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Debt, Spending, & Keynesian Foolishness
#41
John L Wrote:No our little ferret faced Keynesian loudspeaker is using the one word that his fellows rarely admit exists. It's the dreaded "D" word: Deflation. And he is using this, in order to inject a little truth to run interference for the kooky ideal of more taxes and higher spending.

You have to admit, no matter how things disprove him, he never gives up.

Professor Feel Good won't give up ... because he's in on the plan ... and the plan is called inflation. It's the ultimate bait and switch. Create deflation by creating instability and lack of confidence in the markets, sell bail after bail of low interest federal notes, then turn on the flood gates and let the inflation stealth taxation gravy train roll! That's how it's dun son! If we can't derail it in November, may god help us all. Big government types absolutely HATE deflation ... because almost by definition it tends to shrink government. Unfortunately, a slowdown and reordering of prices is inevitable after a bubble ... and throwing more money at the problem only increases our debt. The federal system can't tolerate normal business down cycles and corrections ... and it drives "Government is the new God" people like Krugman absolutely mad ... apparently to the point of donning ashes and sack cloth and howling about the end of days. S17

On a side note, I'm with G4U ... enough with the ferret business. Those little critters are intended for (and are very good at) routing out vermin ... rats in particular. So from that standpoint, the analogy doesn't make much sense. Why not just call him a dingle berry?
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#42
Quote:Case in point: New York Times columnist and sometime economist Paul Krugman.

Obviously IBD is being a bit more generous than I am.
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#43
John L Wrote:
Quote:Case in point: New York Times columnist and sometime economist Paul Krugman.

Obviously IBD is being a bit more generous than I am.

I mostly read him to figure out what the enemy is thinking and get a heads up on the lefty talking points du jour. But now that I think about it, I don't remember reading any of his articles that used any charts or actual real live statistics. You'd think that an award winning 'Economist' would throw in a little bit of "technical analysis" every now and then now wouldn't ya? Wink1
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
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#44
More from our friends at FEE on the foolishness of Keynesian economics.

Quote:The Trouble With Keynes

Roger W. Garrison

Dr. Garrison teaches economics at Auburn University in Alabama and is a Contributing Editor of The Freeman.

The economics of John Maynard Keynes as taught to university sophomores for the last several decades is now nearly defunct in theory but not in practice. Keynes’ 1936 book The General Theory of Employment, Interest, and Money portrayed the market as fundamentally unstable and touted government as the stabilizer. The stability that allegedly lay beyond the market’s reach was to be supplied by the federal government’s macroeconomic policymakers—the President (with guidance from his Council of Economic Advisers), the Congress, and the Federal Reserve.

The acceptance in the economics profession of fundamentalist Keynesianism peaked in the 1960s. In recent decades, enthusiasm for Keynes has waxed and waned as proponents have tried to get new ideas from the General Theory or to read their own ideas into it. And although the federal government has long since become a net supplier of macroeconomic instability, the institutions and policy tools that were fashioned to conform with the Keynesian vision have become an integral part of our economic and political environment.

A national income accounting system, devised with an eye to Keynesian theory, allowed statisticians to chart the changes in the macroeconomy. Dealing in terms of an economy-wide total, or aggregate, policy advisers tracked the production of goods and services bought by consumers, investors, and the government. Fiscal and monetary authorities were to spring into action whenever the economy’s actual, or measured, total output, which was taken to reflect the demand side of markets, fell short of its potential output, which was estimated on the basis of the supply side. Cutting taxes would allow consumers and investors to spend more; government spending would add directly to the total; printing money or borrowing it would facilitate the opposing movements in the government’s revenues and its expenditures.

A chronic insufficiency of aggregate demand, which implies that prices and wages are somehow stuck above their market-clearing levels, was believed to be the normal state of affairs. Why might there be such pricing problems on an economy-wide scale? What legislation and government institutions might be standing in the way of needed market adjustments? These questions were eclipsed by the more politically pressing question of how to augment demand so as to clear markets at existing prices. The New Economics of Keynes shifted the focus of attention from the market to the government, from the economically justified changes in market pricing to the politically justified changes in government spending.

