billion. The House is expected to ratify. That means our debt ceiling will reach $8.2 trillion. Here's the New York Times article and the USA Today article (no signup required).

Is this a good thing?

What ever happened to fiscal responsibility?

Who is going to pay for all this debt and interest it incurs?

Is this a good thing?

Bush is building the debt on the premise that a rebound in the economy will pick up the tab. What he is failing to consider is the rapidly shrinking workforce as boomers retire en masse. This is going to strain coffers even further with medicare and trillions in Socila Security payments due.The devalued dollar is going to have a terrible impact on the overall econmy since the US is primarily a consumer nation and not a producing nation.

What ever happened to fiscal responsibility?

It used to be the cornerstone of Republican ideology...not so much anymore.

Who is going to pay for all this debt and interest it incurs?
I argued previously that the 200 billion dollar tax cut was a giant mistake since it was financed with debt. US debt for the most part is held by the Chinese government. Not a good banker to have. This debt incurs compounded interest and will be paid over the course of a generation. Not only that but the 1% who benefitted are not going to be the one's to pay the lion's share of it back. The middle class gets that honour. IT wasn't a tax cut, but a tax referral and redistribution. But everyone ate it up..

Oil prices will drop for every country in the world except the US since oil is traded in US Dollars. Your prices for natural resources imported from places like Canada with rise over 50% as your exchange rate has dropped from 55% to just under 20% and is expected to hit 0% by next summer. This will drive inflation and force up interest rates to bring the dollar back up.

Is this a good thing?
Debt can sometimes be a useful short-term measure to weather a crisis. In the longer term, it is rarely more than a millstone.
When an individual spends beyond their means on a long term basis, the solution is usually a change of lifestyle to reduce spending AND increase revenue. The longer you put this change off, the more painful it becomes. From what I can see, the Bush administrations "low tax" regime is really "low taxes now, much higher taxes under some other poor schmuck". They're gambling that the economy will grow enough to increase the tax take enough to pay off the defecit. But the kind of growth rates required to do that would mean the kind of unsustainable boom that put the brakes on the US economy in the first place.
Bush doesn't have to stand again, so he could raise taxes and cut spending without worrying too much about the electoral consequences, instead of the other way around. And he would, too, if he were fiscally responsible.

In a way, I hope that the trouble being stored up happens sooner rather than later.

For one thing, if it happened on Bush's watch, it would be a powerful disincentive to elect someone else like him next time around. (I don't like him much, and until I become a US citizen or presidential elections inculde Brits, my opinion doesn't count for much, so is all I'm likely to be able to look forward to is wathcing him fail. )

For another, the longer it takes to come, the worse it will be when it gets here.

What ever happened to fiscal responsibility?
Increasingly, around the world, it seems that left wing democratic parties have learned the hard way that fiscal repsonsibility is politically necessary - the public tends to mistrust them on the economy, so they have to be scrupulous and diligent on it to gaina nd hold power. And it seems that parties of the right have taken their eye off this particular ball - the public historically trusted them, and they seem to have taken that trust for granted no matter what they do. If this track continues, sooner or later the public trust in economics will switch to the left. (In the UK and Australia it largely has.)

Who is going to pay for all this debt and interest it incurs?
We all are.
When the America reaches the economic cliff edge it is sprinting towards, pray the EU, Chinese and Indian economies have grown enough to shrug off a collapsing US economy.
If they haven't, not only will the US drag everyone else down with it (as the world's largest consumer market), it will take the USA a good deal longer to recover (there will be nobody able or willing to invest there, as their own economic woes will naturally loom larger for them).

We have been in greater debt, as a percentage of GDP, before. After WWII we were over 100% of GDP. We had an advantage , that we do not have now, a younger population. The problem we face now is increasing debt with an aging population. The fact that Europe, Japan and China's demographic problem is even worse than ours actually worsens the situation.

This issue will not go away due to growth. The Keynesian multiplier effect is close to 1.0. Tax reductions don't raise revenues. Amazing how Reagan and Bush followed Keynesian fiscal policy to a higher degree than any other President. We have to choose between higher taxes, lower old-age benefits or a combination of the two. It would also be nice to cut defense spending. You cannot seriously talk about reducing government expenditures without reducing old age entitlements and/or defense.

Is this a good thing?

No, and the hypocrisy of the GOP continues.

Interest payments on national debt for fiscal year 2004: $321,566,323,971.29

321 billion, 321 BILLION. It’s numbing really. With all of our pressing issues at hand I can’t imagine how this is anything but bad.

One of the often used financial measurements for a business is the debt/equity ratio and to correlate to our national economy the debt/GNP ratio is often substituted. I don’t know if I quite buy into the debt/GNP argument (I’m sure Hugo will enlighten me).

I think the national economy is a bit more complicated to use a simple measurement like this and the consequences are a bit more severe (a company may not be able to increase their dividend whereas 800K working families went bankrupt last year over medical bills)

What ever happened to fiscal responsibility?

He was badgered over an affair and unfortunately could only run for two consecutive offices. Anyway you slice it up, toss a ratio at it, or massage it, bottom line it’s irresponsible to continue down this path

Who is going to pay for all this debt and interest it incurs?

bigfish provides the perfect GOP hypocritical practice with his reverse redistribution of wealth. For years the mantra has been the Lib’s want to take your money and give it to others and now the rest of us will be funding the tax break for the rich.

Excuse me? Please review the history of raising the debt ceiling, and explain to me why you think this is solely a GOP issue. After reviewing the history (and considering which side created the term 'entitlements'), if you continue to have the same mindset, perhaps you should re-examine the definition of hypocrisy.

As to the questions:

Is this a good thing?

