The belief that cutting spending in the face of high unemployment would actually create jobs has been shown to be delusional, if that isn't apparent from the way the economy has been slowly declining for the past 30 odd years. A record 46.2 million Americans are now below the poverty line, the Census Bureau reported yesterday, and the numbers appear to be growing.
The reduction in incomes from fiscal consolidations is even larger if central banks do not or cannot blunt some of the pain through a monetary policy stimulus. The fall in interest rates associated with monetary stimulus supports investment and consumption, and the concomitant depreciation of the currency boosts net exports. Ireland in 1987 and Finland and Italy in 1992 are examples of countries that undertook fiscal consolidations, but where large depreciations of the currency helped provide a boost to net exports.
Unfortunately, these pain relievers are not easy to come by in today’s environment. In many economies, central banks can provide only a limited monetary stimulus because policy interest rates are already near zero (see “Unconventional Behavior” in this issue of F&D). Moreover, if many countries carry out fiscal austerity at the same time, the reduction in incomes in each country is likely to be greater, since not all countries can reduce the value of their currency and increase net exports at the same time.
Simulations of the IMF’s large-scale models suggest that the reduction in incomes may be more than twice as large as that shown in Chart 2 when central banks cannot cut interest rates and when many countries are carrying out consolidations at the same time. These simulations thus suggest that fiscal consolidation is now likely to be more contractionary (that is, to reduce short-run income more) than was the case in past episodes.
On the other hand, Economic equality equals happiness. So suggests a new study to be published in a forthcoming issue of Psychological Science. In order for Americans to be truly blissed out, it finds, we need to close the gap between our wealthiest and poorest citizens.
The study, lead by Shigehiro Oishi of the University of Virginia, took into account economic and psychological factors when examining data taken from 50,000 individuals between 1972 and 2008. Not surprisingly it was the lower-income participants—those in the bottom 40 percent of the U.S. population—who expressed reduced happiness during periods of greater economic disparity, but their reasons for dissatisfaction were unexpected. Expains Sobczak:
People weren’t unhappy just because their income was lower. Instead, the authors’ analysis revealed that greater inequality was linked to reductions in trust and perceived fairness—and it was drops in those attitudes that made people feel less happy.... Oishi and his colleagues argue that their results may explain why economic growth has not been accompanied by increases in happiness in the United States, unlike in other developed nations. The problem, they suggest, is that gains in national wealth in the U.S. haven’t been distributed equally, and this inequality has caused Americans’ happiness to suffer.
Oishi offers this formula to fix our happiness dilemma: “If the ultimate goal of society is to make its citizens happy, then it is desirable to consider policies that produce more income equality, fairness, and general trust.”
Of course, we can keep going down the road to ruin. The Republicans have shown that they don't mind trashing the economy by creating fake crises over the deficit and debt ceiling. The problem is that Obama has been caving in to the right and not proposing any real world solutions to this problem. People voted for change with Obama, not more of the same.
Read more:
- The Happiness Equation
- The Death of the Confidence Fairy
- The Broken Theory of Growth Through Austerity and Deficit Reduction
- Deficit-Obsessed Media Misinform on Causes
- GOP's Debt-Ceiling Games Have Raised the Prospect of a 'Crunching Global Recession'
- Why all the wrangling over the debt ceiling? A lesson for Obama fans
- Does Inequality Make Us Unhappy?
- Shigehiro Oishi, Selin Kesebir, and Ed Diener--Income Inequality and Happiness
Ok from the above here is my proposed solution to our happiness problem:
ReplyDelete1. America simply gives out cash to every citizen such that each person has a minimum income to put them into the top 1% income bracket. (Obviously, this would then become the 100% income bracket since all people will make at least this much.)
2. To pay for this, we tax any income over the poverty limit at 100%
3. This results in all people having the same income and will produce extreme happiness all around.
Wow, you really don't get it. do you, Jim?
ReplyDeleteProgressive taxation only begins at the much higher levels of income.