Politicians still appeal to basic Keynesian notions to justify their interventionist schemes. The continued use of demand-management policies aimed at stimulating economic activity—spending newly printed or borrowed money during recessions and before elections—requires that we understand what Keynesian economics is all about and how it is flawed. Also, identifying the flaws at the sophomore level helps students to evaluate in their upper-level and graduate courses such modern modifications as Post, Neo, and New Keynesianism as well as some strands of Monetarism.

The extreme level of aggregation in Keynesian economics leaves the full range of choices and actions of individual buyers and sellers hopelessly obscured. Keynesian economics simply does not deal with supply and demand in the conventional sense of those terms. Instead, the entire private sector is analyzed in terms of only two categories of goods: consumption goods and investment goods. The patterns of prices within these two mammoth categories are simply dropped out of the picture. To make matters worse, the one relative price that is retained in this formulation the relative value of consumer goods to investment goods as expressed by the interest rate is assumed either not to function at all or to function perversely.


The Importance of Scarcity

Pre-Keynesian economics, such as that of John Stuart Mill, as well as most contemporaneous theorizing, such as that by Ludwig von Mises and F. A. Hayek, emphasized the notion of scarcity, which implies a fundamental trade-off between producing consumption goods and producing investment goods. We can have more of one but only at the expense of the other. The construction of additional plant and equipment must be facilitated by increased savings, that is, by a decrease in current consumption. Such investment, of course, makes it possible for future consumption to increase. Identifying the market mechanisms that allocate resources over time is fundamental to our understanding of the market process in its capacity to tailor production decisions to consumption preferences. But as Hayek noted early on, the Keynesian aggregates serve to conceal these very mechanisms so essential to the intertemporal allocation of resources and hence to macroeconomic stability.

In Keynesian theory the long established notion of a trade-off between consuming and investing is simply swept aside. Consistent with the assumed perversity of the price mechanism, the levels of consumption and investment activities are believed always to move in the same direction. More investment generates more income, which finances more consumption; more consumption stimulates more investment. This feature of Keynesian theory implies an inherent instability in market economies. Thus, the theory cannot possibly explain how a healthy market economy functions–how the market process allows one kind of activity to be traded off against the other.


The “Multiplier-Accelerator” Theory

The inherent instability makes its textbook appearance as the interaction between the “multiplier,” through which investment affects consumption, and the “accelerator,” through which consumption affects investment. The multiplier effect is derived from the simple fact that one person’s spending becomes another person’s earnings, which, in turn, allows for further spending. Any increase in spending, then, whether originating from the private or public sector, gets multiplied through successive rounds of income earning and consumption spending.

The accelerator mechanism is a consequence of the durability of capital goods, such as plant and equipment. For instance, a stock of ten machines each of which lasts ten years can be maintained by purchasing one new machine each year. A slight but permanent increase in consumer demand for the output of the machines of, say, ten percent, will justify maintaining a capital stock of eleven machines. The immediate result, then, will be an acceleration of current demand for new machines from one to two, an increase of one hundred percent.

The multiplier-accelerator theory explains why consumption is increasing, given that investment is increasing, and why investment is increasing, given that consumption is increasing. But it is incapable of explaining what determines the actual levels of consumption and investment (except in terms of one another), why either should be increasing or decreasing, or how both can increase at the same time. Students are left with the general notion that the two magnitudes, investment and consumption, can feed on one another, in which case the economy is experiencing an economic expansion, or they can starve one another, in which case the economy is experiencing an economic contraction. That is, Keynesian theory explains how the multiplier-accelerator mechanism makes a good situation better or a bad situation worse, but it never explains why the situation should be good or bad in the first place.

Only at the two extremities in the level of economic activity is a change in direction of both consumption and investment sure to occur. After a long contraction, unemployment is pervasive and capital depreciation reaches critical levels. As production essential for capital replacement stimulates further economic activity, the macroeconomy begins to spiral upward. After a long expansion, the economy is bulging at the seams. Markets are glutted with both consumers’ and producers’ goods. As unsold inventories trigger production cutbacks and worker layoffs, the macroeconomy begins to spiral downward. Keynes held that the economy normally fluctuates well within these two extremes experiencing a general insufficiency—and an occasional supersufficiency—of aggregate demand.


