I’ve been a lifetime conservative (although my life has been relatively short thus far – I’m only 25). My conservative principles tell me that the GOP is doing the right thing in their concentration on budget deficits, spending, and lowering taxes. The academia I have learned (including the CFA curriculum) tells me that in recessions, inflation and deficit fears have to be put on hold as the government has to ramp up spending to make up for lost demand from the private sector. I think the academia may not totally apply here because of America’s unique role as the world’s reserve currency and its treasuries as the default risk free rate–something that the text may not take into consideration. So not sure how this affects the argument. Basically, I am admitting I don’t know yet where I stand on this topic and I just want to know what everyone on here thinks. This is the most polarizing issue in the country right now. All politics aside, what does everyone here think is the correct course of action for our nation’s economy given both our short term and long term issues?
First, I think this is a great question and I hope it stimulates some thoughtful and constructive conversation on this forum. While I don’t disagree with your assertion in the first paragraph that GOP is doing the “right thing” concentrating on deficit and spending, I also think these are key issues for the Democrats as well. Basically, to me, these are unambiguously important issues no matter what side of the political spectrum you’re on. Regarding your second paragraph, the matter of HOW to pull the country out of recession is more debatable. On one hand, I don’t view this as a matter of putting “inflation and deficit fears on hold” – citizens and taxpayers are going to feel how they’re going to feel, though the government has a real influence in these feelings. On the other hand, as citizens, we do have the right to vote for the party that best represents what we believe to be the solution. Therefore, as you think about where you fall on this issue, you may want to ask yourself whether you believe it’s really the government’s role to ramp up their efforts to stimulate the economy, or if you believe fiscal conservatism is the way to go and that the government needs to curb its involvement in the private sector and allow capitalism/free markets to work themselves out.
Neither of them are correct. The correct thing would be to get rid of all illegal aliens, which would save on costs, as well as open up more jobs to Americans. Then abolish welfare and make those on it take the jobs that the illegals had. Reduce corporate and individual taxes. Severely cut medicare, medicaid and social security. In reducing the tax rates, get rid of half of the deductions that are pointless. The entire tax code should be no more than 5 pages long. Cut public pensions, and raise the retirement age to 68. That would be a decent start.
I think that Americans have an innate revulsion of inflation due to past experiences, and I think that unfairly colors public opinion of the administration’s actions. I’ve heard a lot of people, mostly older, say that Paul Volcker should be head of the Fed right now due to his record in curbing inflation. My issue is- inflation is the least of our worries, we are probably more likely to see a deflationary scenario, and our biggest concern has to be to increase economic activity, even at the risk of triggering high inflation. In other words, how do we increase demand? Devaluing the dollar is an option.
who’s better at basketball: fish or squirrels?
Palantir Wrote: ------------------------------------------------------- > > My issue is- inflation is the least of our > worries, we are probably more likely to see a > deflationary scenario, and our biggest concern has > to be to increase economic activity, even at the > risk of triggering high inflation. > I agree with this here. Empirically, inflation in and of itself is not necessarily a bad thing for the equity markets and the average investor. During inflationary times, when the economy has seen job creation, U.S. equity markets have risen; however, in states of inflation that are not accompanied by job creation or domestic economic activity, markets have declined. > In other words, how do we increase demand? Devaluing the dollar is an option. I’d be interested in hearing more about why you think this. On one hand, I can appreciate the fact that some inflation is good and devaluing the dollar could stimulate more job growth and production in the U.S. (versus outsourcing and exports). On the other hand, devaluing the dollar beyond what I believe has already been a devaluation through QE2 might only divert more capital away from the U.S.
the show NY Wrote: > The academia I have learned (including the CFA > curriculum) tells me that in recessions, inflation > and deficit fears have to be put on hold as the > government has to ramp up spending to make up for > lost demand from the private sector. There is a big difference between structural deficit and cyclical deficit. If on average you make more than you spend (structural surplus) and you are without income for two months (cyclical deficit) because you are switching to a new job that comes with a 50% raise, then it’s ok to borrow money to not have to sell you house, car, etc. The issue I have with the US government is that it has structural deficit. It spends more than it generates in revenues without expecting to ever pay off debt in the future. Cyclical deficit is ok but structural deficit is deadly.