Equality does not mean that everyone become wealthy, just that the wealth is distributed far better than it is right now.
Do you think it makes sense for someone to be a billionaire?
Do you approve of avarice?
Better question for you, Jim, do you feel it's fair that a large corporation pays almost no taxes, gives its executives multimillion dollar bonuses, gets voernment bailouts, yet lays off 30-40,000 of its employees?
ReplyDeleteDo that frame the issue in a way you can understand?
"Better question for you, Jim, do you feel it's fair that a large corporation pays almost no taxes, gives its executives multimillion dollar bonuses, gets voernment bailouts, yet lays off 30-40,000 of its employees?"
ReplyDeleteDo I feel it is fair that:
1. a large corporation pays almost no taxes ? Yes - in my opinion you should not tax the businesses, as businesses are only tax collectors - any tax a business pays is directly paid by their customers in the form of higher prices
2. gives its executives multimillion dollar bonuses - That seems fine to me. A business should be able to do whatever they want with their money
3. gets voernment bailouts - No provate companies should get government bailouts. This is patently unfair treatment by the government as it picks and chooses which businesses to bailout and which ones to let fail.
4. yet lays off 30-40,000 of its employees - Businesses should be able to hire and fire anyone legally here to work.
Now my first post was intended as sarcasm, but that flew over your head I guess.
No, I noticed it was sarcasm, but your further responses demonstrated that you are indeed missing the mark.
ReplyDeleteAt least you object to corporate welfare, but I don't know if you realise how much Tea Party sponsors, The Koch Brothers, benefit from corporate welfare.
I wonder about someone like you and what your economic and professional status is, but I am considered a small business person and I pay corporate taxes.
I resent it that a large multi-million/billion dollar corporation pays less in taxes than I do.
Also, you demonstrate a serious ignorance of current events since some of those businesses that gave multi-million dollar/pound bonuses were recipients of government bailouts.
But, you shouldn't mind that since "A business should be able to do whatever they want with their money".
Does that include government bailouts?
As for "Businesses should be able to hire and fire anyone legally here to work."
Does it make sense to fire people and put them on unemployment and hope.
Yeah, hope.
That business will prosper?
How stupid are you, Jim?
Serious economic basic for you, Jim, a Market economy requires two things: sellers and buyers.
No buyers, no market.
If you believe in a market economy, then you want to make sure there are buyers out there.
Not lay them off and hope that someone will be able to buy things.
Laci - do I think business should be allowed to bribe the government into receiving special benifits? No I do not. However, if you removed all business taxes, there would be less for them to try to gain by donating money to government officials.
ReplyDelete"Also, you demonstrate a serious ignorance of current events since some of those businesses that gave multi-million dollar/pound bonuses were recipients of government bailouts." Well since I am against any sort of government bailout I fail to see how this is relevant. Again, I am against this. Companies should be free to give their money to whoever they wish, that should not get them special benifits from the government.
"Does it make sense to fire people and put them on unemployment and hope."
Laci - since you are a small business owner, how many people do you employ that don't produce anything for your company? How many employees do not provide some sort of service that helps you to make a profit? Have you ever fired anyone or let someone go because you could no longer afford to pay them? Businesses do not exist for the purpose of employing people. Businesses exist to make a profit for the owners and investors. No business is going to survive for long if it simply pays people without regard for whether or not they help the company turn a profit.
I agree that you have to make sure there are buyers out there, however it is not going to work if you are borrowing money and going into debt to create these buyers. Eventually you run out of room to borrow and the bill comes due. See for instance Greece.
Jim, you apparently have failed that high level executives are currently making more than they ever have before. If you go back to Penigma, you will see that performance is not the criteria for executive pay.
ReplyDeleteIn fact, it is this out of control, non-merit based, executive compensation that contributed to the economic collapse by rewarding bad, even illegal, decision making.
Stagnant wages and increasing poverty are hurting economic recovery--so laissez faire capitalism is not fucking working.
You have everything ass backwards, Jim.