Textbook Keynesianism

In the simplistic formulations of macroeconomic textbooks, investment is simply “given”; in Keynes’ own formulation, the inclination of the business community to invest is governed by psychological factors as summarized by the colorful term “animal spirits.” Keynes recognized that there are some “external factors” at work, such as foreign affairs, population growth, and technological discoveries. The market is envisioned, in effect, to be some sort of economic amplifier which converts relatively small changes in these external factors into wide swings of employment and output. This is the basic Keynesian vision.

Wage rates and prices are assumed either to be inflexible or to change in direct proportion to one another. In either case the real wage (W/P) is forever constant. The actual level of wages and prices is believed to be determined (again) by external factors—this time, trade unions and large corporations. If the real wage is too high, there will be unemployment on an economy-wide basis. There will be idle labor and idle resources of every kind. The opportunity cost of putting these resources back to work is nothing but forgone idleness, which is no cost at all. The assumed normalcy of massive resource idleness assures that the perennial problem of scarcity never comes into play. William H. Hutt and F. A. Hayek were justified in referring to Keynesian economics as the “theory of idle resources” and the “economics of abundance.”

Textbook Keynesianism has a certain internal consistency or mathematical integrity about it. Given the assumptions that prices and wages do not properly adjust to market conditions, that is, the assumption that the price system does not work—then the Keynesian relationships among the macroeconomic aggregates come into play. Even the policy prescriptions seem to follow: If wages and prices do not adjust to the existing market conditions, then market conditions must be adjusted (by the fiscal and monetary authorities) to the externally determined prices and wages.

In the final analysis, however, Keynesian theory is a set of mutually reinforcing but jointly unsupportable propositions about how certain macroeconomic aggregates are related to one another. Keynesian policy is a set of self-justifying policy prescriptions. For instance, if the government is convinced that wages will not fall and is prepared to hire the unemployed, then unemployed workers will not be willing to accept a lower market wage, ensuring that wages, in fact, will not fall. Thus, while the intention of Keynesian policy is to stabilize the economy, the actual effect is to “Keynesianize” the economy. It causes the economy to behave in exactly the same perverse manner that is implied by the Keynesian assumptions. This convoluted interrelationship between theory and policy has long obscured the fundamental flaws in the theory itself.

Students often ask the obvious question: Why is government policy grounded in such a flawed theory? From a political point of view, advocating and implementing Keynesian policy is the surest way to election and re-election. The gains from printing and spending money are immediate, highly visible, and can be concentrated on individuals who make up powerful voting blocs. The costs of this policy are incurred at a later date and can be spread thinly across the entire population, making the link between policy and long-run consequences difficult for the voting public to perceive.

The fading in recent years of old-line Keynesianism in academic circles provides little comfort. Even as the number of demand-managers continues to decline, it is from this shrinking group of economists that government officials seek advice and reconciliation. And opportunities to lecture to the seats of power rather than in the halls of learning have a way of changing some economists’ minds about the advisability (political if not economic) of managing aggregate demand. Printing and spending money in pursuit of short-run stimulation if not long-run stability remain the order of the day.

There is good reason, then, to study Keynesian theory: It helps us understand what the policymakers in government are likely to do in any given circumstance. But to understand the actual effects of their demand-management policies in the long run as well as the short, we need a more enlightening theory—one that recognizes what market forces can do on their own to maintain macroeconomic stability and how those forces are foiled by government-supplied stabilization.

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#45
And here is another concerning the late, great, Frederic von Hayek, perhaps the most famous Austrian in economic history. This is a subscription article, so I will post it here in it's entirety.

Quote:Why Friedrich Hayek Is Making a Comeback
With the failure of Keynesian stimulus, the late Austrian economist's ideas on state power and crony capitalism are getting a new hearing.

By RUSS ROBERTS

He was born in the 19th century, wrote his most influential book more than 65 years ago, and he's not quite as well known or beloved as the sexy Mexican actress who shares his last name. Yet somehow, Friedrich Hayek is on the rise.

