Fiscal responsibility: suppose the govt "doesn't spend money it doesn't have."

[Dr. Jones]

Alright guys, this isn't some kind of exercise in mental masturbation and the US economy shouldn't be treated as some kind of game. I get kind of tired of hearing extreme perspectives from people that follow Milton Friedman/Ayn Randian philosophies. Alternatively, the same goes for extreme egalitarianism. The truth is that practical ideas are the only thing that is going to get the country back to where it needs to be, not some simplistic ideological mantra.

Yes.

The people demanding change, leadership that is capable and can't be bought, strict controls in place for purchasing, responsible budgets, open-bids, etc ..

The things we do in the private sector that lead to profitability vs. loss are crucial on a daily basis. Our government, I GUARANTEE is GROSSLY negligent in providing the same fiscal responsibility. I am not talking about eliminiating programs, I am talking about eliminating (or at least greatly reducing) corruption and mismanagement of funds.

 

[NAOS]

Haha .. your claims that everyone is being vague and not answering questions are as pot-meet-kettle as it gets.

You throw around enclosures, Keynesian economics, Austrian economics, FDR .. whatever .. but give nothing in the way of substance, even as it relates to someone else's work. I'm heading out but will check back later .. for now, here's a question, NAOS. How relevant, on a scale of 1 - 10, are these historical theories as they relate to the U.S. today? How does modern neoclassical economics relate? How much difference does geography, our macro, and the different political parties/partisanship play a role in the comparable situations? That, for what it's worth, is a serious question .. rather than a baiting one.

First off, I asked an honest question to people of a generally different persuasion than me, so if I haven't been forthcoming in this thread, then there is an obvious reason.

Secondly, yes, there is a lot to be learned from history when we think about the current issues. Is that weird? I'd say these lessons are an 11 out of 10 in importance. Your reticence on this issue smacks of leftist presentism... which is interesting.

My problem with the general Keynesian framework is that I don't think it'll work today without serious restructuring since the North Atlantic countries no longer have colonial hinterlands (in the same way they used to... does colonialism still exist? yes, obviously, but it is very different). And yet, the collective imagination still seems pretty limited to a Deregulation+Privatization vs. Spend+tax sort of thing.

I'd rather see "stimulus" money go directly to keeping people in their homes + to debt forgiveness (and, yes, there is a history for that too: https://www.amazon.com/Debt-The-First-000-Years/dp/1933633867) + economic protection for collective ownership ventures.

I'm not 100% sure I understand the question i put in bold, so I'll wait for you to clarify. If you want more than I've given above, then I'll provide more. But, seriously, I'm still working this stuff out.... that's why I'm asking questions.

 

[larryselbows]

Yes.

The people demanding change, leadership that is capable and can't be bought, strict controls in place for purchasing, responsible budgets, open-bids, etc ..

The things we do in the private sector that lead to profitability vs. loss are crucial on a daily basis. Our government, I GUARANTEE is GROSSLY negligent in providing the same fiscal responsibility. I am not talking about eliminiating programs, I am talking about eliminating (or at least greatly reducing) corruption and mismanagement of funds.

I agree with all of this if it can be enacted. It's amazing how much in common republicans and democrats actually have once you cut through the rhetoric.

I do believe that 20 or 30 corporate institutions have a massive amount of control over our country, and by extension, the world. And like you said, we need politicians that cannot be bought, but I think that this is overly optimistic. Anyone can be bought, and the only way we can handle corporate lobbying and the incredible control they have over our politicians is through restriction of contact with our politicians.

I'm skeptical of the idea of the laissez-faire economy and the self-regulating invisible hand that keeps markets fair to all. We have to remember that some of the poorest countries in world are capitalist and that the capitalist ideal is only for the accumulation of wealth-- which I am not advocating that there is anything wrong with that ideal-- but we must remember that capitalism is only an economic rationale, not a governmental one. So again, I would say that it is very optimistic to say that pure capitalism solves many of our countries ills as it comes from a myopic perspective.

I do believe that the wealthy are much more capable of shielding their wealth from taxes and other forms of governmental policies, and with such abilities, it is not an even playing field for the middle-class. How many middle class people do you know that have their own personal accountants and offshore accounts? The truth is that the wealthy, and moreso those that are born into wealth, come from a very different place than most of us. Most of us have to work to cover our most basic needs.

