> We need the Federal government to stimulate aggregate demand at the consumer level. How? Investing tax dollars in a smarter manner.
How do you get 535 people (congress) to spend $3 trillion smarter? It's an impossible task. A fools errand. Even if we elected the 500 smartest people to congress, the results wouldn't be much better.
We need less of the economy flowing thru the federal government, not more.
The Federal Government's expenditures needs to be a lot lower than it is across the board. It needs a serious dose of efficiency. The borrowing alone impacts all business and individuals simply because it removes money from individuals directly and indirectly which slows the economy, puts pressure on future governments to raise taxes furthering the loss of spending by individuals, and lastly leads to uncertainty in the future.
The truly sad part is they could balance the budget and operate with a surplus by doing two simple things, getting rid of baseline budgeting and keeping spending increases under inflation. Some projections put doing those two items as righting the budget in less than 10 years
Look up the term dead weight losses to get an idea of how bad government spending is for the economy versus private spending.
We have indeed seen it in action since 2008, to horrific results.
$9+ trillion in new public debt added in eight years, to go with ~$11 trillion in additional government spending, boosting federal spending by nearly 1/2, to achieve the slowest average growth in non-recessionary times in US history, and the slowest employment recovery in US history.
More typically you get examples like the governments of Japan and China, which over-spent by the trillions of dollars and misallocated resources on purpose to fake economic prosperity that doesn't really exist so their citizens don't get upset. To say nothing of the favor and bribe based system large governments always operate by - so eloquently demonstrated by the entirely worthless American Recovery and Reinvest Act - in which they choose to allocate resources to their favorite causes (or to build things that aren't even needed) instead of to the most productive outcomes.
China is providing an amazing example of how incompetent command spending always is in an economy. Inevitably when the tide goes out, the fraud begins to reek. In the case of China, they've been busy arresting people to make it look like they're doing something about the vast corruption they've caused through distorting the economy to a truly massive degree. They caused the problems, and then arrest people for their own incompetence. The big difference with the US, is the US doesn't arrest its executives based on the mistakes the Fed made in intentionally creating asset bubbles that inevitably collapsed.
>$9+ trillion in new public debt added in eight years, to go with ~$11 trillion in additional government spending, boosting federal spending by nearly 1/2, to achieve the slowest average growth in non-recessionary times in US history, and the slowest employment recovery in US history.
While I agree with the general outlines of your point, this really doesn't make the case. It's impossible to know what would have happened in the absence of whatever policy you want to discuss. You can say "We spent X and as a result our recession was the longest ever." But you could also say "We spent X, and despite that our recession was the longest ever." It's impossible to prove one way or another.
China has many serious problems, but its situation simply does not prove what you are suggesting here.
China is a once heavily communist country that has been transitioning its economy for awhile now, and it has been quite successful at it. The idea that it is a fake prosperity ignores the changes in quality of life that have happened.
The problems it faces now are not insurmountable. It is easy to list off everything China should do and point out the corruption, but it doesn't really prove anything about fiscal stimulus in the USA.
Dismissing the government stimulus/intervention without considering what would have alternatively happened, a long and deep depression, is disingenuous. That would have been a horrific result, and we would all be worse off.
Balancing the budget is not important. Increasing utility per dollar spent (the dollar is conjured by the govt, it isn't a real resource) can easily be achieving by cutting back on all the productivity wasted by paying people to blow stuff up and maim each other.
The 500 smartest people? They simply delegate and entrust a small committee of the five most qualified people with the resources they need to get the job done.
Five people controlling the collective spending of the world's 1st or 2nd largest economy... that sounds like a scary amount of power for any small number of individuals. No thanks.
Nah, it's actually pretty easy. The 535 people just need to assign general priorities, like spend a third our country's money on health care and education, a third of it on infrastructure, a little bit on funding pure research, and whatever's left over, the military can have.
They're not in charge of deciding how each individual dollar is spent, and they shouldn't be.
This is super naive. For much of the past decade, congress could have removed the entire discretionary budget (yes, including the military) and still had a deficit.
The deficit is driven by social security, medicare, and medicaid. If you want to balance the budget, you have to reform those.
> For much of the past decade, congress could have removed the entire discretionary budget (yes, including the military) and still had a deficit.
Two fiscal years in the past decade (2010 and 2011) had deficit exceeding discretionary spending. That's not "much of the past decade". (The highest deficit was in 2009, but discretionary spending was actually higher.)
> The deficit is driven by social security, medicare, and medicaid. If you want to balance the budget, you have to reform those.
The deficit is driven by a shortfall of revenue vs. spending. Even if your portrayal of the spending side was accurate, ignoring the revenue side is not. If you want to balance the budget [0], you probably shouldn't ignore one side of the balance.
[0] The question of whether you should want to is one which is rarely addressed directly, merely assumed.
> Or increase taxes? Social security taxation is limited to the first ~$120K of someone's income. Why?
The theory, I believe, is that this is tied to the maximum amount of income that is counted in the benefits formula for SS. OTOH, there's no reason you couldn't count more income toward benefits (there's already at least one bend point where the amount of benefits for each additional dollar of lifetime qualifying income/contributions is reduced, so if you are concerned with the distribution of benefits if more income is counted, you could also add additional bend points.)