When Glenn Beck recently explored Hayek's classic, "The Road to Serfdom," on his TV show, the book went to No. 1 on Amazon and remains in the top 10. Hayek's persona co-starred with his old sparring partner John Maynard Keynes in a rap video "Fear the Boom and Bust" that has been viewed over 1.4 million times on YouTube and subtitled in 10 languages.

Why the sudden interest in the ideas of a Vienna-born, Nobel Prize-winning economist largely forgotten by mainstream economists?


Hayek is not the only dead economist to have garnered new attention. Most of the living ones lost credibility when the Great Recession ended the much-hyped Great Moderation. And fears of another Great Depression caused a natural look to the past. When Federal Reserve Chairman Ben Bernanke zealously expanded the Fed's balance sheet, he was surely remembering Milton Friedman's indictment of the Fed's inaction in the 1930s. On the fiscal side, Keynes was also suddenly in vogue again. The stimulus package was passed with much talk of Keynesian multipliers and boosting aggregate demand.

But now that the stimulus has barely dented the unemployment rate, and with government spending and deficits soaring, it's natural to turn to Hayek. He championed four important ideas worth thinking about in these troubled times.

First, he and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story. Boosting aggregate demand by keeping school teachers employed will do little to help the construction workers and manufacturing workers who have borne the brunt of the current downturn. If those school teachers aren't buying more houses, construction workers are still going to take a while to find work. Keynesians like to claim that even digging holes and filling them is better than doing nothing because it gets money into the economy. But the main effect can be to raise the wages of ditch-diggers with limited effects outside that sector.


Second, Hayek highlighted the Fed's role in the business cycle. Former Fed Chairman Alan Greenspan's artificially low rates of 2002-2004 played a crucial role in inflating the housing bubble and distorting other investment decisions. Current monetary policy postpones the adjustments needed to heal the housing market.

Third, as Hayek contended in "The Road to Serfdom," political freedom and economic freedom are inextricably intertwined. In a centrally planned economy, the state inevitably infringes on what we do, what we enjoy, and where we live. When the state has the final say on the economy, the political opposition needs the permission of the state to act, speak and write. Economic control becomes political control.

Even when the state tries to steer only part of the economy in the name of the "public good," the power of the state corrupts those who wield that power. Hayek pointed out that powerful bureaucracies don't attract angels—they attract people who enjoy running the lives of others. They tend to take care of their friends before taking care of others. And they find increasing that power attractive. Crony capitalism shouldn't be confused with the real thing.

The fourth timely idea of Hayek's is that order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue. President Obama has expanded federal control of health care. He'd like to do the same with the energy market. Through Fannie and Freddie, the government is running the mortgage market. It now also owns shares in flagship American companies. The president flouts the rule of law by extracting promises from BP rather than letting the courts do their job. By increasing the size of government, he has left fewer resources for the rest of us to direct through our own decisions.

Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map.

Despite the caricatures of his critics, Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around.

Mr. Roberts teaches economics at George Mason University and co-created the "Fear the Boom and Bust" rap video with filmmaker John Papola. His latest book is "The Price of Everything" (Princeton, 2009).

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#46
WOW! WOW! WOW! ... WWWOOOWWW! ... the even the F'ED' is rebuffing Krugman-Obama Keynesianism!!

I think the main reason for the good Dr. Krugman's ... (and his client's) dismay is a complete failure to understand the nature of debt. Back in Keynes day, our current level of debt (particularly unsecured consumer debt) was completely unheard of. What creditor in their right mind would plop $20,000 in the lap of an unemployed dropout for big screen TV and IPOD purchases?? (let alone $500k for a house) And yet we've managed to create the biggest rat hole in human history. Obama could ship $1000 checks to every soul in the nation ... and it probably wouldn't increase the velocity of money one iota. Those that have cash would stuff it under the mattress. Those with debt would probably tend to pay it off ... and some fraction would spend it in Vegas and then go back to food stamps. In any case, the momentum would be quickly attenuated ... one transaction, maybe two ... then bang ... either put away to mold or down the rat hole ... or more appropriately the black hole of debt service ... doesn't stimulate a need to replenish inventories, doesn't act as a capital investment in tooling or infrastructure ... doesn't do nuthin ... but move a digit or two from one account to another. People like Dave Ramsey have to drive Krugman nuts. He's an anti-Keynsian on the individual level. Interesting to watch his show ... but it pretty much gets repetitive. Same story ... different names ... night after night ... but it's still a pretty good story. Kill your debt. Pay yourself first ... I'm sure it makes the good PhDoctor of Debt froth profusely. :twisted:

