Why does Reagonomics get such bogus credit for fiscal responsibility? Cutting taxes while also increasing spending is not fiscally responsible. Reagan was by far one of the worst offenders, unlike what the author leads you to believe with a personal quote from Reagan. A simple google search for "reagan deficit spending" will show just how great this country did during his 8 years.
That fallacy clarified, this isn't about democratic or republican, liberal or conservative. The author brushes this off, too, but devotes most of the article to implying the opposite.
So the point is to evaluate the true cost of something. Wonderful! Except, I think the author doesn't go far enough. What of indirect costs and benefits of oil exploration vs. nuclear vs. coal mining, etc?
The problem with not focusing on alternative energies is that you continue to feed an anti-imperialistic enemy that then forces you to spend trillions of dollars for the "sake of national security."
Yes, please, find the true cost of coal mining, oil exploration, etc, and that means factoring not just immediate profit losses and tax subsidies. This means analyzing just how much, for example, it costs to fund wars in order to satisfy our oil demands (ie, how much this country has spent in wars bribing people, funding our veteran's health care, etc for the sake of national security, while we indirectly fund these very terrorist organisations).
So it's okay to debt our way to fund such wars, but it's not okay to invest in the education and health of this country's biggest economic contributors--it's citizens?
The problem isn't deficit spending/debt. Many successful startups or companies go through such phase where it makes sense to borrow, to dig yourself out of a hole. The problem is whether you reinvest this back into the country, its infrastructure, its education, its health, its green technologies, etc.
FDR didn't get us out of the Great Depression. That's right. WWII did, deficit spending did. But then, unlike now the US was producing something other countries needed. Green technology (nuclear, solar, whatever, let them dish it out with some subsidies to offset initial costs) has to be the answer nowadays.
I think most of what you are saying is overshadowed by two points that were made in the article:
1) Every bridge, road, factory, and in fact most of our economy is build on the (nearly) free energy that we get from pulling hydrocarbons out of the ground. I'm not morally justifying it, but if a couple hundred billion spent on war, allows Iraq to quadruple oil production, then we will recoup those hundred billion by using that (nearly) free energy found in those Iraqi hydrocarbons.
2) Regan's or any other era's budget deficits pale in comparison the the unfunded liabilities of Medicare and Social Security. The deficits are manageable, but the retirement and health promises are not.
"Regan's or any other era's budget deficits pale in comparison the the unfunded liabilities of Medicare and Social Security."
Actually, the biggest unfunded liability is the interest on the money that our Department of War spends. We borrow that money, and leaving alone the issue of defaulting on these loans or inflating them to nothing, borrowing all that money has a huge cost. I like to toss out the amount of $1.5 trillion a year on "defense," adding the cost of the interest on the loans - probably not a bad estimate.
1) what about the cost of diverting resources to finance the war? what of the health costs we incur for the health benefits of the wounded, support of their families, etc? You're not addressing my point. You're merely reinforcing it by being as short-sighted as the author of the article and not going far enough to compute the actual costs.
2) huh? did you see the debt reagan left us? and again, my issue is we're spending money on wars and cutting it from education and other vital investments, anyway. medicare and social security are a different discussion.
how does a 'couple hundred billion' = nearly free energy. It clearly isn't nearly free if you are paying a couple hundred billion.
If US gdp is 14 trillion, a few hundred billion for access to energy is a fairly significant number.
Let's say the energy cost of building a new bridge is $500,000 worth of hydrocarbons. Now, let's compare that to non-hydrocarbon energy sources. Historically, this might be steam from burning wood, or a team of mules. What I am saying is that $500,000 worth of wood or mules is so much less energy than $500,000 worth of oil, that the oil is nearly free in comparison.
Think about it: what other fuel is just sitting around, storing millions of years of solar energy, and waiting to be extracted and burned???
This is a key economic concept that must be understood when discussing oil.