Short term? Probably. Cutting spending to get back under the limit would likely cause issues which are best avoided. However, the following question comes up...what good is a debt ceiling if it can so easily be raised? I do guess it requires action to raise it...but has such a vote ever failed? I don't remember one time.

What ever happened to fiscal responsibility?
It went out the window when politicians discovered they could create programs to garner political support--especially to satisfy PAC groups. I don't think this is a Democrat issue, or a Republican issue...it's a politics issue. Politicians, from BOTH parties, think its OK to spend our money to buy their votes. Until we make them stop, we're as much to blame as they are.

Who is going to pay for all this debt and interest it incurs?

We are. And we're going to keep doing it until we finally stand up and make them stop. How big an issue was the national debt, in any election? Perot tried to make us 'get it', but, in the end, how many votes did he get? Either we, as a whole, don't get it, or we don't care. Politicians wouldn't do it if we didn't let them.

<sigh> This would be the tax break that refunded an equal percentage to all those who paid taxes, and raised the exemption limit, therefore reducing taxes on the poor? Or did you have some other tax break in mind, that actually fit that description? <sigh>

Is this a good thing?
No, it isn't a good thing and I think it is pretty ironic coming from the party that claims to be the party of fiscal responsibility and paints the Democrats as "tax and spend".

What would be a better solution here, allowing the government to borrow more money and let the problems causing us to borrow money remain (i.e. inefficient programs, out of control spending and an unbalanced budget) or tell them "no, absolutely not" and force them to address our fiscal problems.

I'm gonna vote for the latter solution every time. Almost every level of government is dealing with this problem right now except for the federal government, which apparently can just borrow unlimited money.

If you had a credit card and you maxed it out buying up things you didn't really need, paying your bills when you fell short because of your consumption - would you expect the credit card company to say "sure, we'll raise your credit limit, have fun!"

This country has some serious problems financially and it is high time that we tighten up our belts and examine the things we are funding. This constant borrowing of huge amounts of money to sustain the whole thing is simply not acceptable and is not sustainable.

What ever happened to fiscal responsibility?
No clue, The Bush administration certainly hasn't upheld the GOP platform of being fiscally responsible, yet at the same time they attack the Democrats for being "tax and spend". It really is pretty funny to me that in the 2004 election America didn't vote for the candidate that was talking about bringing some fiscal responsibility back to Washington. Would he have been successful? Who knows, but at least he was promising to do it.

The Bush administration on the other hand wants to do no such thing, in fact they want to continue to cut taxes (and revenue) while increasing spending. Someone please tell me how that makes any kind of financial sense? Does taking a job for less pay and then buying a Lexus make sense to anyone as far as personal finance goes?

The thing that I simply cannot understand no matter how hard I try is why isn't every Republican standing up and saying "ok Bush, enough spending, lets balance the budget" now that he has won the election. Does supporting your man go to the extent of completely going against the principles of your party? I just don't get it.

Who is going to pay for all this debt and interest it incurs?
It'll be just like the "scare tactics" say - our children and their children after them. It certainly won't be anyone in power right now, they'll be long dead before this issue comes back to bite us. But it really doesn't matter anyway because no one in Washington thinks further into the future than 4 years anyway apparently

I have a hard time believing you’ve never heard the GOP touting themselves as THE fiscally responsible party. To me saying one thing and acting in a different manner is hypocrisy. You know, like Limbaugh and O’Reilly spouting morals when they have some work to do on their own.

I’ll give you half credit for the Reagan deficit, it did occur under a Dem congress, but Ronnie didn’t have to approve the budget. This current mess is solely the responsibility of the "fiscally responsible party".

You say entitlements, I say tax breaks for the rich. Entitlements benefit the average Joe, tax breaks for the rich, well they benefit the rich.


I think this gentleman probably knows a bit more about the economy than most:



He’s not the second richest person in the world because he doesn’t understand our economic intricacies. And he admonishes the very tax breaks that he benefits from, to me that says a lot.

And as I stated, bigfish has an even better angle:


I told myself and a few others that when Bush got his “tax reform” pushed through he just got himself re-elected to a second term. As irresponsible as the tax break was all he had to do was look across his debate podium and say “That liberal over there wants to raise your taxes”. Was his tax break a political move?


Nice sound bite in front of a national audience. And just to add, trickle down doesn’t work, his own daddy is the one that labeled it ‘voodoo economics’ and as we’ve seen from the first experiment it only benefits those with money. You can throw economic theory around all you like, but it’s just that, theory, I felt the brunt of the first experiment.

You might want to ask yourself: If the tax break truely benefited the middle class then why is personal credit card debt at an all time high?

No this is the tax cut that exempted dividends to which only the richest 1% benefitted. However,through the bonds that financed the debt, everyone gets to pay it back.

Here's a review of debt history for you, Hobbes. Note that national debt as a percentage of GDP went up for Reagan/Bush I, down for Clinton, and back up for Dubya. As for the history of raising the debt ceiling, I wouldn't be surprised if both parties participated, however the party with the plank of "small government" is the one which is currently in power.


This seems to be more than a short-term trend here. This is the 3rd time (or is it 2nd?) the debt limit has been raised under Dubya. Pork-barrel riders on bills which Dubya signs are the rule of the day. How is that helping?


Agreed. The debt limit is basically meaningless if it can be raised at will. Wasn't this part of the "Contract for America"? Where did those Republicans go?


Look at who was just re-elected. Perhaps, the new seats in the Senate/House will be fiscally responsible, but I don't have high hopes. The problem is that people are voting for the incumbents who are the source of the spending spree.


What better time than during a "war" for austerity measures to be instituted. Asking businesses to give more back to the community. Asking people to give to the war effort. If we are indeed fighting a war, then where is the sacrifice except for our military? Cutting taxes without reigning in spending makes absolutely no sense in this context.

