I'm glad somebody else actually goes through some of this math. The majority of Americans are buying into this crap that we are investing in the future and that we will make this money back. BS. The numbers you post show that to start to pay for what Obama proposes, we would need to see HUGE, impossible growth in the economy. The growth in the economy needed to pay for Obama's proposals AIN'T GONNA HAPPEN.
You make it sound like a no brainer . . . yet there are economist who feel the actions Obama takes are necessary and good for the economy (including Warren Buffet). So I don't think it's as clear as you make it out to be.
In the first 100 days in office, Obama has raised the debt more than the full 8 years of the Regan presidency. That's scary.
Allow me to offer more food for thought. The minimum payment on the credit card right now is $175B. Interest rates are near historic lows on the T-Bills the Fed has to sell to borrow the money. When the Chinese have had their fill of our debt, and the more desperate we are to borrow, the Fed has to entice lenders by offering higher payouts / interest rates. Or maybe the Soprano wing of the White House can twist some arms of the people who are going to cash in on the housing mess, buying property at $.20 on the dollar. If the government needs 2x the revenue to balance its budget, the economy has to double or taxes have to double, or something in between. It's going to double, but maybe not for 15-20 years. The thing about high taxes is that it makes people choose between food and shelter instead of solar panels.
Thanks for the food. Really I am only capable of maybe digesting a third of the meal before throwing up. So here is my simple analysis: US is in a world of hurt economically. President and his people (including a team of economist) study the problem and come up with a economic strategy to get this country back on track. This stategy involves spending tons of US cash in hopes it will pay off in the future. Another team of economist look at the plan and say this is a bad plan, it will not do what the first set of economist say it will do . . . in fact it will bankrupt this country. First set of economist say that isn't true, the plan will work. The second set of economist say you are crazy, it will not work . . . and both sides flash numbers to support their position. I don't know who is right . . . I sure am hoping it is the team of economists working for the president (since taht plan is the one that matters). I do hope whoever is right will come out before the next election. (My guess is the truth lies somewhere in the middle . . . not going to ruin the country, but it will hurt down the road and not fix everything) So the real question at the end of the day is was it worth it?
I'm not looking at this from an economics perspective, but rather from an accounting one. I look at the P&L and see massive losses. I look at the balance sheet and see debt mounting at an alarming rate. On the P&L, I see the income is $2T less than the expenses. Unlike Chrysler or GM, the govt. isn't reorganizing and shutting down plants due to excess capacity. But the time will come, and soon, where it will have to reorganize; things like social security are going to feel the squeeze. Look at California - they raised taxes to a real point of pain, and are firing teachers at public schools, and firemen and police. The budget situation is that bad. The thing is, that when it comes to govt. services, nobody likes their oxe gored. Cutting is tough unless you're brutal about it, and that kind of brutality doesn't get you re-elected. Again from an accounting POV, the P&L needs to roughly double the revenue side and keep the expense side flat to get to break even. To put things into perspective, our biggest companies are worth in the hundreds of $billions; that's lock stock & barrel if you sold all the stock in them for their best price in history. Stock in GM that we (taxpayers) own isn't going to make a dent in our cash needs even if it's a wild success. Fannie Mae is selling at ~$1 ($.83 to be exact). At $100/share, it's worth $20B. A really big company like Exxon-Mobil is worth $350B or so; you'd have to sell outright 6+ Exxons to cover just one year of our debt, or 2 Exxons to cover 1 year's worth of the projected increase in the minimum credit card payments we're taking on. When they passed the $850B "emergency" stimulus package, it should have been done with a lot more care instead of a laundry list of big ticket items (8000 earmarks). "Emergency" is a technical term in govt. budgeting to authorize spending above govt. revenues and outside the budget. It should be used in time of war and that sort of thing. The economic crisis may well be a reasonable emergency, but the spending should have been entirely focused on things with immediate value and return - tax rebates, buying down peoples' mortgages, tax holidays, and that sort of thing. After that $850B has been spent, we are shedding 600K+ jobs per month and entire cities are turning into ghost towns. Oops! Now we have to spend $850B more and then another $300B. Again, to put it in perspective, the Iraq war may have cost $600B from day 1 until today. Yikes.
There are always differing opinions on every subject. But, people on both sides always have some sort of motive, agenda, or bias. Keeping that in mind, you can go through the basic math yourself to see which you believe to be more accurate. In order for us to pay for Obama's spending, the economy would have to grow that a rate that it has NEVER come close to. Not even close. While historic trends don't predict future trends, they can show you what is realistically possible. And economic growth at a rate required to pay for Obama's plans, just isn't even close to realistically possible.