Further corporations benefit from government services provided to society, roads, public services, education, post office, infrastructure, national security, and so on; so, they should contribute their fair share toward paying for these as benficiaries.
Otherwise, we end up subsidizing poorly performing top-executives and businesses.
The only justification for that is that they are paying off republicans to stack the deck unfairly against ordinary people.
This is not something our founding fathers would have approved and was exactly what they rebelled against.
However, if you removed all business taxes, there would be less for them to try to gain by donating money to government officials.
ReplyDeleteI think you need to explain this crackpot theory of yours, Jim, because it doesn't hold water.
Well since I am against any sort of government bailout I fail to see how this is relevant. Again, I am against this. Companies should be free to give their money to whoever they wish, that should not get them special benifits from the government.
Jim, you are talking out of all your orifiaces at once here. You didn't know what you were talking about and you made it abundantly clear. Now, you are trying to backpedal on it.
You need to know what you are talking about before you can make an intelligent comment--not just blurt out ignorant drivel.
People and profits--you can't compare me to a large multi-million-billion dollar/pound/euro corporation.
I cannot hire if I am cash strapped because I am paying more in taxes than one of the large multinational coporations. Additionally, I have to pay my employees first before I get paid even if that means no profit for me.
SO, you aren't going to get too much sympathy from me by asking if some corporation that pays its executives out of line salaries for poor/illegal business decisions shouldn't lay off employees.
No, if you are going to ask me that these corporations should pay their executives lower salaries than the employees and keep the employees on.
If not fire the incompetent executives in the first place--long before idiotic lay offs are cpntemplated.
Now you get into borrowing, people who don't have money for whatever reason have to borrow (either that or turn to crime) in order to pay their expenses.
It's better to have people being productive and consuming to create a healthy market.
Unless, of course, you are advocating housing them in prisons at public expense, which highly costly and not cost effective.
And workhouses and debtor prisons are illegal--at this point--thank God.
Although, the Republican may start advocating for the reinstitution.
Laci - so you don't want to actually share your money - just those that are richer than you. Got it.
ReplyDeleteAlso, don't get me wrong when I say businesses should not be taxed. The CEOs would be taxed on their salaries as income tax, any investment returns would be taxed as capital gains, etc. Anytime the business dispersed money to employees, owners, or investors that money would be taxed and paid by the recepients. By not taxing the profits of the company, it would either disperse more money as compensation or invest more money into the business. Either way, that is more money that would remain in the economy to be used by the recepients instead of going to the government. Now you may think that the government is better at determining how the money should be spent, but you have also argued that the government is bought and paid for by the special interests of the large corporations. So maybe it would be better if the government did not have the money to pass out to their big donors right?
"Jim, you are talking out of all your orifiaces at once here. You didn't know what you were talking about and you made it abundantly clear. Now, you are trying to backpedal on it."
I am not sure what is unclear. I do not think companies should be getting special treatment or benifits from the government. I do understand that currently some businesses are getting these special benfits and I am against it. I am against it whether it is the Koch brothers, GE, the stupid solar panel company that got government backed loans and then went bankrupt, or whatever.
The government needs to establish rules for all to follow and then let the businesses do business. We can argue over the rules and I am sure there will be plenty that we disagree on, but I think we both agree that the government should not be setting up special rules or benifits for companies.
Jim, you really don't get it do you?
ReplyDeleteYou are in a different universe than I am.
People should pay their fair share. If they have got more than greed needs, then they should pay more.
Or do you think it's fair that someone can be a multi-million/billionaire with more money than they can spend while others are broke?
Seriously, how much do people need?
But more importantly--are you aware that corporations get benefits from government? They are treated as people for purposes of election campaigns.
They need to pay taxes as well.
Additionally, This about people needing to pay a fair effective rate of taxtion which they are not.
Jim, you sound as if you are neither self-employed nor employ others. You don't sound like an entrepreneur. And you sure as heel don't sound like an economist, or even someone with minimal academic economic training.