Let me quote J.K. Galbraith "It is more conservative to tax and spend then to borrow and spend." We have the Republicans in control of both the Whitehouse and Congress. They have 2-4 years to show a bit of fiscal conservatism. I am betting they don't do it.

Back to the debt/ GDP ratio. This is probably the most utilized ratio by economists to illustrate the level of debt burden on the economy. Like all measurements it is an imperfect one. It basically only measures current liabilities vs. current GDP. What we have facing us is a Medicare and SS liability that dwarfs our national debt. Unlike 1945 and even, to a lesser extent, 1992 we do not have demographics in our favor. The effects of capital accumulation and new technologies can lessen this potential crisis, but current levels of entitlement programs and the current level of taxation cannot be maintained.

Yep, this is true. If you're a politician, which one of those are you going to choose? I'll give good odds to anyone choosing cutting back entitlements....

re: multiple comments on the debt ceiling...




OK, so both sides are guilty, but one is out there touting they don't...ok, fair point. I was just trying to drive home that this is truly a bipartisan problem.


There are multiple issues with such statistics, not the least of which is there's not causality. My only point is to look at which sides vote on raising the ceiling...I think you'll find this is one area where both sides are truly in agreement.



I'll give ya the dividend issue....just get my hackles up when the overall tax cut is referred to in that fashion.

I'm not sure what you mean by causality, Hobbes. Someone is incurring a debt rate faster than the GDP growth rate. If you are referring to a GDP latency between incoming and outgoing Presidents, I suppose you could argue that but you must not only justify the latency but define how long it is; then, you should correlate that to the Presidential terms.

As for the sides voting on raising the ceiling, I absolutely agree that both sides are doing it. And it bothers me. However, Republicans are supposed to be the party of small government not the Democrats. I would expect much more fiscal responsibility from Republicans. It looks like the roles are reversing though. Republicans have become the big spenders, the party of big government. Republicans are far, far, far away from the conservative principles being espoused less than 10 years ago.

http://slate.msn.com/id/2108201/sidebar/2108202/

http://slate.msn.com/id/2108201/



Can we drop the "tax cuts for the rich" nonsense. The election is over, it's get's pretty tiring after a while hearing it, especially when the truth is completely the opposite.

The war on terror is a very small percentage of the deficit. It is a factor, especially the Dept. of Homeland security. By and large the deficit is because of an increase in spending in NCLB, Medicare, and NEA, and it STILL wasnt enough for alot of Democrat's. The spending has gotten out of control and noone is stopping it.

The only way to control the debt is to cut programs now. The economic expansion will only do so much, and I wouldnt place my hope's that the debt will be payed off on increased job growth alone like Bush seem's to be doing. Although he did cut some of Medi-care and re-organize it to cut off the pork spending.



Everyone is going to pay for the debt, but the rich primarily.

The biggest factor in the deficit are the tax cuts.

No. A larger percentage of the tax money went to the top than the bottom.

You can think about it as a reverse form of what most conservatives argue on this board. Bush is going for a "fair" tax cut, right? That means that if everyone gets their taxes cut by 15%, more will go to the top half than the bottom. Even though this is just a small part of the picture, the concept is correct.

Cutting taxes for the rich is a pretty lousy way to stimulate the economy, as evidenced by this "recovery," which has been the longest post war recovery since... Hoover, or ever?

Except for Medicare, this leaves out the big four, which are Interest on debt, healthcare, social security and defense. Everything else is, well, just everything else. Serious cuts that might effect the deficit will probably have to come out of the big four.

Or they could just reverse the tax scheme, probably not helping the economy that much anyway.

Outside government spending, I have yet to see a real "expansion" period yet to make anyone giddy.

Following that logic, even if you cut the middle class taxes by 50% and the rich by 1%. Then tax cut's mainly went to the rich.



The War on Terror/Dept. of Homeland security was meant to mean defense budget. Though I was not attempting to name the big part's of the budget only the one's that Bush has increased tremendously.

Reversing the tax cut's would help reduce the deficit at the expense of economic expansion.

Businesses expand by spending money. It takes money to make money. Even if a kabillionaire put's the money in the bank, the bank uses that money to hand out loans, giving more people money to buy products, the bank get's money from the interest, and the kabillionaire gets more money from that interest of his money that the bank is making interest off of that money and the person who got the loan is spending that money and potentially making money from the loan if they spent it say, to start a business or invest in the stock market, etc...

If the business wants to expand it will spend the money on the business otherwise it will not expand. So if I owned a company and I saved money from taxes, and if I like expansion, that's just more money I can spend to expand my business.

Look at these numbers and one has to wonder what happened here.

http://money.cnn.com/2003/10/30/news/econo...rt_3q2003.2.gif

What happened here in the first and second quarter? Tax rebates went up. GDP 'sizzles' to 7% consumer spending up by %6.6.

http://money.cnn.com/2004/11/05/news/econo...yroll_oct04.gif

Followed by two million+ jobs.

If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.



Im sure construction companies and home realtors would disagree.

Vampiel- [/I]TARGETED[I][/I] tax cuts DO help the economy, no question. If you give a tax break for building widgets, well, someont that needs a tax shelter will build widgets.

However, you assume that the rich ACTUALLY pay the percentage of income they actually earn from thier tax bracket. For instance, you think Bill Gates actually pays 28% of his net increase per year? I would be willing to bet that Bill Gates doesn't pay 1% in taxes from his actual income per year!

This is where the semantics break down very badly when talking about taxes- the uber-rich in this country, those whose net worth increases by over a million a year, usually pay a percentage of a percentage of thier actual income- the system is just geared that way.