I think that there needs to be more equal treatment of one another in society. I have no problem with people being wealthy, but I do think that the effective tax rate needs to be the same for all of us, keeping in mind that the very wealthy can shelter their money much more effectively than the middle class. It won't solve all of our problems, many spending cuts will have to be enacted, but at least it's a step in the right direction.

 

[northeast]

The question is basic: suppose the government "doesn't spend money it doesn't have" (which is what many have been calling for in their parsimonious fix-all solutions), what would you suppose would be the 3 major consequences to society if this were true? (Robust answers may want to include a theory about what "money" is.... but I leave that to you).

EDIT TO ADD: Since "unemployment" is also a big topic these days, perhaps you can focus your answer on what this would do to employment numbers?

Obviously this thread addresses the right-leaning crowd, so I'd appreciate it if the rest of everybody else would give them the space to answer.

1. ______Government should spend less money on copiers and other wasteful stuff____

2. ______________________________________________________________

3. _______________________________________________________________

Did I miss anything?

 

[Dr. Jones]

I agree with all of this if it can be enacted. It's amazing how much in common republicans and democrats actually have once you cut through the rhetoric.

I do believe that 20 or 30 corporate institutions have a massive amount of control over our country, and by extension, the world. And like you said, we need politicians that cannot be bought, but I think that this is overly optimistic. Anyone can be bought, and the only way we can handle corporate lobbying and the incredible control they have over our politicians is through restriction of contact with our politicians.

I'm skeptical of the idea of the laissez-faire economy and the self-regulating invisible hand that keeps markets fair to all. We have to remember that some of the poorest countries in world are capitalist and that the capitalist ideal is only for the accumulation of wealth-- which I am not advocating that there is anything wrong with that ideal-- but we must remember that capitalism is only an economic rationale, not a governmental one. So again, I would say that it is very optimistic to say that pure capitalism solves many of our countries ills as it comes from a myopic perspective.

I do believe that the wealthy are much more capable of shielding their wealth from taxes and other forms of governmental policies, and with such abilities, it is not an even playing field for the middle-class. How many middle class people do you know that have their own personal accountants and offshore accounts? The truth is that the wealthy, and moreso those that are born into wealth, come from a very different place than most of us. Most of us have to work to cover our most basic needs.

I think that there needs to be more equal treatment of one another in society. I have no problem with people being wealthy, but I do think that the effective tax rate needs to be the same for all of us, keeping in mind that the very wealthy can shelter their money much more effectively than the middle class. It won't solve all of our problems, many spending cuts will have to be enacted, but at least it's a step in the right direction.

I agree, but only to a degree. Personally, I went from poor (searching for coins under couch cushions to walk to a market for a loaf of bread), to middle class (several years earning $45-70,000), to eventually being what most would consider wealthy. I have off-shore accounts, attorneys, and CPA's ... But I had to get there.

That is something I appreciate about this country. I took no gov't assistance, ever, never got a subsidy ... I have averaged about 22% in income tax in the past 10 years and I know that may seem very low .. However, I feel my write-offs have been not only legal, but legitimate. Further, had those write-offs not existed, I would have been unable to do the thigs I had in the entrepreneurial world. And for what it's worth, I have hired more than 5,000 people in the past 15 years.

One other thing. I can get behind cutting the military budget, large corporate subsidies, and other typical repub issues. My heart bleeds for those that are suffering and I am truly happy to help. I am only appalled at the idea that my taxes should be increased without those demanding it acknowledging the possible solution is found in an inefficient system that insanely overspends.

 

[NAOS]

another issue that I didn't mention:

I'd love for there to be different tax brackets based on HOW YOU MAKE YOUR MONEY. If you make money by simply moving money around and capturing a bit of it (a category that includes basically all high finance, a huge sector of the US economy), then I'd tax the **** out of you. If you make money in a small- to medium-sized business that employes a dozen to a couple of thousand people and you all are working to produce a desired item or service, then I'd only tax you the amount to cover any environmental restoration issues + what it took to fully insure the health of your employees (which would be much less than current rates if run efficiently).