Jim, if you are arguing that corporations shouldn't be taxed, then you are saying they should get special treatment. Mitt Rmoney claims corporations are "people" too, And the Scotus claims it with Citizens United.
ReplyDeleteSecondly, you have seemed to have completely forgotten how easy it is for corporations, who have been aided by right wing politicians, to park their money earned in the US in a tax haven like the Cayman Islands.
And the bastards even get tax breaks and subsidies for outsourcing jobs overseas, hurting our economy.
Further they want to make it to pollute and we have to clean it up. That puts their liability onto us without our consent. And it hurts us.
So there is plenty of money for corporations to bribe politicians without taxes.
Don't even get me started on trade agreements and tariffs.
Jim, there needs to be effective government and giving corporations a break on taxes is NOT going to help get a more equal playing field.
ReplyDeleteAt this point, corporations have far too much sway over the government. The people do not.
Cutting taxes or red tape won’t create jobs--it hasn't for the past 30 years. Maybe even past 120 years.
Look around you for proof of that.
ANother economic fact for you, Jim, part of buying low and selling high is making sure that the cost of production is kept down--and one of those costs is labour.
Business will do what it can to get the most work for the least amount of money.
Yet it will pay the bosses inordinate salaries even if they are incompentent.
Unlike you, I trust in an effective government to level the playing field so that the bosses don't fuck over the workers.
You seem to believe that if we let business be business, that the benevolent bosses will take care of us.,
That ain't true.
They will sacrifice workers for profit everytime as Bank of America is currently demonstrating.
And if you truly believe what you are saying, then why aren't you rich.
Jim, you believe in the redistribution of wealth, but you want to see it go to the rich instead of to yourself, friends, family, and others like you.
"Jim, you believe in the redistribution of wealth, but you want to see it go to the rich instead of to yourself, friends, family, and others like you."
ReplyDeleteI would say that I believe wealth is distributed currently and it is not a job of the government to try to redistribute it.
If you are for government redistribution of wealth, then why stop at our borders? Shouldn't we redistribute the wealth equally around the world? Are the people of Africa and other poor areas not worthy of receiving their fair share of the global wealth?
World average income as of 2007 was $7,000.00. I assume to be fair to everyone in the world you would be happy if the government set that as the maximum salary one could earn? A 100% tax on all income above $7000 with that money being redistributed to those below that income level?
http://www.boston.com/news/world/articles/2007/10/07/average_earnings_worldwide/
Jim, it takes effective regulation and enforcement to keep the playing field level and the game fair. CEO's and other top executives play dirty and they cheat.
ReplyDeleteThis applies to how they deal with labor and how they treat their competition.
You clearly don't understand how both horizontal and vertical monoplies occur, collusion for price fixing, nd sweetheart government deals like independent contractors under Cheney that defrauded the US government of BILLIONS through outright fraud and things like no-bid contracts avoiding competition.
Then we have the selling off of public resources such as oil and gas on public lands that are sold at a fraction of their value. For example, Pennsylvania doesn't tax fracking and fracking is pretty much exempt from regulation and liability for any damage they do.
And the damage fracking does is huge.
How much do you think it took to pay off the government to get that deal?
How less secure are we because the Koch Brothers keep us oil dependent and pay to promote global warming denial in order to do so?
Those are only a couple of examples, don't get me started on the financial industry.
I grew up in a family that profited from Oil, Banking, and the Stock Market I know how that works.
How many oil leases have you owned in your lifetime. I'm guessing none. Those were transferred as Christmas presents in my house.
Jim, the government redistriubutes wealth TO THE RICH all the damned time. Are you just too dumb to see it? Or too naive.
ReplyDeleteThe right wing should change their logo animal from an animal to a stuffed parrots, because the wealthy are a bunch of ventriloquists and the rest of you dummies will repeat whatever they tell you without really understanding it.
You clearly demonstrate a lack of business savvy and knowledge of fundamental economics. You don't grasp the basics let alone the sophisitacted stuff.