The forecast calls for a period of prolonged Jimmy Carter style suck ... and Krugman better get used to it cuz there's not a dang thing that he or his pals in the White House can do about it. They may want to inflate their way out of trouble, but until people start actually making actual REAL transactions of their own free will all the ink and paper in the world doesn't mean a darned thing. Again, that's what get's Krugman's goat ... because his world runs off transactions ... and in a depression people either avoid making them or they avoid making them using government notes and that sort of thing does for government as Preparation H does for 'roids.
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#47
Hell, let him froth. :twisted:
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#48
Good article today from Bill Gross on the nature of debt and living standards ...

(Disclaimer: I've turned this guy loose with a bunch of my money ... mostly because he reminds me of me ... only much, much, MUCH smarter.)

Market returns on the Threshold of Mediocrity
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#49
I think the closer we come to January 1, next year, the market is going to dip even further, as a result of the tax rates rising again.
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#50
mr_yak Wrote:Good article today from Bill Gross on the nature of debt and living standards ...

(Disclaimer: I've turned this guy loose with a bunch of my money ... mostly because he reminds me of me ... only much, much, MUCH smarter.)

Market returns on the Threshold of Mediocrity
Mr. Gross forgot to mention the governmental intervention in the debt markets (e.g. the Fed), keeping interest rates low and distorting the market price (interest) for money. Why save if you cannot get a decent interest on your money? It has been this way for the last 20 years or so, and stimulates consumption rather than saving.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#51
jt Wrote:
mr_yak Wrote:Good article today from Bill Gross on the nature of debt and living standards ...

(Disclaimer: I've turned this guy loose with a bunch of my money ... mostly because he reminds me of me ... only much, much, MUCH smarter.)

Market returns on the Threshold of Mediocrity
Mr. Gross forgot to mention the governmental intervention in the debt markets (e.g. the Fed), keeping interest rates low and distorting the market price (interest) for money. Why save if you cannot get a decent interest on your money? It has been this way for the last 20 years or so, and stimulates consumption rather than saving.

Zero interest rates are part of the bait and switch. Japan could sustain that sh*t for a decade ... and look what it got 'em. WE AREN'T JAPAN ... (... or China) they went into it with a much higher savings rate ... and 'reserves' that consist of more than just promises and "faith and trust". Dr. _Rugman can grouse all he wants about a "Depression" because we simply haven't "spent enough". The truth is that we are in a crack. One side of it is that the split second after any sort of 'real' recovery, inflation is going to flame up like a demon. The other side of it is John's comment above ... involving prolonged suck ... because of a complete disincentive toward private equity investment and a dearth of 'private' cash available for it .

Toward your question, the reasons for saving remain the same ... retirement, your kids education, a house ... you save because you wish to reach your goals ... even at zero interest rates. Because you can't 'finance' your retirement ... and your ability to employ credit for the other items is likely to be vastly restricted in the future ... that's Gross's point. Living standards ... particularly those based on easy credit, are headed south. I disagree with your statement regarding consumption, because even at zero interest rates ... no credit, no income, no savings ... NO consumption. The government has done it's level best to make it so, but it ain't working. Pelosi's results may differ ... but she's starting to encounter some head winds on her "creating disincentives toward being employed creates jobs" philosophy.
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#52
Well mr_yak, there are some of us who are compulsive savers and save even at low rates of return. But there are not enough of us to make a difference. If the interest rates were set by the market, then a demand for money would give higher rates and induce many more people to save rather than consume. With inflation or zero rates for saving, most people will not save, only the hard core savers will.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#53
jt Wrote:Well mr_yak, there are some of us who are compulsive savers and save even at low rates of return. But there are not enough of us to make a difference.

