The fiscal cliff is a problem that politicians can solve by spending more money. It is not a real threat to anything. Watch Democrats and Republicans work out a last minute deal to keep outspending drunken sailors, no matter who the President is.
Quoting from memory, the Federal government revenues and spending has historically been around 20% of the GDP. Now spending is something like 25% and revenues are 18%. Obviously unsustainable. But the public is OK with it because they are convinced that more government spending will prevent us from entering another recession. Which would be true if the government spent the money on infrastructure, not giveaways. Not gonna happen.
Would you prefer that no action was taken in January and the automatic expenditure cuts and tax increased go ahead as planned?
As I mentioned earlier, the analysis I’ve seen suggests that would put the US right back into a deep recession. I don’t think that is the best way to reduce the deficit or debt load in the short, medium or long term.
Didn’t you hear, recessions are irrelevant, because everyone who is unemployed can just start a business?
It doesn’t require capital, or external demand for goods and services, and we all know that that statistic that says 2/3 of all startups go out business within 3 years (usually representing a great deal of value-destruction in the process) is just something to be ignored.
I have great respect for those who successfully launch businesses, and generally think it’s a good idea to make it easier to do. Heck, I’m running my own business too.
But just starting a businesses is not a scalable solution that is suitable for many or even most of the structurally unemployed who lack capital or proper business skills or demand for what they are able do. In many cases, it’s a roll of the dice, gambling on what few assets are left to them, and a process of economic value-destruction for the 2/3 of businesses that fail.
Starting businesses is an important piece of the solution to our growth problems, but ultimately small businesses need to have access to capital and demand for their products if they are to remain viable, and avoiding things like the fiscal cliff is pretty influential there.
bchadwick, I think you’re addressing that argument from a sensible, practical perspective, but the better argument is the economic one. His argument is basically that we should shift the short-run aggregate supply curve by having people start more businesses. I don’t doubt that this would be a solution, if more small businesses were actually created, but the problem is that the government has no control over it. There’s no policy tool that you’re implementing to achieve it, which makes it a sort of deus ex machina argument. Why would he expect that small business creation would all of sudden increase by itself, beyond its typical behavior in a recession? It’s sort of like “blink and we’ll have all this job creation.” If the mechanism worked that well, then why is unemployment so high? Further, if the government did support small business creation, how would you know that it is done in an efficient manner (i.e. supporting small businesses that would have failed absent some form of subsidy)?
As an aside, the problem with sticky wages isn’t that the unemployed aren’t willing to lower their wage demands. The problem of sticky wages is the people who have jobs aren’t willing to have their wages cut. This is far more important in creating an economy that does not respond quickly to shocks. As a result, when you’re faced with a negative demand shock, the best way to respond is with an positive demand shock, e.g. expansionary monetary policy that increases inflation reduces the real wage bill of all employed people, it doesn’t just impact those looking for work.
I am saying that we will not go over the fiscal cliff, never mind the hysteria in the media. (I know it’s dangerous to make predictions, especially about the future ) Still, hard to see that politicians will want to commit political suicide. Republicans got a lot of flak and lost votes when they shut down the Federal government in the Clinton era
Didn’t you hear, anyone who questions your pet positions deserves to be taken out of context and ridiculed to death?
I will be brief and as brutally extreme as your “reasoned argument” is.
Starting business is risky. But someone out of work for months and years, needs to take more risk to make something of themselves. They should not be taught to look at Ma Government to drop worms in their mouths like baby chicks. It is not the government’s (i.e. taxpayers’) job to give a job to people. At some point they have to start moving their arms and attempt to swim, or sink into poverty and hunger and despair. The government is to provide a minimum safety net to make sure they don’t die.
This is a fundamental difference in our philosophy, however I don’t think less of you for being more liberal whereas it’s quite clear that you hold anyone to the right of you in massive contempt, disguised a little better than Turd.
Your economic argument is nicely put, jmh50, and I don’t disagree. I just didn’t think that that particular framing would be as direct response to “stimulus isn’t needed because everyone should just start businesses.” You’re right… it is deus ex machina (though the argument is presumably that it’s just high taxes that are holding back business creation - even though we had excellent business creation in the 1990s with higher tax rates).
Then there’s the argument that austerity is good because we would otherwise be putting a huge debt burden on our children and that would be bad. Well, the debt burden isn’t bad if we grow enough to finance it. And the cost of austerity to our children today is that many of their parents are unemployed and unable to provide for them now.