So whenever there is a "across the board tax break"- unless there is a cut off for "X" amount of earnings, there is no help for the economy, and they continue to not pay thier fair share.

Heck, I am not a "1 percenter" yet and I still see my actual tax burden DECREASE as I get closer to that mark- with the, interestingly enough, exception during GWs riegn, I have seen an increase of local taxes on my business, due mostly to his mishandling, of well, everything

My take on "tax breaks for the rich" would be completely different IF they actually paid thier share in the first place, ESPECIALLY considering the privilage they enjoy in our so called "equal" society

For instance, there has not been a man executed since the 30s that was somewhere above the poverty line- so just the unequal treatment by the justice system demands they pay more IMO!!

This is an area I think needs a constitutional amendment even- call it a "responsibilty for being rich" amendment- you steal, through fraud or negligence, more than, say 250K- automatic death penalty upon conviction, no appeal, executed at dawn by hanging. There is no excuse whatsoever for the Ken Lay's and Niel Bushes in our society, and they have no real consequences for thier behavior, so, at the very least, they should be taxed equal to me, percentage wise!

It will fall almost 100% upon those that make over 35K a year in todays money and less than 350K a year in todays money to repay GWs debt- GW will not have to pay a dime of it, guarunteed, nor will any of his oil buddies!

To me, the "fiscal responsiblity" platform of the GOP, reagan and others is what made me so angry at thier hypocrisy, they have been the most fiscally irresponsible party by far, and low brows continue to call dems "tax and spend liberals"- liberals have been far more careful with our money than the conservatives of the past 24 years!

I think this ties in with the last election threads, the "cultural elite" threads, and the feeling by 56 million poeple that the other 59 million poeple are "dumb" (among other quotes you hear) - it doesn't take rocket science to see that the GOP HAS NEVER been anywhere NEAR as careful with the economy and fiscal responsibility as the dems.

Like I said, I am banking on the fact that the GOP will pretty much ruin the economy with thier giveaways to corporate america.

The home buying market was definately a holdover and momentum from the Clinton administration, with fantastic fiscally conservative programs like Hope 6- this is my livelihood, and GW deserves absolutely no credit whatsoever for the building boom- that credit lies directly at Clintons feet and no one elses.

In fact, we have here, probably one of the hottest markets in the US- and it would be cooling off badly if not for the relocation to bases in Alaska of some military units formerly based in Korea. Interests rates will HAVE to increase due to bad fiscal policy, and then the market will cool off, quickly. Clinton is 100% responsible for the low interest rates we have been enjoying these years, because of sound fiscal policy towards debt. Greenspan has obviously been holding off increasing the lending rates in hopes the economy would get going better- raising them would have been disastrous, but more safe in the long run. I have noticed we have been increasing now though- and if we don't get it under control soon, we will have double digit interest rates again soon, by neccesity!

Yep.

Certainly it takes money to make money. However, its fallacious to assume that a lack of financial capital is what is preventing businesses from investing. Generally, Businesses that need money either: Sell stock, or borrow it (And with such great interest rates, borrowing should be particulary tempting). If companies need to, they can make the money available to invest.

Of course, they can't make money available if borrowing it was unaffordable, but those are generally in times of heavy economic expansion.

Putting money in the bank would make things worse. What would happen if everyone just stuck all their money in the bank right now? Economic collapse. Likewise, if all the tax money is but in the bank, demand for products does not increase. When demand for products does not increase, investment in those products does not increase. When investment in those products does not increase, jobs don't increase.

Same concept as above (1st passage). Its nice not to have to pay interest on the money you borrow, but if you found that expanding was profitable you could make the money available, particulary at cheap interest rates.

I see, its charted in percentages.

Theres always a recession bounce back when the economy gets on the right track. The factories and machines that were once idle are still there, just not being used. Therefore, its easier to put things back to work once they don't have to be bought, you just rehire your workers and start again. This explains large changes that seem to happen almost instantaneously, but then drop back down.

Of course, because its in percentage, I'm willing to bet that the reason the percentage change so drastic is because of loses and therefore easier returns.

The big contributing factors to that percentage change seem to be exports, and private investment.


BALS

Those numbers are the economic quarters leading up to 2003.

Lets take the number ten. Decrease it by 20%, and then increase that number by 20%. You should end up with 9.6 (I'm kind of rusty on this, so point out any errors in math or the general concept). Your saying that the 9.6 is a 20% increase, when the number has actually gone down over the quarters.

What I'm saying is that GDP will get a large percentage boost if it has done very poorly before and goes up. These are inflating the overall percentage of the GDP.

If we widdled down 10 to the number .5, and then added .5 to it, that would be a huge 100% increase even if .5 is a particulary underwhelming number.

Its still a net loss of jobs, first since Herbert Hoover (Guess who). And now we can see how that 7.4 was arrived to because of the crummy investment in the periods before. Loses in jobs all before that 7% leap.

If only the economy was based on a single industry....

Because I'm sure the IT industry would disagree with them.

Statements like this always bother me. Clearly, there have been other times where taxes were higher while the economy expanded and the debt was reduced (under Clinton, for example) or even while the economy expanded and debt increased (under Reagan, for example).

My opinion is that tax cuts are somewhat immaterial to economic expansion, however tax cuts are material to debt increases. If there is no commensurate decrease in government spending, then the government has to borrow to "make up" for the loss of revenue. When the debt is sufficiently large, investors treat it as a liability; for the US economy, this means we get a weak dollar. Conventional wisdom suggests that a weak dollar will increase US exports (as US goods will be cheaper on the international market). Unfortunately, we see this is not the case over the past 4 years. As the US dollar has been getting weaker, our trade deficit has been increasing. Surely, everyone would agree that this is a bad thing™. Indeed, Greenspan just made such a statement.