No doubt you believe the unregulated credit default swaps were fine because they (the people above you) told you so. You are too foolishly trusting, Jim, and waaayyy too ignorant.
Have you ever read an academic level paper on economics and understood it?
How many economists have you ever listened to speak, asked intelligent and informed questions, or even just met them?
I'm betting you don't know a single one personally.
Jim Sez:
ReplyDeleteI would say that I believe wealth is distributed currently and it is not a job of the government to try to redistribute it.
If you are for government redistribution of wealth, then why stop at our borders? Shouldn't we redistribute the wealth equally around the world? Are the people of Africa and other poor areas not worthy of receiving their fair share of the global wealth?
I see your idea is that if you can't make an intelligent comment about this post, then something incredibly weird does the trick.
Have you read the two studies mentioned here, Jim?
Have you understood the two studies mentioned here, Jim?
Can you say something that relates to them.
By trying to cast me as being envious of the rich (or whatever the fuck ou are up to), you are seriously missing the point.
No, government is there to regulate business and keep the playing field fair.
"No, government is there to regulate business and keep the playing field fair."
ReplyDeleteI agree with you here. I also agree that there is currently government fraud occuring with large corporations benifitting from political cronyism and I am against that. I don't understand how my suggestion that business profits not be taxed has anything to do with political cronyism. In the end, you need a fair government to prevent cronyism. No matter what the corporations do, it is up to the elected officials to decide how our tax funds are spent. I agree with you that we should not be handing out no bid contracts and other political favors to corporations. What does that have to do with corporate taxes? Again, who really pays the corporate taxes in the end? The consumer does. The corporation certainly doesn't just print extra money and send that to the IRS, it is only the revenue they generate from sales that they have to pay salaries and taxes.
The amount a corporation pays out to corporate officers is for the board of directors to determine. If the people don't like what a company does, then don't do business with them. If enough people are not supporting a business it will fail (unless the government decides to bail them out - which I already stated is wrong and unfair).
So yes the government needs to clean up fraud committed by companies, it needs to regulate business fairly and equally for all businesses, and it needs to provide a level playing field. But when a corporation comes along and manages to succeed and make a shit load of money, I don't really care who they give that money to. If the company can get people to work for $10 an hour while the CEO makes $20 billion then that is between the board of directors and their employees. I see no need for the government to step in. Now the government may decide that the CEO should pay 95% taxes on all his income over $500k and if that is what they do then that is what they do. I think it would kill the economy personally, but I am only one vote.
"People should pay their fair share. If they have got more than greed needs, then they should pay more.
ReplyDeleteOr do you think it's fair that someone can be a multi-million/billionaire with more money than they can spend while others are broke?
Seriously, how much do people need?"
Laci - who is to decide when it is too much? I pointed out what the average worldwide wage was, but that was dismissed as irrelvant - why? Why do I care if CEO Bob has $20 billion dollars? As long as he did nothing illegal to get it, then that is really none of my business. Is there a lot of illegal activity going on? Sure - and that is one thing the government needs to work on preventing and prosecuting.
"Have you understood the two studies mentioned here, Jim? Can you say something that relates to them."
From the original post: "In order for Americans to be truly blissed out, it finds, we need to close the gap between our wealthiest and poorest citizens."
Again, why does this only apply to American citizens? Wouldn't the whole world be happier if we all made the same amount of money according to the study's findings? And I don't see why my happiness would depend on what someone else has. I guess I just don't see things that way. What I do see is that with hard work and little ingenuity, you can make yourself alot of money in America.
Despite your assertions, I am indeed a small business owner of a consulting engineering firm. We employ a total of 4 people including myself and the other owner. When business went down dramatically last year we ended up letting one person go and cutting salaries by 20% or more for the other guys. I made half of what I had been the previous 3 or 4 years. This year things have come back better, but alot is still up in the air for the future.