What do you think? PKM, do you fit in the latter camp?

 

[Dr. Jones]

First off, I asked an honest question to people of a generally different persuasion than me, so if I haven't been forthcoming in this thread, then there is an obvious reason.

Secondly, yes, there is a lot to be learned from history when we think about the current issues. Is that weird? I'd say these lessons are an 11 out of 10 in importance. Your reticence on this issue smacks of leftist presentism... which is interesting.

My problem with the general Keynesian framework is that I don't think it'll work today without serious restructuring since the North Atlantic countries no longer have colonial hinterlands (in the same way they used to... does colonialism still exist? yes, obviously, but it is very different). And yet, the collective imagination still seems pretty limited to a Deregulation+Privatization vs. Spend+tax sort of thing.

I'd rather see "stimulus" money go directly to keeping people in their homes + to debt forgiveness (and, yes, there is a history for that too: https://www.amazon.com/Debt-The-First-000-Years/dp/1933633867) + economic protection for collective ownership ventures.

I'm not 100% sure I understand the question i put in bold, so I'll wait for you to clarify. If you want more than I've given above, then I'll provide more. But, seriously, I'm still working this stuff out.... that's why I'm asking questions.

I am a firm believer in studying and learning from history. I am also an advocate of Austrian economics, particularly some of those that have not yet been mentioned such as Lawrence White and George Selgin (as topics such as free banking interest me). My question for you was not whether we should study and learn from these theories and the associated historical data, but rather how well it meshes with our today reality .. and to that I think you roughly answered.

Not only would I prefer to address overspending prior to searching ideals, but I would also prefer to not ignore other more modern neoclassical economic progressions such as the random walk view of financial markets, human capital theory, signaling models, natural rate models of unemployment, etc.

Having said all that, I am so set in my mind that we have to get control of governement waste, that I can't bring myself to get overly excited about any theoretical approach to economic improvement.

 

[Dr. Jones]

another issue that I didn't mention:

I'd love for there to be different tax brackets based on HOW YOU MAKE YOUR MONEY. If you make money by simply moving money around and capturing a bit of it (a category that includes basically all high finance, a huge sector of the US economy), then I'd tax the **** out of you. If you make money in a small- to medium-sized business that employes a dozen to a couple of thousand people and you all are working to produce a desired item or service, then I'd only tax you the amount to cover any environmental restoration issues + what it took to fully insure the health of your employees (which would be much less than current rates if run efficiently).

What do you think? PKM, do you fit in the latter camp?

I fit both, for the most part. I am a commercial and residential real estate developer. I have art galleries, furniture outlets, I dabble in private equity funds (that my firm manages) .. fairly diverse, I guess. I'm good with your theory, so long as it is tied to impact on environment and infrastructure rather than someones opinion as to how hard you worked (there are some things I do that would look easy to most, have very little to no impact on resources, but earn lots of profits .. but are gut-wrenchingly risky and result in a positive impact on societal concerns).

I could get behind a tax commensurate with use of resources .. makes sense. BUT, I would still want an overhaul of gov't spending (had I mentioned that?).

 

[green]

Let's rephrase this question:

Let's say the government spends LESS than it brings in. What happens?

Surplus of cash. What does that mean? You can anything you want at this point. To think that you need debt is silly. Nothing good comes from debt. Everything good comes from being cash rich.

Don't believe me? Look at businesses that run with no debt (the LDS Church included). Sure, some number counters would lose their jobs, but everything else would be better.

 

[green]

If you spend less than you make, no matter how much or how little you make, you will NEVER need money.

 

[Dr. Jones]

Let's rephrase this question:

Let's say the government spends LESS than it brings in. What happens?

Surplus of cash. What does that mean? You can anything you want at this point. To think that you need debt is silly. Nothing good comes from debt. Everything good comes from being cash rich.

Don't believe me? Look at businesses that run with no debt (the LDS Church included). Sure, some number counters would lose their jobs, but everything else would be better.

Not that I have the energy to explain in detail, but being debt free, as a country, has plenty of history as being a very bad idea .. not very realistic. Good notion, especially with family life (though most need mortgages and car loans, i.e.), and business, but just not sound planning .. as ridiculous as it sounds.