This statement has also always bothered me. When employing a cliché, it's important to house it in the right context. A business justifies borrowing by betting that it can get a return on investment greater than the interest rate on the debt. A lender asks for some sort of recompense should the business fail. Thus, it is very important that the business justifies the debt including how it will be spent. The US government doesn't really have such checks and balances between borrower and lender. Thus, the intention of the debt can be "reinterpreted" according to one's bias. That is, if it isn't doing X, then one can look back and say, "oh it was really meant to do Y". What I'm getting at is: there is no accountability or political repercussions associated with poor debt management.

To get back to your first statement: "businesses expand by spending money", I'd have to say is profoundly incorrect. Businesses expand because they earn money (and wish to earn even more money) not because they spend it. While growth generally involves some sort of monetary outlay, unless it's a startup, a business isn't going to expand just because it needs to spend its money. In other words, spending is an effect not a cause.

And if they are given a tax cut they dont need to do either. Your forgetting that.



I was not implying that putting money in the bank is the best course of action. Only that it does not deter economic expansion.



Same concept as previously stated in my first sentence.



I agree, though you are ignoring the evidence I provided for the reason that it happened to go up at the time it did. There's always a reason that it bounces back at the time that it does.



Now you are touting the "crummy investment" as the reason, yet more investment is brought due to more friendly economic policies and signs of recovery. Hence the tax cuts.



The IT industry job losses had nothing to do with economic policies but the examples I gave had everything to do with lower interest rates.



That goes back to the philosophy I gave above. I never stated that the tax cuts should become permanent or that tax cut's are the best way to expand the economy. However tax cuts are a contributing factor to expand the economy when the economy is in need of recovery due to profit losses, therefore giving companies a much needed injection of capital.

If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.



I agree with the concept that you are portraying but it is extrememly flawed fundamentaly in the US. First of all what I stated is true, there's no denying that in order to expand a business has to have money to do it with. What you are arguing is basically that capitalism does not work because of bad investment. That does happen in the US however your arguement does not hold up to scrutiny because businesses in the US by and large expand when given more capital.

I'll just requote what I said:

If they can make the money available through other means, a tax cut to aide their finicial capital is pointless. Its similar to giving a bucket of water to save their farm when they have a pool. They already have the water to save their farm, they don't need anymore.

If everyone put their tax savings in the bank, it wouldn't aide economic expansion. In fact, the goal of any tax cut should be to maximize its effects on demand. Saving money does not increase demand.

First, remember that if those sectors I pointed to, exports and investment, did so poorly before the third quarter, a relatively small increase could provide a big percentage bounce and inflate the over percentage bounce of the GDP. Like a drunk who's hit rock bottom, after a series of consecutive falls there may be no place to go but up.

As to the suggestion that the tax rebates were the obvious reason for the timing of the recovery, I would be interested to know why the 2001 and 2002 tax cuts didn't have similar effects for the first and second quarters of 2003. I would like to know the nature of this rebate, as well.

And even if the tax rebates were the source of the turn around, it was so meager a recovery, took so long to take place (The entire tax scheme), and didn't continue to pick up the rate of growth that I would say the only way to fail that badly with such a huge tax cut, the largest additive to the deficit, is to make the cuts very innefficent.

A lack of recovery would mean that the tax policy is doing nothing for the IT industry, is all I meant.

And Bush doesn't control interest rates. I wouldn't credit him for that.

I find it interesting this is under Domestic Policy as I feel America's debt is pretty much a international matter and there seems to be far more people worried about it outside the US than there is inside the US.


Is this a good thing?
No not really but neither is slowed growth or a recession. It is hard to view it as good or bad..easier for me to see it as necessary or unnecessary...and then that all depends on what you define as necessary ..and war to me is an acceptable reason for carrying national debt.

Deficit spending in a time of need is one of the most basic Keynesian economic theories. And paying it all back is a major part if this economic theory too

Who is going to pay for all this debt and interest it incurs?
Well we pay it.
Yet everyone else in the world is paying for it too..or at least the effects it has..Asia especially.



Well ok..but I have a hard time seeing how either is independent. Tax cuts and deficit spending are both fiscal policy..which happens to then have effect on economic conditions. I think it is a bit of a contradiction to claim one has an effect but the other does not..they both do.


We have a weak dollar for many reasons and claiming it is solely based on our deficit is dishonest.
Do you think perhaps a slowed economy and recession would make investors weary too? Besides the American deficit is not the only worrying trend in our current global economy.

You know Keynes essentially argued that in time of high UNemployment it was the government's duty to take on a deficit in order to employ it's civilians ..even if it meant just to dig holes. He felt to argue against deficit spending in light of human suffering was not only bad theory but the "humbug of finance"

EDITED TO ADD....

All this tax cut chat..not only is it said tax cuts will stimulate the economy..or that is the hope behind them..but not the only one. It is also the easiest way to create and most desirable way to create a deficit.

Sure they can risk other means of investment but giving tax breaks create's a risk free source of capital.

They can always seek capital but it always come's with risk's and in a downturn risk's become that much more of a risk. Giving a tax cut assure's income without a risk which stimulates the economy with risk free capital. It subsidizes the economy.



This arguement is moot because you are arguing something that I never stated. I never stated if everyone put money in the bank it would stimulate the economy which is what you are arguing.

If everyone only spent money and never made it that would also create a collapse of the economy. I never stated that everyone should put money in the bank or that it would be the best way for economic expansion, only that when they do it does not deter economic expansion... given everyone doesnt do it.



The GDP is not primarily based on investment or exports in the US but consumption. This backs up my arguement not yours.