> Cutting taxes while also increasing spending is not fiscally responsible
Reagan didn't cut taxes. He cut tax rates but revenues actually increased. You can argue that revenues would have been even higher without the tax rate cuts, but then you get to argue that people don't respond to tax rates.
> FDR didn't get us out of the Great Depression. That's right. WWII did, deficit spending did.
Actually no. FDR waged a war on production until WWII made that impossible. You can't have an arsenal of democracy that doesn't produce things.
> Green technology (nuclear, solar, whatever, let them dish it out with some subsidies to offset initial costs) has to be the answer nowadays.
Spain is finding that each green job costs more than one not-green job, and the green jobs are temporary while the not-green job losses seem to be more persistent.
It frustrates me that people who are crying foul over our current debt praise Regan and his policies. He's not to blame only. The congress at the time has it fair share, of course.
edit: didn't read the article (just view the plot, it's the first i could find)
IIRC Reagan proposed a balanced budget, had the Grace commision recommending large cuts in government spending/programs through privatization. This was completely rejected by Congress, and Tip O'Neal said the budget was 'Dead On Arrival'.
Why does Reagonomics get such bogus credit for fiscal responsibility?
Bit of historical trivia: Reagan wanted to cut taxes and cut spending. The Democrats let him cut taxes but were going to give him a good thrashing if he tried to control spending. He decided he would rather be popular than have a fight, so he took the tax cuts and ran the deficit up.
Reagan arrived in Washington with a full head of steam, vowing, as he put it in the major economic speech of his 1980 campaign, "to move boldly, decisively, and quickly to control the runaway growth of federal spending."...To help compensate for the tax cut, his first budget called for slashing $41.4 billion from 83 federal programs, only the first round in a planned series of cuts. And Reagan himself made known his desire to eliminate the departments of Energy and Education, and to scale back what his first budget director David Stockman called the "closet socialism" of Social Security and Medicaid....At the start of his administration, with Social Security teetering on the brink of insolvency, Reagan attempted to push through immediate draconian cuts to the program. But the Senate unanimously rebuked his plan, and the GOP lost 26 House seats in the 1982 midterm elections, largely as a result of this overreach. The following year, Reagan made one of the greatest ideological about-faces in the history of the presidency, agreeing to a $165 billion bailout of Social Security.
$41.4 while eliminating the department of education.
$165 billion bailout of social security.
Okay, that doesn't mean much. Put it in context. How much was Reagan spending on defense and other discretionary items? That's the track record I'm talking about.
> get us out of the Great Depression ... WWII did, deficit spending did.
Absolutely false. Personal well being continued to fall dramatically through the war. GDP went up because the government was buying weapons, i.e. digging and filling holes. Unemployment went down because people were drafted, essentially enslaving the unemployed. The depression did not end in any meaningful sense until the war ended and government spending was reduced. Only in 1946 when you finally had the conditions that both the New Deal morons were gone and the war economy was being shut down did living standards begin to improve.
> the point is to evaluate the true cost of something
Only the free market can evaluate the true cost of things. A panel of human beings cannot possibly make a meaningful calculation: there is too much ambiguity and unknowable data. The things "worth the cost" win out and the things not worth the cost go bust in the market.
Your points about the government subsidies to the petroleum industry are quite valid, but you seem to miss that the basic failing is government itself. If oil related businesses had to carry all security and business risk related costs themselves, that would be clearly reflected in prices and substitutes would be more competitive. The problem is that somebody in government decided geopolitical hegemony is "worth the cost."
Everything you said about the post WW2 recovery is accurate I believe. Keynesians at the time were convinced the depression would resume once the war ended.
It is interesting to note that the modern Keynesians have turned on FDR. They always are unhappy with his trying to balance the budget after years of New Deal policy failed. They have turned on Hoover because he gave up as well after his version of the New Deal failed. They seem to forget that Keynes himself approved of what Hoover was doing. Their instance on the notion that a stimulus program is never large enough to explain their failures is a pretty old one.