If you wanted to go further, you could include personal capital income (perhaps with some limit, or perhaps open ended, with additional bend points, as necessary, as discussed above for increasing/removing the limit on labor income) as SS taxable (and in SS benefit calculations). Given that at least some capital returns are a result of active personal management that can become less practical with age or disability for the same reason that labor can, it makes as much sense to preserve a safety-net retirement for those retiring from such active management as for those retiring from wage labor.
Because taxing those people won't solve the real issue? I pay more in taxes every year on my income than many millionaires do because my income is primarily salary instead of stocks, etc.
120k may seem like a lot, but it isn't in several parts of the US now (e.g
SF Bay Area, New York).
> Because taxing those people won't solve the real issue? I pay more in taxes every year on my income than many millionaires do because my income is primarily salary instead of stocks, etc.
Taxing capital income like other income is another possible solution.
Yes. The shareholders are rent-seeking. They should be taxed as if it was normal income. They don't provide an real value to the company, its output or consumers. For the most part, they are a determent to all outside themselves (specifically their holdings).
Shareholders do not provide value. They provide a 1 time infusion of cash in exchange for a future return of either increased value of their stock or dividends. They only infuse cash when the stocks are released either at IPO or later offering of new stock.
The reason stocks are sold is due to cost of capital. A company can make money in a few ways. First is they make a product or service and receive money from customers. Second, they can IPO or some other form of shareholder investments. Third they could finance their needs either with a direct loan or through bond issuance.
Now, most bonds are considered junk if they are from a small company, especially one where people are working out of their garage. This means the debt has a rather high rate (because people think you're going to default). So now you've got to find a buyer (requires middlemen and their costs) that's will to bet on you. Good luck (no seriously I'd prefer this over opening my company to an IPO).
Bank financing is hard to get for pretty much the same reason that bonds are junk. Unless you can show positive cash flow for a few years (you know with your just formed startup and a dream), you probably not going to get a loan. It is due to this that often people, including Elon Musk, self-debt finance via credit cards. Again, ridiculously expensive lending terms.
Let's say you are making money. That's great, you're in the top 40% of startups. You are now constrained by the amount of money you make. If you make 100k a year, but need 1mil to bring a new product to market, we'll see you in 10 years (probably more like 13 with taxes removed over those years).
This brings us to stocks. Find people that are a) suckers, b) chumps or, and good luck o' bearer of dreams, c) actual believers in your product/service. They buy at the IPO price. Your company gets a percentage because the financial house that offered your stock takes a chunk. VCs might cash out after their sale moratorium ends. But after all of this you have a pile of money. That 1mil product is probably doable now. So is an office complex with open floors, and a coffee machine and free lunches and a dog kennel for when your employees just need to feel something that proves they're alive.
You also have an asset to back bonds. So you can, after a small period of time, issue bonds.
At no point did the shareholders add a penny in value to your product directly. They are just there hoping to the FSM that they can leave your stock at some point with a gain. They DO GET TO BITCH. They can have you legally removed from your own company because you have a long view that says in 10 years doing X, Y, Z will increase this companies value 100 fold, but it won't help (probably will hurt) the next 3 quarters.
As a stock holder I can say this about other stock holders. Fuck'em. They get 10-50% return for literally parking their money. As they have more capital related income, they should be taxed as income (outside of reasonably tax-protected vehicles like retirement plans).
> As a stock holder I can say this about other stock holders. Fuck'em. They get 10-50% return for literally parking their money. As they have more capital related income, they should be taxed as income (outside of reasonably tax-protected vehicles like retirement plans).
Word. As a TSLA stockholder with >10K shares, I couldn't care less if it went to 0. It was a gamble, and only because I believed in what Elon was trying to do.
> 120k may seem like a lot, but it isn't in several parts of the US now (e.g SF Bay Area, New York).
And national tax policy shouldn't be dictated by ~2 major urban metros.
I agree that tax policy needs to encompass more than just the salary of the working class, but let's not joke ourselves. Medicare already taxes your entire wage base, there's no reason Social Security shouldn't.
We keep kicking the can down the road, and its time to own up to the liabilities we've created.
>We keep kicking the can down the road, and its time to own up to the liabilities we've created.
I'm afraid it's quite impossible to 'own up' to those liabilities. Look at the debt clock:
http://www.usdebtclock.org/
The GAAP liabilities of USG amount to $100 trillion, yet the net assets of the entire US are only $116 trillion. Nearly all of the assets in the entire country would need to be sold to pay for the liability to be incurred.
I'm afraid the only solution is to reduce benefits, primarily reducing social security payments (particularly when most of the boomers are drawing on them) and cutting medical spending - probably by instituting controls on what the government will pay for in terms of end-of-life care.
> Or increase taxes? Social security taxation is limited to the first ~$120K of someone's income. Why?
Because social security is billed as a retirement scheme, not a wealth transfer scheme. The idea being that you get back out approximately what you get in.
Since benefits are capped, payments necessarily are. If you want to change social security into an explicit wealth transfer scheme, expect heavy resistance.
> Since benefits are capped, payments necessarily are. If you want to change social security into an explicit wealth transfer scheme, expect heavy resistance.
Increasing taxes and redistribution for "quality of life" necessarily decreases savings and investment. investment is where long term quality of life is determined.
How do you get 535 people (congress) to spend $3 trillion smarter? It's an impossible task. A fools errand. Even if we elected the 500 smartest people to congress, the results wouldn't be much better.
We need less of the economy flowing thru the federal government, not more.