Two million jobs and a 5.4-5.5% unemployment rate in 10 months is not a "meager" recovery by any measure.



Then we agree on one thing. The President can only do so much for economic recovery.



Bucket you are a genius. I never thought about the Chinese connection until I read your thread about the weakening dollar. I wonder if that is really the intention. It's not the only way but it does offset the repercussions of the alternatives.



I couldnt agree more.

I agree with this. And sure deficit spending is workable in moderation. My thesis though is that economic indicators suggest that we've exceeded the moderation point.


Agreed. There is tremendous international investment in the US. I foresee this getting lessened in the near future. But, of course, you might start calling me a "soothsayer".... so I'll stop there, bucket .


You are taking my statement out of context and then arguing against your reinterpretation of it: a "straw man" fallacy. In particular:

The problem with the reversing-the-tax-cut thesis is that there are historical precedents which contravene his position. In both cases I cited, we had good economic expansion when taxes were higher and taxes were lower. Thus, I state that tax cuts are somewhat immaterial to economic expansion. I am not saying that tax cuts don't have an effect on economic conditions. In fact, I am saying just the opposite. We are exchanging lower taxes for higher debt. The money has to come from somewhere. Or another way of putting it: you don't get something for nothing.


Where did I ever state that the weak dollar was solely based on our deficit? If you are to argue against what I'm saying, then please do so. But, in this case you are once again creating a "straw man" and then arguing against that. In fact, you've employed the straw man fallacy often in our debates. As for calling me "dishonest", that's another type of logical fallacy.


Believe me, the idea of incurring a debt is not an anathema to me in particular when it's exchanged for unemployment. FDR's public works projects in the 1930s, for example, helped get the US out of the Depression. However, when other economic indices demonstrating an increasing trade deficit and increasing debt vs. GDP are in play, even Keynes would have been more than just mildly concerned.


I don't have a problem with tax cuts per se. I have a problem with a huge debt, runaway deficit depending and an increasing trade deficit during a time of war. I believe that tax cuts have exacerbated the problem when there has been no commensurate reduction in government spending. In other words, if we cut taxes, we need to reign in spending, period. Or a better way of putting it is: if we reign in spending, then we can cut taxes.

I guess thats the point of lower interest rates, to reduce the risk of borrowing money.

And when a company gets back a tax break, its mentality isn't "Free money" lets invest. Indeed, a company will probably only invest if it believes its investments will be profitable. If they noticed a pick up in how their product was selling, they would risk borrowing the money to increase their supply. If its an iffy venture, they certainly wouldn't put their tax money there. Thats not free money to play around with, no company woud treat it as such. They would handle it as carefully as a loan, or any other profit they had.

Besides, this "Mentality of risk" argument completely ignores stock, which can be sold risk free to produce capital for an investment expansion.

How?

When GDP goes backwards, that means theirs an overall decrease in demand. Thus, an opposite effect occurs in which Businesses stop producing unwanted supply. If demand for their product has fallen, a tax break would not increase their desire to invest. Why would they? No one would buy what they invested in, GDP has gone backwards.

What I'm trying to say is that, when you want GDP on track, you want people to SPEND their money instead of SAVING it.

It would probably create rapid inflation, but expansion no the less. Mega expansion.
Eventually the feds would caue a recession, by reducing the money supply, in order to curb inflation.

GDP = Government spending + Consumer SPending + Business Investment + (Exports - Imports).

A heavy percentage increase for Investment and Exports would inflate the over all GDP. Please go back if you need to understand my argument for why these things inflate it percentage wise (based on heavy losses).

Still wondering why those previous tax cuts didn't spur an economic expansion in the first and second quarter of 2003.

And its still a net job loss, despite the presidents plan.

And the rate of growth for creation has fallen or gone backwards since the 2003 quarter. It wasn't long lasting.

And median income has fallen, less money in the pockets of the average worker.

So, this is something other than meager? It doesn't make up for what was lost, the rate of growth often shrinks, and the jobs created pay less. Impressive.

To put it in a brief style- I agree with BH's points

1) there is a net job loss- even if unemployment percentages fluctuate up, there is a net job loss- no spin will change that

2) There was no net benefit to the tax cut

3) The media income has fallen- so, if you got a tax cut, you have less money, period, no spendy here!

4) The demand for goods and services are down- no need for capital reinvestment- if you make more widgets, you aren't going to sell them anyway! i.e.- tax cuts do nothing positive for businesses- not even make up for thier losses from the poor economy


Not even meager- straight up bad!

Deficit spending without anything to show for it will only harm the economy, not help it.

Prior "tax and spend" policies HAVE AT LEAST led to US infrastructure growth or something to do with the US economy, whereas goverment spending is going to a deep well in Iraq where we realize no economic gain, as a country, well, unless you are Dick Cheney and Haliburton!

Yeah but it leads to less foreign investments because there is less money to be made in investing.


Well that is not what Mr. Greenspan says..he says save your hard earn monies my fellow Americans..please stop filling the trade deficit with them and save save save. It was one of his key messages on Friday.


Oh you don't like that title do you? Well Mr. Greenspan agrees and he is the almighty financial soothsayer. Yet he basically points out the fact they will as long as we make it worthwhile and I don't think he wants to increase interest rates yet.


Oh I understand all that...but that doesn't appear to be this current admin's belief system. As with Keynes..sorry to gush on about him but ..that is how one achieves a deficit..by cutting taxes and increasing spending..it is the means in which to achieve the objective..which is a deficit and all they entail. The tax cut alone is not the stimulus..


And what were you hoping for ...a new car? Isn't the Iraq war enough of a show for you? Not to mention unemployment declining and economic growth is sustained..what more do you want?