It's obvious government spending had to decrease and that's what should happen after the country is somewhat back on track and growing. But did WWII and (thus deficit spending) not get us out of the great depression? It's obvious the quality of life wasn't great when you had people forgoing resources to fund an important war.
The growth after the great depression came as a result of the Cold War when the US started spending on nuclear technology, missile defense, what have you. The US also invested on its citizens and education with the GI Bill among others, etc. This does not refute my point--and that is, to clarify, perhaps, that the problem isn't government spending, it's what it gets spent on.
Only the market can evaluate the true cost of things? This assumes markets have all the information or that someone is willing to invest the money to obtain it--otherwise you have an inefficient market. Here's where for the good of all, some central body like a government, can put in the cost to find out or to avoid a market collapse. For example, what would have been the cost of letting AIG and major banks fail? The markets wouldn't care since every individual would be concerned with their losses in the panic. That is, the markets aren't always as rational as people make them out to be--you know this. To argue otherwise is as idealistic as well, you name it. In fact, your last point validates this point. The cost of not passing TARP and the Recovery act would have been passed on to us--and some argue, and I believe, such cost would be greater... also, assuming you can control spending when the country is back on track (due to debt). So either way, we're paying... might as well, then, ensure our financial system is stable and that we can continue to invest in education and green technology instead of risking an entire system collapse as we ensure our economy grows.
When interest rates are at 0% and the country isn't growing, something has to give. Cutting government spending is stupid. If you're running a business how's a tax break going to help you? Will you keep people employed? Not very likely. So as employment continues to rise, more people freak out, and more people are let go. Is that the kind of downard spiral we want? This is when a government needs to step in and say, no.. we're keeping these jobs, we're creating some here, otherwise, who's going to take the risk? There's a psychology to this, I think, that often gets lost in "market analysis." People who are uncertain about the economy will stop spending, so how do you promote spending? By giving them a few hundred dollars without ensuring that their job isn't going to be there a year or two from now?
I was also taught this story that WWII got the US out of the Depression, but I suspect it may not actually be true. The bottom of the stock market was in 1932; from that point till 1938, when fears of war caused another crash, it was sharply up.
The Federal Reserve was able to start the boom bust cycle again until 1937 when the bust started another mini-depression. I'm sure speculation about war had some part to play in this but the markets are usually bad about predicting wars. The immediate impact of war in Europe wouldn't have been that bad for Americans at least because international trade had dropped off considerably following a wave of rising tariffs and uncertainty in the global banking system.
World War 2 more than anything else forced the government to cut spending and pay off debt and while there was a depression following the war it followed the pattern of the 1920-1921 depression. In that depression the government did nothing to intervene and the recession while severe was over and almost no one remembers it. The other major factor in the recovery was the fact that the US had almost no competition for its factories and agriculture having been basically untouched at home by the war.
In the end war cannot create wealth it can only direct the wealth that was created for peaceful means elsewhere for the purposes of destroying wealth somewhere else.
After the war the US was forced to cut spending and pay back debt. The spending they had to cut were the New Deal programs that were holding back the economy from recovering.
Right. Technically we came out of the great depression, had a recession in between, etc. That's where neo-keynesians criticize FDR. The dip in 1937 coincided with a FDR being pressured into balancing the budget. It's much more complicated than this, but I used the WWII reference because usu. the next best answer is WWII. Now I'm told, that WWII wasn't responsible either!? What gives?
Markets do have all the available information. But no person or group of people can ever process all the information in a meaningful way. Only the market itself can process the huge amount information dispersed among participants.
The rest of your post is silly "animal spirits" pseudo-keynesianism. No, the government cannot usefully manipulate the business cycle or limit damage from failing businesses. Even Keynes himself only ever really tried to say government could stop a major slide from happening in the first place. He said it would be too late to intervene post-crash.