 

[green]

Not that I have the energy to explain in detail, but being debt free, as a country, has plenty of history as being a very bad idea .. not very realistic. Good notion, especially with family life (though most need mortgages and car loans, i.e.), and business, but just not sound planning .. as ridiculous as it sounds.

This is what I don't get at all. NOW, I am open to learn, though you will NEVER convince me that it is good to have debt in personal or business. I am just curious how the largest corporation in this country would be better run with debt. Is it because they are such a large employer? I just don't get how debt is bad for everyone, every corp, except the govt.

 

[NAOS]

This is what I don't get at all. NOW, I am open to learn, though you will NEVER convince me that it is good to have debt in personal or business. I am just curious how the largest corporation in this country would be better run with debt. Is it because they are such a large employer? I just don't get how debt is bad for everyone, every corp, except the govt.

I don't mean this in a trollish way, but, dude......... it sounds like you have close to zero understanding of debt.

Tell us the stories about how you've paid cash for everything you've ever bought. If you haven't purchased a house yet, please tell us how you plan to pay cash for it. I'm serious.

 

[Dr. Jones]

There is a difference between not spending money on programs (military, welfare, whatever) that you don't have versus building needed infrastructure (i.e.) that will be utilized for generations to come. If an interstate is necessary for a given population and by building said interstate it brings greater efficiency/profits from transportation (i.e.), should we wait 50 - 100 years to come up with the money to build it? Not necessarily. If a study suggests that the greater efficiency, profits, and well-being that is created by the interstate outweighs the interest of the loan, then you should do it.

Here's a real world example that can be easily understood by all of us;

Your next door neighbor has a home that is worth $200,000 (current market value) and they lose it to foreclosure. Your local banker knows you and likes you and approaches you to see if you'd like to rid them of the asset for only $100,000. You say you'd love to but don't have the $100,000. Banker says he'll give you a loan with 25% down. Do you wait to raise the other $75,000, or do you buy the house for 1/2 market value through a loan?

 

[franklin]

Having said all that, I am so set in my mind that we have to get control of governement waste, that I can't bring myself to get overly excited about any theoretical approach to economic improvement.

Getting ahold of waste will bring improvement. The rich get richer and the middle get poor when you pay people to consume but not produce. The economy stalls again as a result as all this money accumulates and stagnates at the top. Then we're left with more wasteful spending or tax-and-spend to get it going again. Both make investors and consumers nervous so there's more negative pull. Put in a simplified framework that's predictable and keeps money flowing and things will recover.

I fit both, for the most part. I am a commercial and residential real estate developer. I have art galleries, furniture outlets, I dabble in private equity funds (that my firm manages) .. fairly diverse, I guess.

Should hedge fund managers get the same carried interest deduction that developers do? Why should the guy who built & owns a large retail chain pay the top tax rate but the hedge fund manager who purchases it and benefits from this guy's hard work pay the 15% rate like the developer? Same question for investment bankers who destroyed the economy when their hubris shone through. Why should they pay a lower rate than I do when they have a political advantage and access to the discount window? Give me a line of credit at .25% and I could gamble on building a helluva fortune.

This is what I don't get at all. NOW, I am open to learn, though you will NEVER convince me that it is good to have debt in personal or business. I am just curious how the largest corporation in this country would be better run with debt. Is it because they are such a large employer? I just don't get how debt is bad for everyone, every corp, except the govt.

The vast majority of money is created through debt. The other options are barter or congress printing and spending at will. The second is a horrible idea loaded with moral hazard & the first is so limiting that we'd be crushed economically by other superpowers.

A third option is increasing velocity to the point that debt is less necessary & is repaid much easier when taken on. That strategy requires a government wealth leveling mechanism.

Which option do you consider best, green?

 

[jazzfan1971]

I posted this question in the Mitt Romney taxes thread and the fiscally responsible crowd went silent. Since this isn't exactly about Mitt and his taxes, I thought it deserved it own thread.

The question is basic: suppose the government "doesn't spend money it doesn't have" (which is what many have been calling for in their parsimonious fix-all solutions), what would you suppose would be the 3 major consequences to society if this were true? (Robust answers may want to include a theory about what "money" is.... but I leave that to you).