I’m constantly amazed with the level of economics expertise on this board. Which hopefully means if I misstep or draw false conclusions here I’ll be corrected and learn a little something.


If my dusted off economics lessons are correct most of Keynes theories weren’t based on single actions to help guide the economy to the desired state but generally a series of interrelated and correlated changes. And part of his deficit spending theory was real and/or nominal wages had to decrease below the price of goods (and then there were interest rates adjustments etc.. that followed).

And if memory servers correct these theories were developed/refined during the depression when employers could decrease wages because at that time folks were willing to work anywhere for just about any wage as long as they could toss a used three day old ham hock into boiling water. Flash ahead seventy years and today it’s very rare for an employer to decrease wages unless they’re faced with bankruptcy.

Also, take into account that when John Maynard was theorizing there was no ‘globalization factor’ to consider. So I have multiple reservations about us basing today’s economic strategies on theories that may be outdated or aren’t fully implemented. (sorry bucket, not taking shots at your man).

Maybe this is for another thread, but I feel the composition of our economy is now more consumer based than the older theories account for. I’ve seen this used as the underpinnings for arguments that consumerism drives our economy to the point where it can grow on its own (albeit at a slower rate than desired), regardless of economic policies.


Don’t know the details of how tax breaks for corporations are implemented, but aren’t you assuming that every business that receives a tax break will reinvest? Most corp’s have 2-5-10-15 and 20 year capitalization plans. If they were to receive a tax break and have no plans on immediately reinvesting my guess is the extra cash will end up in the bank accounts of the executives (and I refuse to buy into trickle down theory).

So I see it as potential Federal revenue lost unless the tax break is explicitly for reinvestment. But then the business would have to secure the capital prior to actually reinvesting and once again assumes the risk.

Fife and Drum and BecomingHuman refer to this comment.



If you cannot see how giving a corporation millions of dollars encourages economic growth then I suggest this web site. Remember it's not a loan. There is a big difference because it take's risk out of the equation of recieving the money.

BecomingHuman the GDP in the United States is 75% consumption. When the GDP more than doubles it's a little naive to say that it was overinflated double the normal amount because of exports and investment.

http://biz.yahoo.com/c/terms/gdp.html





And what I am saying is that people do SPEND the money that you SAVE so we are both correct.

Expansion by capitol debt is only useful when there are resources (notably income and potential income) to cover it. Governments base their potential income on GDP and the ratio of debt to GDP is how the risk is assessed. Once that ratio becomes too high, the risk gets larger and the currency falls. The decline of the US dollar is undeniably linked to the debt to GDP ratio. If tax cuts coincide with complimentary cuts in spending, then it is generally a healthy move for the economy. But to cut income and increase debt at the same time is irresponsible and nothing more than vote pandering.

I wouldnt come to that conclusion so quickly.

http://www.americasdebate.com/forums/index...?showtopic=8661

2/3 = 66%

Yes, personal consumption is the largest factor in GDP. It increased 5%, under the 7% boost total boost. Other factors brought it up to 7%, even if they dont carry as much weight.

GDP DOUBLE!!!!! Thats a 100% change, not 7%.

Though I have no idea the math invovled in weighting, the very large increases in these individual sectors could inflate it considerably. 3.5 to 22.5 is a pretty big jump (based on percentages), it obviously had an effect on the overall number.

Your not thinking the way a Business thinks. When they get back money, they don't just toss it around as if its free. They will only risk it if they think it will end up being profitable. They probably wouldn't risk their tax rebate if there was a significant enough chance that they would lose it all.

Furthermore, your belief that tax breaks to companys who are pulling their money out of jobs already makes no sense. If they cut money (yes, that they didn't borrow) out of a factory that created a supply they couldn't sell, what good would a tax break do? They have the money to keep up the factory already, their own money in fact. The factory wasn't profitable, so they shut it down.

How would a tax break make the factory, that had a supply they couldn't sell, profitable again?

Your right I was thinking 3/4 for some reason. Let's put this to rest.

http://www.econedlink.org/lessons/index.cfm?lesson=EM538





You have an interesting way of viewing things. First if the middle class gets a 50% tax cut but the rich get a 1% tax cut then you would say the cut went primarily to the rich. Now the GDP goes from 3.5% to 7% it has not doubled?



I own a business and am well aware of what you are stating but you are completely ignoring my point.

Ill make this simple. If you win the lottery would you spend it more easily than you would if you earned the money?

Remember consumption is the driving factor behind the US economy.



I never said that it would make sense to give tax breaks to a "factory that had a supply they couldn't sell". However in a better economy they might be able to sell the products. The economy is a giant loop (a chain) not a straight line.

If you give everyone money everyone can buy/sell more wich means suppliers can produce more.

The rate of growth has doubled, not the GDP. The GDP grew 3.5% before, now it has grown 7%.

And major does not mean only. The huge persentage increases from the dismal preformance before definately had the effect of at least somewhat inflating the overall percentage GDP growth. Theres enough in there to create that effect, particulary from 3.5 to 22 percent.

Spend it, not invest it. But that spending point brings us back to a pretty good concept.

Previously, you said:
from that, I take it your stance on the issue is: "Giveback tax money to Corporations! They will then invest it, creating jobs for the unemployed."

I eventually countered, saying that the corporations already have plenty of money they can use to invest by either selling stock or borrowing from the bank.

You then said that it was about the "risk" factor, that, basically, a company would be more willing to risk a tax rebate than a loan (Even though this doesn't answer the idea behind stock, that a company could finance an expansion with as little risk as getting back tax money)

I then said that money, that was just as much theres as a tax rebate would have given, has already been taken out of the factories, etc. They already pulled out their money from factories during the recession, giving them more of their money wouldn't solve anything. They weren't willing to keep their money in jobs at point A, why would a tax rebate give them any incentive to put more of their money into the same low producing jobs.