Thanks for all the replies. I guess my biggest concern/question that I should have written in my first post is that the two opinions from each side of the aisle are so drastically different. This is really oversimplifying it but generally the right is yelling about tax cuts, less spending, curbing deficits while the left is claiming that we need a temporary tax increase to raise revenues, increase in spending to make up the output gap, and worry about deficits later when we’re not in a recession. For two views that are so radically different, which view is the more correct direction we should be going in now?
I think less spending was fine, had they been saying it consistently for the past 10 years when the budget deficit balooned. But now when we need more demand, it doesn’t make sense at least to me, to lower that side of the equation…
Short-term, it’s already been decided that the best fiscal response to a sluggish economy is to slash government spending. Whether that makes sense or not I’ll leave up to you. Long-term, I agree with maratikus that the structural deficit is a problem, and I don’t see anyone in Washington having the cojones to fix it anytime soon. Deficits will continue, the debt will pile up, and the proportion of the budget paid to interest will keep increasing. Everyone wants spending cuts, but there’s a huge NIMBY problem (NIMBY = not in my back yard). My mom is in her late 60s and when she rails against government spending I ask her if she will accept cuts to social security and she says heck no. Any politician who wants to cut the Pentagon budget to stop having America be the world’s policeman will get attacked by the other side as being soft on national security. The nation needs to get back to surpluses and I think tax increases are going to be necessary. It’s also not happening any time soon. I expect my taxes will go up at some point, and that’s fine, and I’m in favor of any tax increase that I don’t have to pay. For example, I’d love for the estate tax (the death tax!) to go back to where it was. In short, I have no faith in human behavior, either in the voters or the politicians. As Joey once wrote on this forum, why argue with someone when you can bet against him? So I’m trying to figure out the best way to bet on the stupidity of the US government. Ideas?
Well, the real problem we have is that Entitlements = Social Security + Medicare. And those costs are going up over time as the baby boomers retire and end-of-life care gets more and more expensive. If it weren’t for these costs, the budget would really be quite manageable, even our military spending, which is the next biggest item on the budget. So when you say that you have to control spending on Entitlements, it sounds like you’re taking money away from people who are bratty and don’t deserve it. But when you talk about taking away Social Security and Medicare, it sounds like you are beating up and mugging little old ladies. Yet it’s really the same issue. The Tea Party keeps saying that the US has a spending problem, not a revenue problem, but doesn’t seem to want to come out and say, “let’s cut social security and medicare,” which is a third rail in American politics because AARP and seniors are a highly organized voting constituency. So corporations provide the money, and seniors provide the votes. That’s why tax cuts for corporations and no real entitlements cuts are on the way. So what’s left? Well, there’s education, basic research, food stamps, and any kind of unemployment assistance that can be cut “to show that we’re serious about the budget.” But all of this is just rearranging deck chairs on the Titanic.
i think there should be more tax-based incentives to get the prvate money off the sidelines. increasing private investment will increase jobs, growth and productivity. of ‘raising taxes’ and ‘cutting spending,’ neither are the answer, though i favor cutting spending more because i don’t trust politicians to make well thought out decisions.
I see that the never-ending thread has returned…
Neither, these issues are far too complex and nuanced to be effectively addressed within the constraint of adhering to a particular political ideology.