EDIT TO ADD: Since "unemployment" is also a big topic these days, perhaps you can focus your answer on what this would do to employment numbers?

Obviously this thread addresses the right-leaning crowd, so I'd appreciate it if the rest of everybody else would give them the space to answer.

I think the answer to this relies on the differential between the status quo and an alternate choice where we stop borrowing.

So, what are 3 major consequenses of continuing the status quo? (Trillion dollar deficits, 40 cents of every dollar spent is borrowed, etc...)

1- The first thing we'll notice is a drop in the faith in the dollar. As we borrow more and more, stacking debt upon debt we become less credit worthy. Other nations will be less inclined to lend to us, preferring to lend to more credit worthy nations instead. The cost of borrowing will then increase to entice a continuing flow of cash to support our government programs. This increased cost will have a piling on effect causing us to need to borrow an ever greater percentage to maintain current spending levels.

2- The simple exit is to lend money to ourselves, monitizing our debt. This will result in hyper-inflation. We're not talkig tin foil hat stuff here, this is happening. The only saving grace for the US has been the European **** storm. Compared to the EU we still look like a pretty safe bet to invest. But, that could change as the whole EU thing might be cyclical and our debt is structural.

3- Once we can no longer borrow and printing more money becomes pointless, the economy collapses. And along with it the government. All those promises, Medicare, Medicaid, Welfare, Retirements, Social Security go up in smoke. And if you were investing in Treasuries, good luck collecting on those as well. IMHO the goverment will collapse and we'll see a balkanization of the US into a handful of new states. Hardest hit will obviously be the folks who were relying on the promises made by the old government. The rich will land on their feet, they always do, but, the most vulnerable will be left in almost unimaginably hard straights.

So... There is my analysis of what continuing on the current path entails. Destruction of our country with the poor left with pockets full of broken proomises and not much else.

It's a pretty grim future, but, I believe it is the path we are on. Until we get the political will to make hard decisions we'll continue making easy decisions. Those based on what causes the least short term harm.

But, should be gain the will to survive and live within our means disaster could be averted. It wouldn't be painless. Programs would be cut. Good programs. Needed programs. Taxes would be raised. That would put a drag on the ecomony, but, a drag is better than a collapse.

So, what would be the result?

1- Promises would be scaled back. Social security, Medicare, and Medicaid would all have to see substantial cuts. This would cause unavoidable hardships, but, 80% of SS is a hell of a lot better than 0%.

2- Taxes would go up. This would hurt. And yeah, it'd hurt everyone. You can't balance the budegt on the top 1% even if you tax them 100%. It's going to be shared pain. Those at the top should share a little more, but, those at the bottom will have to chip in as well.

3- America will drop in stature. China will overtake America as the worlds lone super power. Significant cuts in military spending, reach, and adventurism would have to take place. America would have to gracefully drop into a lesser role as other nations have done before.

But, the upside, there would still be an America. Still be promises kept (to a lesser degree). Still be our freedoms instead of the possibliity of freedoms in whatever new nation arises.

So, there you go.

Oh and how can we possibly deal with increasing the money supply if we don't borrow? We've done it before. We used to be teh worlds largest lender nation and we were able to manage the money supply then as well. You can create money without borrowing it, you just have to use the Treasuries instead of the Fed.

 

[Dr. Jones]

Should hedge fund managers get the same carried interest deduction that developers do? Why should the guy who built & owns a large retail chain pay the top tax rate but the hedge fund manager who purchases it and benefits from this guy's hard work pay the 15% rate like the developer? Same question for investment bankers who destroyed the economy when their hubris shone through. Why should they pay a lower rate than I do when they have a political advantage and access to the discount window? Give me a line of credit at .25% and I could gamble on building a helluva fortune.

As you know, none of these are easy/quick answers .. but I'll try to lightly tackle the bolded.

There are different parties within a hedge fund and/or private equity fund. There are those that take the cash risk and those that manage the fund. In my opinion, there is always risk when investing your capital and just because you purchased a property or business 2nd hand doesn't necessarily mean you have less risk, more upside, less capital, or less work involved. It's difficult to quantify these things, but I wouldn't choose to ignore them, either. There are parties within a hedge fund that I do believe should have the same capital gains benefits. Having said that, there are also those that simply put the deals together, manage the portfolios, and have little but time at risk. These should be taxed as services rendered, but instead they/me hide behind the notion of risk and ride the coattails of those that supplied the cash.