So, you can give millions to corporations and PRAY that they will invest. You do not know for sure if they will invest, and, if you follow the logic that it would take an increase in the consumption of their products in order for them to start investing, they probably won't. (Why would they invest in something that they're forced to sell at cheap pricing just to stir up demand? It runs contrary to the supply curb)

Or, you can give those same millions to the consumers. Target the tax breaks in such a way that so that consumers start buying again. Once the companies see an increase in deamnd, they will borrow the money, use past profits, or sell stock in order to increase production to meet the demand. Borrowing is a very safe venture once they realize their rapidly selling (And they would be selling out after a recession, because they cut back to meet what was the lower demand).

Or, as you said:
So, which is better?

BecomingHuman

You seem to be under the illusion that corporations have an unlimited supply of resources at their disposal at any time. Im sure many companies would love such a luxury. My business has benefited from the tax cuts but since you seem so enthusiastic that I could have aquired these resources to expand my business elsewhere I would love to know where to sign up. Im all ears. You will have to trust me with this source of capital because that is how a free market works. And since the US is such a powerhouse on the world market I would say that it works pretty well to place your trust in corporate America to generate jobs and income.

Yeah that was the point i was trying to make..that tax breaks or increase in govt. spending is but one action..the deficit itself entails many things.

I think currently wages have decreased..or at least remained rather stagnant and at the same time inflation has increased. I had thought that the avg wage increases right now in the US did not really or just barely kept in line with the rise in the cost of living?



Oh don't be so fooled that same class struggles exist today as they did back then. Employment, unemployment it is the eternal class struggle in America
I happen to believe that the tax breaks were in a way a means to alleviate US companies from having to give their usual annual cost of living wage increases. I think it definitely removed the pressure on employers for this.


Oh Keynes is not necessarily my man...but he was without question one of the great liberal thinkers of all time..and President George W. Bush a Republican seems to be a bit of a fan himself.

The world has always been globalized and most certainly was when Mr Keynes was alive ..he helped create the IMF ya' know...not that he would recognize it today.


You ignored me last time when I pointed out our govt. currently does not seem to want to encourage Americans to buy with such vigor..but to begin saving. It came from the mouth of Greenspan this Friday so it is now official policy. You asked which is better... well with our trade deficit as big and monstrous as it is...which is really better?

Didn't know I was arguing with more than one person here, sorry for ignoring you.

At this point, I'm only arguing that there is a better way to promote an expansion, which may very well endanger the value of the dollar.

Then that runs contrary to a policy that would promote GDP growth, which is determined on how much is being bought. Telling people to stop buying would slow GDP growth. But Greenspan must know what he's talking about (more so than me, obviously). Concerns about the dollar must out weigh further expansion. Either that or he's afraid that with a rebate, imports would sky rocket to such an extent as to injure GDP growth, but that doesnt make too much sense.

I wouldn't call Keynes liberal, I'd call him a moderate. I would think that Karl Marx would be the liberal economic thinker. At my Library, the books are organized in such a way that Karl Marx is to the left of Keynes, and Adam Smith is to to the right. Coincidence?

Your tax break didn't increase how many products you sold, and therefore you shouldn't have had a reason to invest. Otherwise, you would have made over what you could sell and would have had to cut your prices in order to get rid of excess.

All I'm saying is this, if a tax break could have been targeted in such a way as to get your buyers to increase what they were buying (or to have more buyers), you could have found a way to procure the money to further invest in your company and meet the demand either by selling stock or borrowing money.

OR you could have done it the slower way, which would have been to reinvest your profits. But the important step was that consumers start buying from you again so that you have a reason to invest. In that sense, a tax for you gives you no reason to invest, while a tax break for your consumers does.

My tax break increased my capital so I could sell more products. I cannot invest in other products without money to do it with.

The further I expand my product base the higher my potential bottom line. It's not that I cannot sell products, it is that I could not buy them in the first place to even know if they will sell.



You just blew apart an entire investment opportunity. The entire market would sink by this logic. My goal is to expand into other markets and area's not to limit myself to the market that I am allready in.

No, that would be saying that you suffered from a lack of capital. Which, taking this back out of anecdotal terms, is unlikely in a recession.

When total demand falls (GDP backwards = Recession), a business is selling less than it once did. So they pull their own money out because whatever they were making before wasn't selling. In this case, businesses DO NOT suffer from a lack of finicial capital, they only suffer from a lack of demand. This is why people lose jobs in a recession, because the workers are no longer needed because what they were producing before was not being sold. Is it not better to correct the imbalance, and make sure to increase demand so the Businesses need employees in order to meet it?

Not only that, interest rates are so low right now (negative real interest rates, I believe) you SHOULD be borrowing the money because your paying back the government less than what they gave you. Sadly, without any demand, there is no need for a supply.

No, because the goal of a demand bounce is to increase demand more than it recedes. It is by no means stagnant, this is not merely replacing the buyers who were once buying from you. Otherwise, GDP growth would always be the same number, an there wouldn't be any new consumers.

Can you really argue with the logic that more consumption means more investment, and that tax breaks for consumers means more consumption?

Bingo!

Though a lack of capital is what a recession CAUSES.



Which causes a profit loss=less capital



Now you are contridicting yourself. A lack of demand results in a loss of capital. The demand will not magically re-appear which is why you need an injection of capital in order to expand to markets that DO have demand. Also an increased tax rebate encourages demand.



Negative interest rates only pertain to foreign investors in the US dollar. Not me.





Other than an increased tax rebate, how to you propose to increase demand?