bchadwick Wrote: ------------------------------------------------------- > Well, the real problem we have is that > Entitlements = Social Security + Medicare. is this sentence even coherent? probably it’s a good sample out of a masochists’s wet dreams…
bchadwick Wrote: ------------------------------------------------------- > Well, the real problem we have is that > Entitlements = Social Security + Medicare. And > those costs are going up over time as the baby > boomers retire and end-of-life care gets more and > more expensive. If it weren’t for these costs, > the budget would really be quite manageable, even > our military spending, which is the next biggest > item on the budget. > > The Tea Party keeps saying that the US has a > spending problem, not a revenue problem, but > doesn’t seem to want to come out and say, “let’s > cut social security and medicare,” which is a > third rail in American politics because AARP and > seniors are a highly organized voting > constituency. So corporations provide the money, > and seniors provide the votes. That’s why tax > cuts for corporations and no real entitlements > cuts are on the way. So what’s left? Well, > there’s education, basic research, food stamps, > and any kind of unemployment assistance that can > be cut “to show that we’re serious about the > budget.” > > But all of this is just rearranging deck chairs on > the Titanic. Entitlements are the real problem. I agree. But the republicans came out with a very ambitious plan to cut Medicare. It’s the democrats that are fighting to keep it unchanged. If entitlements are unchanged, then it really is rearranging deck chairs on the Titanic
The Republicans also said no to a plan by Obama that pretty much gave the Republicans everything they wanted: http://www.economist.com/blogs/freeexchange/2011/07/america’s-debt-ceiling This is not a “look at what the democrats did” or “look at how evil the republicans are” issue. This is simply how this stupid system works. The fact of the matter is that the government is spending way too much. The other fact is that this is not the time to deal with this issue. The economy is very fragile right now and cutting benefits, military spending, subsidies, etc. should be done when we’re on more solid footing. You can tell neither side is serious about this when you look at the house appropriations bill for the military (HR 2219) and how it’s $17 billion more than it was last year, then you look at NASA and how they want to cut the budget by a lousy $1.6 billion. This is a serious issue but unfortunately the majority of the people in office are clowns. So to answer the OP’s question regarding who’s right, repubs or dems - the answer is that they are both wrong and they both need to get their act together. Default risk-free does not mean “there’s a 99.9999% chance it won’t default” nor does it mean “we’ll scare you into thinking we may default in order to score political points until the night of the deadline then we’ll agree to whatever crap is on the table because we weren’t ever serious about any of this”. We do need to make cuts, we do need to raise taxes, and both parties need to compromise. Democracy is not a my-way-or-the-highway system. Edit: Just wanted to add that when I say cuts need to be made, I mean in everything, e.g., I wouldn’t mind an across the board 10% cut to every single item in the budget. Just not right now. Edit 2: Stupid spelling.
kant Wrote: > We do need to make cuts, we do need to raise > taxes, and both parties need to compromise. I agree with that. I just hope that overtime spending will be lowered substantially so that taxes wouldn’t have to go up too much.
I recall a political science professor once telling me that politicians don’t matter when it comes to economic growth. Is this true? I tend to think he was correct. There are some caveats such as the regulatory changes that helped spur the most recent financial crisis but all things considered, I do not believe that the maneuvering of politicians has a meaningful impact to economic growth.
Yes the deficit is a serious issue that needs to be tackled. However, when you already have a sluggish economy that is barely growing how does it make sense to slash spending in the government sector? The reason that we have sluggish growth is cause there isn’t demand in the market. Slashing spending, which amounts to people losing their jobs only worsens this problem and in no way makes it better. It could in serious cases lead to another recession and eventually deflation that ruined Japan in the 90s. In one of Bernanke’s statements about QE or QE2 he mentioned that some fiscal stimulus is necessary but a non-starter in the political climate. The best example of this is the UK where they instituted these ‘spending cuts’ and the economy got worse. While I mostly agree with Kant above I would disagree with his first edit. I think there are certain sectors that need more investment, and can’t afford a cut. Things such as infrastructure (Europe and China have high-speed rail and we have a joke called Acela, and JFK is THE worst airport in the developed world) and education (including primary, secondary and r&d) There is plenty of waste that can be cut in military spending, subsidies for ethanol and corn farmers (which is not bad economics but also bad for public health). However none of these matters until the general public wakes up and faces reality. An apt analogy is that America is an overweight person who wants to lose weight, but doesn’t want to go on a diet or exercise. Instead it wants magic pills (like those advertised on TV) that “guarantee” weight loss. But they fail to read the fine print which reads results are only guaranteed with diet and exercise.