I agree that *what* the government spends on matters as much as how much gets spent, or even more. And most things that have to happen in the economy can’t be directly managed by the government, nor should it be… but public policy should be oriented towards trying to help provide capital and demand where it is needed while the economy is on its back. How we avoid becoming Japan is a nagging question, but I don’t see that the alternatives as much better.
As I think through things like “creative destruction” and “economic structural adjustment,” I think the philosophy is “businesses have to die and be reborn, but people should not have to die and be reborn.” We don’t know what the right industries are for our future. We can - like venture capitalists - take a best guess and try to put public resources into making them happen, so small business loans, and special exemptions for new businesses that phase out as they grow make a lot of sense.
For someone who’s into “every man’s on his own” (ok, that’s a touch stark) or even just someone who’s in finance, I think you need to grow a thicker skin, 1recho.
I belittled the idea that people who are unemployed can simply resolve their situation by starting up a business, and that this is a general solution to unemployment that means that it’s ok to cut off things like unemployment insurance etc. because the alternatives of debt or taxes is too unpalatable. I did not belittle you personally (except maybe in the paragraph immediately preceding and some light chiding below).
I disagree with Turd Ferguson a lot too, but I don’t attack him personally - heck, I suggested a nice vacation spot for him and his wife, and don’t regret doing it (though maybe I should have gotten compensated for that… no free riders allowed in his view ). And TF does seem to think that environmental issues are important. My distrust of laissez-faire markets actually has more to do with how they create negative environmental externalities than with the social consequences (which are also problematic, and the two are intertwined).
I did not intentionally take your quote out of context, but I’ll admit that this can happen unintentionally. If you want to clarify how the contexts differ and how your position makes sense in one context but not the other, that’s a perfectly fine alternative to feeling put upon.
And while we’re talking about context, let’s just look at what you’ve said above: “it’s quite clear that you hold anyone to the right of you in massive contempt.” If that’s not the pot trying to call the kettle black, I don’t know what is. There have been plenty of positions to the right of mine that I find defensible, but not fully to my taste, and I don’t hold these people in contempt (B.S. and Ohai and CFAvsMBA are prime example). But I do feel the need to push back when assumptions like “everyone should just start a business,” or “everyone’s problems are really just their own doing or laziness” go unchallenged (yes, I know you didn’t say the second one, but other people do). If you feel I’ve been painting your position too simplistically, then give it more context, don’t whine about how unfair and mean it is that someone didn’t agree with you.
It’s hard, but try not to take things so personally. There have been many times here when I’ve had to take a deep breath count to 10 before deciding not to press send too, or just decline to respond (I almost did that here too, but the “contempt for everyone to the right of me” demanded a reply). It’s just the nature of life and - to some extent - this site. If I made you feel bad in a previous post, I apologise. That was not my intent. But I disagree with (what I understood) of your statement that it’s ok to slash safety nets because of debt concerns, and that the present setbacks to children whose parents are unemployed today is less important than the debt loads that the children may have to pay back later because because families can just start businesses to solve their problems.
I do agree with you that if small businesses are easier to start up, that will relieve some pressure off of the employment count, and it’s part of the overall solution, but I don’t see that slashing other safety nets is therefore ok.
Really, try to grow a thicker skin. It will help your financial career too. At the end of the day, it’s just text on a webpage.
The couple in your post (out of work, unable to get a job) has to take responsibility for their destiny. If the government does not stop extending their unemployment paycheck, they are less inclined to “sink or swim”. I see your possible argument, that unemployment is not all roses either - I got something like $400 per week that was the maximum allowed in California at that time, and clearly could not support my wife and kid and a mortgage on that. You know what I did? I got a crummy paying job to tide me over till I got a better one. They can do the same. Especially when motivated by the stick of the unemployment checks running out.
The government (i.e. the taxpayers, i.e. I) cannot be permanently kind and take care of all of their needs forever. At some point, you do have to “slash the safety nets”. In this case we have a multitude of nets, cutting one doesn’t imply that they will fall to the ground (i.e. die); the last one (free food stamps and charity wards) will still exist, Ayn Rand be damned.
Summary, my kindness stops at not letting someone die of hunger. They need to work for everything else if they are able (i.e. not old, young, disabled).
) Still, hard to see that politicians will want to commit political suicide. Republicans got a lot of flak and lost votes when they shut down the Federal government in the Clinton era
). And TF does seem to think that environmental issues are important. My distrust of laissez-faire markets actually has more to do with how they create negative environmental externalities than with the social consequences (which are also problematic, and the two are intertwined).