Markets don't have all the information. You didn't disprove that.* My point is that someone needs to help with making "all available info" (whatever that means) possible in the first place. It's not always efficient for markets to do that themselves, at least upfront.
*For markets to have all information upfront, it means we know exactly how the universe works and we can predict that an 8.8 earthquake is going to strike Chile on February... etc. Because of this, markets are greatly reactionary and my point above is also that markets don't always react rationally. I'm not arguing that they are not the most efficient system we have under most industries, also--to be clear.
I know it's an economic fallacy to say "this time it's different" but really, I think this time it is.
The push for green energy has gotten enough momentum that new nuclear plants are being built and the money is flowing into silicon valley energy startups. I think this go-around the smart minds are going to be working on energy, not dot coms or wall St. One can reasonably hope that we will see more than a few energy breakthroughs in this decade. When they come all bets are off.
"Princeton’s 2009 graduating class found more jobs in financial services than in any other industry. According to Princeton’s career-services director, Beverly Hamilton-Chandler, campus visits and hiring by the big investment banks have been down, but that decline has been partly offset by an uptick in recruiting by hedge funds and boutique financial firms."
Isn't there some lead time involved? Shouldn't this be tested in one to two years for a better indication of what the recent green wave will encourage?
I'm more concerned about the potential problems related to food, water and air than I am about those related to petroleum, metals and minerals.
I agree that it's important to know "the true cost of things." It's the main point of the article and advice well taken. Much of the sand our present economy seems built upon is directly related to "not knowing the true cost of things" or at least "not being willing to accept the true cost of things."
One of the key points in the article is how inexpensive energy is critical to both economic recovery and a high quality of life.
Making a jump, if we put together a heroic "Manhattan Project"-like commitment to supporting such energy measures, it’s feasible that we could all live better with a lower GDP, is it not?
>we could all live better with a lower GDP, is it not?
Yes and No. GDP is a measure of production, expressed in dollars. However, when GDP growth is computed, changes in the value of money do not have an effect. E.g. GDP growth from year-1 to year-2 is:
(volume produced in year 2)*(prices in year 1)
/
(volume produced in year 1)*(prices in year 1)
So reducing the price of something does not in-of-itself have an effect on GDP growth (or GDP stated in nominal terms). However, it's often the case that reducing the price of something means that there is more demand for, so more is produced, so (volume produced in year n+1) goes up, so GDP grows.
Summary: if the price of energy is reduced it will most likely lead to GDP growth - whether we could all then live better lives, I don't know. I'd like to hear a good holistic explanation of why GDP growth is required for national happiness..
I can give you a good holistic explanation for why GDP growth alone is not required for national happiness. According to some, Nordic countries tend to be happier. They have the highest taxes, they work less, have virtual universal health care, but at the same time, on a per capita and per hour basis, they're virtually just as productive. Not that I blindly favor such policies here, but I don't know, maybe there's something to be learned from them. They seem to have had stable growth since the 80s. (Note: I really want to stable "stable.")
The Nordic countries are ethnically homogeneous with rooted communities. They have high average IQs and very low crime. I'd read a lot more into that than anything to do with economic or healthcare policy. The somewhat nordic Minnesota is also fairly "happy" despite its American economic system. Maybe you should be advocating policies that steer the country to being homogeneously white, middle class, and immobile? Somehow I doubt it.
As I posted in another thread, a point President Obama made in his State of the Union address is whether or not people still skeptical of global warming are right, the rest of the world believes in pursuing greener energy solutions, and will invest in countries leading the way. The country that leads in new forms of energy will likely lead the world economy. Pursuing such policy makes sense from an economic perspective if nothing else.
That seems like a baseless assertion. For all you know the country that maintains naval supremacy and control of access to oil reserves will lead the world economy.
The last two wars pretty much prove it's more expensive to control oil rich countries than to spend dollars on home grown energy, which boosts your own economy at the same time.