You've hit upon the multiplier argument. If government spending (calling it "investment" is a joke) would result in a multiplier greater than one, then we would have a money machine--just print money, spend it and make a profit. The problem is that the multiplier on government spending has shown to be in almost every case below one. In other words, it's a negative alpha proposition. It can partially be expressed as a dead weight loss. And in any case, if the government could perform the action with a multiplier greater than one, than the private sector would by definition have an even higher multiplier, since it's not burdened by the added expenses of the Federal government.
And yet, I'll guess that there are some that have a multiplier much much larger than one. I expect that the Interstate highway system and the Internet would fall into that category? Most of government spending (entitlements and defense) you wouldn't really expect to have a good multiplier. But, isn't it burdened by all those horrible taxes? From what I've been hearing, private sector investment isn't worth doing since the tax rates are so high. barfo
There are economists who focus on how the pie is sliced and those who are focused on the size of the pie. Those who support this ridiculous spending are the former. Those who can do math are the latter. Don't forget, Karl Marx was an economist. Just because he was an economist, should we have listened to him? Snarkiness aside, the only way out of our debt is to massively devalue the dollar. That means high inflation, which is highly corrosive on the economy. I defy you to find an economy who has concomitantly experienced high inflation and high real growth--it doesn't happen. Here is a layperson's article on the impact of inflation on investments (I tried my best to find something non-technical): http://www.td.com/economics/special/ca0205_inflation.pdf
The problem with your model is you assume the goal is to fix the economy. What if the goal is to redistribute income? Sure, some people's standard of living increases, but what if the overall standard of living decreases as a result? Was it a fair tradeoff? I have participated in conference calls, attended seminars, conferences, symposiums and just had coffee klatches with people more highly trained and much smarter than I, and no one can come up with an economic solution that makes sense. The answer to the question of why we've chosen this path is political. And that scares the shit out of me.
Those are expenses that have to be borne to make commerce possible, not positive NPV investments. In fact, there are private toll roads (e.g. the Dulles Toll Road) that have turned out to be profitable. That's right. Government exists to collectively provide the things we can't provide for ourselves. I can't afford an M1A1 tank on my own. Providing for the common defense is right there in the preamble of the Constitution. I'm fine with that. But do we need the government to take our money to give us Social Security when we're old? Do we need government to take our money to provide us with Medicare? Do we need government to take our money to provide ethanol subsidies? Those are a bit more iffy. If an investment is a positive NPV project for the government, by definition, it will have a higher NPV if it's done by the private sector. And the best part is when the private sector does it, the government gets tax revenue. If the government does it, it gets none.
I can appreciate and relate to that kind of rationale. By the end of Bush's term, I still never said he had it out for the country and was going to ruin it. I felt Bush was about big corporations and rich people, and that his decisions favored a certain cross section of the community. So when I hear that Obama's economic policies will create a redistribution of wealth, that makes sense to me. I'm not saying I'm buying it, but I could see that as a possiblity (instead of the idea that Obama and his people don't understand basic economics). This goes back to trusting Obama and that his agenda is not to create socialism and redistribute wealth . . . it is to rebuild the middle class. But there is a lot of grey area thre and deep down inside I'm concerned Obama could have a hidden agenda. And I agree with the idea that if Obama is using the economy to play out a hidden agenda, that is a scary thought. So on your side, are you willing to conceed . . . the middle east is not an easy answer and no one knows exactly how to handle that part of the world . . . and the answer to the question of why we've chosen to go to war with Iraq was political . .. . Bush had a different agenda then what he was stated to the public. You don't have to agree with that (like I don't agree with that statement about Obama), but you can at least understand that school of thought, right?
Sure, in fact I gather that MacQuarie is a cash machine. I guess I misunderstood your point - if you were saying that the government isn't good at investing in things that return money directly to the government (like buying/selling shares of GM), then I'd agree - but I don't think the government tries to make that sort of investment except in extraordinary circumstances (and not with a profit motive in mind primarily when it does). Agreed, those are reasonable questions, and the answer depends on your philosophy of government. Can you explain that? It isn't clear to me why that would necessarily be the case. barfo
President Bush's economic advisors (and likely President Bush himself) had a classical economic philosophy. Grow the pie and and let the market worry about the distribution. If you look at wealth distribution before and after his presidency, the rich became wealthier, but the poor became better off too. Did he view corporations as not being evil entities? Yep. Did he not hate or resent rich people? Absolutely. I share this benign view of corporate America and wealthy people. They care about profits and are interested in reinvesting the fruits of their labor, either through growing their business or by spending their money on goods and services. As the old saying goes, you're more likely to get a job from a rich person rather than a poor one. I never said his economists don't understand the issues. I'm saying their goals aren't necessarily economic. There's a difference. I see the term "rebuild the middle class" and I equate it with the term "redistribute wealth". If you're not growing the economic pie (the economy shrunk by an annualized 6.1% in the first quarter) but making one class richer, then it has to come from somewhere. Wealth was redistributed. Right now, we're stealing the wealth of our children, but when the new taxes come in, we'll be taking it from people who probably consider themselves middle class too. These figures can't be supported only by people making over $200K. Well, the reason wasn't economic. I believe President Bush went to war in Iraq because he felt he had to take out the Baathists before they supplied Islamic extremists with weapons of mass destruction. These are weapons we knew he had because he used them on his own people. Furthermore, every single major intelligence agency on the planet thought he had WMDs as well. Just because he had bad intelligence doesn't mean he deceived the American people. I understand why people would arrive at that conclusion, but I profoundly disagree with the assumptions required to support such a conclusion.