I also think that those that borrow the money (as you stated) should be taxed at a much higher rate than those that used their own cash .. there needs to be risk/reward in this country .. but risking someone elses money shouldn't be treated the same as your own, imo.

 

[green]

I don't mean this in a trollish way, but, dude......... it sounds like you have close to zero understanding of debt.

Tell us the stories about how you've paid cash for everything you've ever bought. If you haven't purchased a house yet, please tell us how you plan to pay cash for it. I'm serious.

Oh, I know about debt. Right now I am much closer to $1,000,000 in debt than $0 with two business loans, student loans, a home loan and a car loan. I look at the debt I have, and while it has done a lot of good for me, I sit and wonder what could have been when I see that I paid over $12,000 in interest on ONE of my student loans last year.

Yes, sometimes debt gets you where you want to go a little quicker (in your mind), but it is not a good thing. If I didn't have any debt, I would have had over $100,000 CASH last year. FRICKIN CASH. Money that I paid in interest, basically flushing down the toilet.

Look at a mortgage: If you get a $150,000 loan for 30 years, you will end up paying almost DOUBLE for that house over 30 years. It would take you less time to save up the $150,000 and pay cash. BUT, we decide we have to have the house NOW, instead of saving up, so we take out the loan (look at me).

Now, imagine if I had that $100,000 in interest plus the principle I paid on all those loans in cash every year. What could I do with $150,000 cash? My wealth/net worth would grow a whole heck of a lot faster than it is right now.

That is my point. I get why people get debt. I did it myself. BUT, you cannot tell me debt is good.

And for those that believe in building wealth through debt (those house flipper guys for example), your risk is through the roof. There are people who have become rich off of debt, BUT a whole heck of a lot more who became bankrupt off of debt. No one ever went bankrupt with cash.

 

[franklin]

Why can't I leave this stuff alone? The fallacies and one sided accounting do to me what Senko Lures do to large mouth bass. I must react...

1- The first thing we'll notice is a drop in the faith in the dollar. As we borrow more and more, stacking debt upon debt we become less credit worthy. Other nations will be less inclined to lend to us, preferring to lend to more credit worthy nations instead. The cost of borrowing will then increase to entice a continuing flow of cash to support our government programs. This increased cost will have a piling on effect causing us to need to borrow an ever greater percentage to maintain current spending levels.

Actually, this is how the system is designed to work and balance itself out. You're not accounting for countries "dumping" our debt, which, for all the fear mongering from book peddler Peter Schiff, means nothing more than spending dollars back into the American economy. This creates jobs & increases industry, which does nothing but help our ability to service our debt. We want nations to have less faith in hording dollars.

2- The simple exit is to lend money to ourselves, monitizing our debt. This will result in hyper-inflation. We're not talkig tin foil hat stuff here, this is happening. The only saving grace for the US has been the European **** storm. Compared to the EU we still look like a pretty safe bet to invest. But, that could change as the whole EU thing might be cyclical and our debt is structural.

Yes, this is tin foil hat tomfoolery. The Wiemar Republic had a debt:GDP of 780% in war reparations alone, & were required to pay it back in gold. Their problem had nothing to do with printing too much money. We put them in a hole that was impossible to climb out of.

 

[Stoked]

Why can't I leave this stuff alone? The fallacies and one sided accounting do to me what Senko Lures do to large mouth bass. I must react...



Actually, this is how the system is designed to work and balance itself out. You're not accounting for countries "dumping" our debt, which, for all the fear mongering from book peddler Peter Schiff, means nothing more than spending dollars back into the American economy. This creates jobs & increases industry, which does nothing but help our ability to service our debt. We want nations to have less faith in hording dollars.



Yes, this is tin foil hat tomfoolery. The Wiemar Republic had a debt:GDP of 780% in war reparations alone, & were required to pay it back in gold. Their problem had nothing to do with printing too much money. We put them in a hole that was impossible to climb out of.

I read this and all I can think of is big, lovable, way to much skin having dogs.