Baseless assertion? Those are President Obama's sentiments, although I happen to agree with them. Energy is an important part of any economy. I don't think you'd find any credible economist say finding innovations in energy would not likely yield noticeable economic effect, not to mention the compound benefit of foreign sales and investment, as well as jobs from the new industry. As for naval supremacy, I believe that's currently the U.S., but in case you haven't noticed we're still pretty vulnerable to economic problems.
Are you talking about fusion or something? The whole point is that nothing now known competes with fossil fuels. Oil is ridiculously cheap and versatile energy.
That's sloppy thinking. Oil is just one of many fossil fuels. You can refine it into several high energy fuels, plastics, and asphalt etc. But, plenty of things fit with with it in each of those niches. Now there is far more coal but it's used for basically one thing, electricity, and there are several things that competes with it in that area.
Now if you want to replace oil, we can substitute coal and water. So, just because we are quickly running out of one fossil fuel does not mean we are running out of all fuel's or even just all fossil fuels.
I'm not sure I understand you. The point is no combination of any known substitutes are close to competitive with current fossil fuel usages.
Coal is basically in the same situation as oil, contrary to what you may have heard. The good stuff is gone and it's getting more and more expensive already, when measured by joules of net energy per dollar. It's lower quality and harder to mine stuff.
If coal supply was really becoming limited you would see most extraction locations receiving huge profit as they reduce supply just like oil due to lack of completion. (It's a simple question of discounted future cash flows and competition.) However, the price of coal is still dominated by the cost of extraction and shipment across the board.
Fossil fuels are really mindbogglingly cheap, but you still see completion such as: Ethanol fuel in Brazil, nuclear power France, and by looking at the subsidies it takes to adopt wind power you can see how close it is to coal.
I don't follow your line about huge profits. The simple fact is coal, when measured in terms of energy content, is getting scarcer and more expensive.
You can't look at state supported industries and come to any meaningful conclusions. All those examples have government driving them. Nuclear fission power would not even exist without government: the plants and businesses are uninsurable in the free market. No private insurance company to date has concluded the lifetime risks of a nuclear power plant are acceptably quantifiable.
The "true cost of energy " from the coal example is perfect example of why tax incentives & subsidies hurt us. If it takes more energy to move coal out of a mine than it generates then the mine will go out of business, that is unless the coal is used as an economical store of energy -- i.e. we use fuel to power our cars instead of nuclear because fuel is easy to move etc.
That fallacy clarified, this isn't about democratic or republican, liberal or conservative. The author brushes this off, too, but devotes most of the article to implying the opposite.
So the point is to evaluate the true cost of something. Wonderful! Except, I think the author doesn't go far enough. What of indirect costs and benefits of oil exploration vs. nuclear vs. coal mining, etc?
The problem with not focusing on alternative energies is that you continue to feed an anti-imperialistic enemy that then forces you to spend trillions of dollars for the "sake of national security."
Yes, please, find the true cost of coal mining, oil exploration, etc, and that means factoring not just immediate profit losses and tax subsidies. This means analyzing just how much, for example, it costs to fund wars in order to satisfy our oil demands (ie, how much this country has spent in wars bribing people, funding our veteran's health care, etc for the sake of national security, while we indirectly fund these very terrorist organisations).
So it's okay to debt our way to fund such wars, but it's not okay to invest in the education and health of this country's biggest economic contributors--it's citizens?
The problem isn't deficit spending/debt. Many successful startups or companies go through such phase where it makes sense to borrow, to dig yourself out of a hole. The problem is whether you reinvest this back into the country, its infrastructure, its education, its health, its green technologies, etc.
FDR didn't get us out of the Great Depression. That's right. WWII did, deficit spending did. But then, unlike now the US was producing something other countries needed. Green technology (nuclear, solar, whatever, let them dish it out with some subsidies to offset initial costs) has to be the answer nowadays.