"And if you truly believe what you are saying, then why aren't you rich." I can say that I have done ok for myself. I am not rich because I spend my money on my 3 kids - private schools, after school dance and music lessons, etc. Renovating the house 3 years ago may have been a mistake as well. We probably could have gotten it done for 3/4 or 1/2 the price when construction went kaput and everybody needed work, but whats done is done. I doubt I will ever be a billionaire in my lifetime, but I fully expect to be a millionaire later in life. Is that too much? Well I'm not holding my breath that the government will be able to fix Medicare and SS by the time I qualify for it, so I doubt a few million in the bank will be "too much" to pay for my retirement.
OK, you're an engineer, not an economist or even a business administrator--and that shows.
ReplyDeleteDo you hire an office manager?
My training placed me as a "middle manager" in a very large firm prior to law (Army Officer).
You say:
"When business went down dramatically last year we ended up letting one person go and cutting salaries by 20% or more for the other guys. I made half of what I had been the previous 3 or 4 years. This year things have come back better, but alot is still up in the air for the future."
Why?
"you can make yourself alot of money in America."
Shit, you can do that ANYWHERE in the world if you know how to do it.
Hell, I could make well over 6 figures if I wanted. Of course, that would require me compromising quite a bit ethicially.
so I doubt a few million in the bank will be "too much" to pay for my retirement.
Ah, Jim, you poor soul.
What type of engineer are you: Civil, mechanical, electrical, or other?
I have found that engineers are pretty poorly equipped to deal with things other than engineering. Some are business people, but they are rare. In fact, the term, geek applies well to them.
There is a discipline known as Philosophy, Politics and Economics (PPE) which was created as a modern alternative to Classics (known as Greats) because it was thought that a course in Philosophy and Ancient History was no longer relevant for those entering the civil service. It was thus initially known as Modern Greats. My study of this enabled me to be much more adaptable than being in a single discipline such as engineering.
The answer is obviously, "no, you did not understand the original post or what the real meaning of this topic".
That's a sad statement since it proves what many have said about the US system of education. That is that it produces cogs in the machine, not people who can think.
Jim, even if you were a quantum engineer, I seriously doubt that you could grasp the very simple economic concepts that this post mentioned.
Again, that is a sad statement since it leaves you to be a deceived by those who can promise the world, yet deliver nothing.
However, if you removed all business taxes, there would be less for them to try to gain by donating money to government officials.
ReplyDeleteJim, it's very clear that businesses pay off politicians for far more than just tax breaks. we gave you an indication of the kinds of things that they pay politicians for. So, simply ending corporate taxes merely shifts the burden for revenue to the rest of us. Whether we use a corporation's goods or services or not. We end up having to pay the corporation's share of revenue as consumers of government services.
So, what if taxes are figured into pricing, they should be. Corporations should pay taxes because they use and benefit from government services. They are corporate citizens. It is simply one more part of being competitive that they absorb those costs.
Relieving them of corporate taxes will not decrease their bribery, it will simply be unfair to the human citizens.
I don't think you understand business or economics--especially not executive compensation. My father sat on the boards of directors of several national companies headquartered in Minnesota with some having international branches. It used to be shareholders could vote out members of boards of directors. I remember looking at stock proxies from the time I was a little kid.
Very few boards are directly under shareholder control these days. Now, there are interlocking directorates that pay each other revolving door exorbitant salaries for inferior executive performance. This is bad business. This is bad capitalism. This is economically destructive.
They are going for short term personal gain and corporate gain, but not long term sound business planning.
Exempting corporation from taxes is a moral hazzard.
Why do I care if CEO Bob has $20 billion dollars?
The above pretty much answers that question.
If enough people are not supporting a business it will fail
That is the libertarian myth, but take microsoft as an example. They have a monopoly position in the software market. We can get into how they were able to avoid patent law suits over the GUI of their operating system because Zerox PARC failed to enforce its patents. But, unless you are seriously proposing that Apple OS is in anyway a competitor, Microsoft has used its monopoly position to corner the software market.