It's no longer "extraordinary", is it? It's a normal part of government work in the Obama Administration. Banks want to return the TARP money and the government won't accept it. GM and Chrysler should be in the hands of the bondholders, but the government is insisting those at the front of the line take $0.20 on the dollar and the majority of the firms be given to the UAW. Health care is next. That's 1/6th of our economy. The size and scope of government has dramatically expanded under this administration, and the problem with government growing is that it tends to be a ratcheting effect--it goes one way and not the other. It can be explained in two ways. First, government has no profit motive. In fact, the primary goal of most government organizations is to spend their entire budget so they receive at least the same if not an increase the next year. The private sector only makes investments if they're projected to be positive NPV. Without the profit motive, you get the USPS instead of UPS or FedEx. Second, to collect the money to be able to make these investments, the government has to tax its citizens. There is an entire attached bureaucracy to collect these funds. That creates what is known as a "dead weight loss". It's explained as simply as I've seen it here: http://www.rhsmith.umd.edu/faculty/jbailey/ents630/dloss.html In the private sector, the cost to issue securities or obtain corporate debt is substantially less than collecting taxes. In fact, it's been shown in study after study. What bureaucracies do well is distribute resources equally. What the private sector does well is distribute resources efficiently. If one firm isn't efficient enough, it's replaced by another firm that does it better, and so on and so forth. And because all profits in the long run approach zero, the ultimate beneficiary is the consumer. If your goal is to provide a good or a service equally (e.g., law enforcement), your best bet is a government entity. If your goal is to provide a good or service at the lowest cost to the consumer (i.e., most efficiently), then let the market do it.
If you didn't understand my post, I was genrally agreeing that it is possible that Obama's economic plan is a hidden redistribution of wealth (as opposed to not understanding economics). I see you have a strong opinion about why we went to war with the middle east. Funny, because we can now analyze the theories years after the war started. You think this is about WMD, yet none were found. You justify in your head with . . . assumptions(President Bush wanted to take out the Baathists . . .. ). Proof is in the pudding on this one maxiep . . . oil companies had record gains quarter after quarter, Haliburton made billons off the war . . . no WMDs. I tell you what though. If Obama's economic plan turns into a redistribution of wealth, I won't be justifying his plan on bad intelligence or his economic advisors or that world economists agreed with the plan or they were good intentions gone awry. . . I'll hold him to it.
Am I correct in saying that your position is that the primary reason the Bush Administration took us to war in Iraq was to provide profits for the oil companies and Halliburton? I'm not being combative, I'm just trying to understand your position.
I think Bush had an agenda. I think he makes his decisions based on what will benefit big corporations and rich people. I would hope Bush wouldn't send our country to war for money, but after eights years of Bush and watching his decision making and what he tells the public . . . I don't turst Bush and do not believe a word that comes out of his mouth. And believe it or not, it pains me to say that about a president of the United States (and I have never felt this way about a president.) I don't know what the hell that war was about, but I don't believe it was about 9/11 or WMD. I believe Bush used terrorism for his own agenda. But i'm not dwelling on it. I'm just glad he is out of office and I welcome Obama with a breath of fresh, wanting to believe in the President of the United States again. So to answer your question, I don't know what Iraq was about . .. but with all due respect, I don't think you or anyone else on this board knows why we went to war in Iraq (it was a political motivated decision). So tell me, if Obama's economic plan doesn't work . . . will you let him hide behind bad intelligence?
Agreed on that, although I suppose in theory the government could form an agency whose mission is to invest for profit. That makes sense to me (and thanks for the link). That sounds like an idealization - certainly oil company profits haven't trended to zero (and that's a very old industry now, as industries go). We could come up with lots of other examples where barriers to entry prevent perfect competition. So, why should we provide law enforcement equally? Why not, like health care, let those who can afford it buy it from the private sector? What's the fundamental difference between health care and law enforcement? barfo