I thank God my Mom apparently wore off on me. She was a Depression Baby in the Greatest Generation era. She managed to keep putting money away her entire life ... like a religion. Don't ever think that we don't make a difference. We make a helluva difference to ourselves and our children. I still disagree with you. Our national savings rate has gone positive even at zero rates ... at a higher interest rate a few years ago, they were negative. The question isn't why save because of a zero ROI, the question is why save when credit is so slack and easy? Well, it ain't no more! Our consumption was mainly fed by debt ... and the government is trying very hard to re inflate that bubble ... but they can blow an blow until they get an aneurysm but it's not working because nobody's 'buying' it anymore.
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#54
mr_yak Wrote:...but they can blow an blow until they get an aneurysm but it's not working because nobody's 'buying' it anymore.
I sure hope you are right. I'm having a devil of a time convincing my 25 year old conservative (politically) daughter to save money however. Maybe that will change when she has a kid.

Previously to the "Great Recession", certain economic gurus attributed a phony positive savings rate to citizens because their net worth went up, primarily because their net worth included the value (inflated) of their abode. What an irony.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#55
Maybe the goal of increasing the tax on dividend from 15% to 40% is to force poeple to spend or pay debt principal. Because FED rates may be at zero, a high yield dividend fund will give you between 5 and 11% with relatively low risk. This is 3% more than before the subprime crisis. With little inflation, it's a no brainer. Poeple in debt can extend their mortgage at 5% while placing their money at 7% and pocket the difference.

With a disincentive to invest cash, at a 40% tax rate (unheard of in the West), poeple will be forced to find another place to park their money: real estate, non-dividend yielding stocks, or spend it.
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#56
Fredledingue Wrote:Maybe the goal of increasing the tax on dividend from 15% to 40% is to force poeple to spend or pay debt principal. Because FED rates may be at zero, a high yield dividend fund will give you between 5 and 11% with relatively low risk. This is 3% more than before the subprime crisis. With little inflation, it's a no brainer. Poeple in debt can extend their mortgage at 5% while placing their money at 7% and pocket the difference.

With a disincentive to invest cash, at a 40% tax rate (unheard of in the West), poeple will be forced to find another place to park their money: real estate, non-dividend yielding stocks, or spend it.
You suppose there is a rational goal as opposed to the emotional goal of "soaking the rich". For, "as we all know", only the rich rely on dividends.

The actual rich will spend it on things that keep value, such as jets (as I read in some paper) and find a myriad of other ways to dodge taxes.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#57
Once again, Keynes vs. Hayek: The Great Debate Continues (Click on the top link to read the entire article.)

Quote:Concluding............................................................................Was Keynes correct that savings become idle money and depress economic activity? Or was the Hayek view, first articulated by Adam Smith in the "Wealth of Nations" in 1776, correct? (Smith: "What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too.")

Is all spending equally productive, or should government policies aim to simulate private investment? If the latter, then Mr. Obama is following in FDR's footsteps and impeding recovery. He does so by demonizing business and creating regime uncertainty through new regulations and costly programs. In this he follows neither Hayek nor Keynes, since creating a lack of confidence is considered destructive by both.

Finally, is creating new public debt in a weakened economy the path to recovery? Or is "economy" (austerity in today's debate) and thrift the path to prosperity now, as it has usually been considered before?

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#58
jt Wrote:I'm having a devil of a time convincing my 25 year old conservative (politically) daughter to save money however. Maybe that will change when she has a kid.

I could never really completely understand my Mom's compulsion until I started a family. It sure helps to expand your vision beyond your own immediate needs ... and wants. Unfortunately, the other thing that does it in a different way is losing both your parents. The realization that you are truly on your own is pretty stark and startling. It helps to hammer home the reality that you are really your (and your families) only true safety net.

Read a good article with a three minute explanation of Keynesian theory ... and why guys like Paul _Rugman seem to hate the concept of 'saving' so passionately.
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#59
C = cY : consumption is proportional to income

and

Output (Y) = Consumption © + Investment (I) + Government (G)

seem a bit of a stretch.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#60
Quote:consumption is proportional to income

Not if you're the federal government, it ain't. For them, consumption is proportional to whatever the hell they want it to be, and to hell with the country.
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