Confusing economic theory
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Posted by Richard Bonine, Jr (+15197) 12 years ago
Perhaps I have been out in the sunshine too much with too much time to think... (Murphy's law was alive and well today that is another story). Anyhow something occurred to me:

-Conservatives have long preached that cutting taxes will generate more income. I have said that myself a time or two. There are numerous points in history where it appears this phenomenon is well documented. In both the 20's and 80's, taxes were cut and revenue to the federal treasury increased.

-Conservatives have long contended that we need smaller government. Reagan said that the way to a smaller government was to starve the beast.

It seems to me that those two principles are at odds with one another. If you take action that brings more money into the treasury, it is a forgone conclusion that someone there will find a way to spend the money and government gets bigger. If you really want a small bureaucracy why would you support policies that always grows it bigger? Seems to me that higher taxes have an effect of reducing income to the treasury, which in turn forces reductions in government in the long-term.

I have said all of that to get to this question:

What is really important here:

-a smaller government?
-more personal disposable income?
-more profitable businesses to the point where they pay huge salaries to the top-echelon rather than reinvest that money in the business infrastructure?
-etc?

Seems like we as a culture need to come to some conclusions about what we value and why we value those characteristics. I really dislike the notion of being dependent on anyone for my livelihood, but it seems that there must be a middle ground here.

Thoughts?

[This message has been edited by Richard Bonine, Jr (7/23/2010)]
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Posted by Amorette Allison (+12085) 12 years ago
I don't like the attitude that government is evil. Anarchy is a whole lot worse. There are some lovely countries you could visit that have no functional government and life there is not good.

Can government be too big? Sure, especially when there are duplicated functions or useless ones. Do we still operate the helium repository in Texas so we can launch dirigibles?

Can people people be too rich? Yes, if they develop that attitude that money makes them superior to the rest of the human race and they become contemptible of the masses beneath them.

Can the gap between rich and poor become too great? Yes, many revolutions were based on that principle.

Is there an easy answer?

No.
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Posted by howdy (+4952) 12 years ago
the reason that most of it doesn't work?? GREED There are some people that are so rich and so powerful that all they want is more more more and to hell with the common man...and sadly they are in the upper management of most companies IMO...which is why we need regulatory agencies to oversee this stuff but [b]HONEST[b] ones....
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Posted by Rick Kuchynka (+4459) 12 years ago
Government can be burdensome without it being in visible tax dollars.

If McDonald's started charging $50 for hamburgers and you started eating at BK instead, their revenue would shrink. Good for BK, bad for McDonald's. Now if McDonalds cut their prices back down to be competitive with BK again (or even cheaper) this is not any extra money out of your (the consumer or taxpayer's) pocket. But they will start to see revenue that was previously spent outside their restaurant.

Our tax code is too complex and our rates are too high. These two things put together are why the Laffer Curve works.
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Posted by Gunnar Emilsson (+17809) 12 years ago
-Conservatives have long preached that cutting taxes will generate more income. I have said that myself a time or two. There are numerous points in history where it appears this phenomenon is well documented. In both the 20's and 80's, taxes were cut and revenue to the federal treasury increased.

-Conservatives have long contended that we need smaller government. Reagan said that the way to a smaller government was to starve the beast.

It seems to me that those two principles are at odds with one another.


Ummm.....no, they are not. Remember, you are quoting Reagan here. He wanted more revenue and smaller government, this is true....but ole Ronnie (and most conservatives, for that matter) tended to gloss over the fact that the military is part of the government.

So, your mantra is safe if it works....keep slashing all government programs except the military, and any increased revenue goes to build some military pet program like a couple of aircraft carriers or somethin'.

One thing you can count on....the military will never run out of ways to spend money. When was the last time you heard of a general or admiral proposing budget cuts?

Now, if you want to talk about smart, enlightened, easy to comprehend economic theory, I would suggest you read this epic from the Great Depression:

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Posted by Bob Netherton II (+1913) 12 years ago
You know. If we got rid of all the stop signs, put no government money into the roads, and asked everyone to drive and pay for roads on the honor system, I'm sure our transportation system would prosper.
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Posted by howdy (+4952) 12 years ago
Fabulous analogy, Bob, and I couldn't agree more!!
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Posted by Wendy Wilson (+6173) 12 years ago
I admit that my grasp of economics is rather weak. I know what motivates my spending and saving habits but when it comes to the nation as a whole I'm not all that clear on what fuels our economy. This I do know, however: A pure free-market system may work flawlessly on paper but it will never work in practice. The BP debacle shows that the quest for ever higher profits encourages companies (and those who run them) to put the welfare of their workers and even the public in general, in last place on their priority list. BP is just the latest example of this. Die-hard free market proponents will argue that a company would understand the risks to its customers and not act in contradiction with their best interests. But people simply do not always think that far ahead. They look at short-term profits and conveniently ignore the long-term effects. It's a human weakness that will always be with us.

[This message has been edited by Wendy Wilson (7/24/2010)]
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Posted by Rick Kuchynka (+4459) 12 years ago
See, finally here we see textbook straw man.

You're caricaturing your opponents by saying those who want limited government in fact want no government. But you never look at how that logic would apply to yourself.

It would be the same as me saying that since you want more government, you want all government, and nothing but government.

There's a balance. It just so happens that at this point in time, the pendulum has swung too far towards government.

Capitalism is the engine. Government mans the brakes. Unfortunately brakes do you no good when you need to get moving again.
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Posted by Bruce Helland (+594) 12 years ago
Rick, were you not paying attention these past four years? What we have now is the result of a poorly checked free market. To much one way or the other is not the answer.
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Posted by Levi Forman (+3708) 12 years ago
Regulation and government are not the same thing. You can have more regulation and less government at the same time.
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Posted by Steve Allison (+977) 12 years ago
I agree with Mr Kuchynka that real life lies in a balance between conservatives and liberal views. Regulation vs. free market, social programs vs. every man for themselves, and all the other issues of the day. That is what distresses me about this polar rhetoric and non-compromise attitude that is going around not only Miles City .com but the halls of government as well. As to the engine-brakes I have a bit of disagreement. Yes capitalism can be seen as the engine driving most aspects of our world. But government is not the brakes, it is the driving rules of the road, driving manual and enforcement of the rules. It's job is to keep everyone reasonably safe as we move down the road, protecting the little pedestrian and small cars from big high speed engines of corporate lack of thought. The brakes are market pressure, good think, make a bad product no-one buys it you go out of business, and reality that crashes in, a banking system that collapses because corporate people are too dumb and greedy to think 5 years into the future. Creating mortgages for loans that should cost 2,000 to 3,000 a month but have a five year clause that give them out for 400 to 500 a month is criminal short sightedness, both for those creatine them and those getting them. Land values can not keep skyrocketing, to support this type of system. Also allowing the people that build an investment fund to them turn around and bet or hedge on it's failure as they sell it to others is criminal. These are a couple of the causes of the current economic collapse. As the makers of the rules of the road and the enforcer of the rules, this is where the government let us down. It may have been faster to let businesses race cross country out of control but we ended up with a few million car pile-up and cleaning up the wreckage is going to take time, but as we do it lets get some speed limits, road signs and law enforcement in place to keep it from happening again.
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Posted by Bob Netherton II (+1913) 12 years ago
When did this downturn start? I think the pendulum needs to swing a little bit more. Every attempt at moving it has been attacked with cries of socialism, nazism, etc. Your side, Rick, seems to like the pendulum right where it was, or even farther to the right, than when this downturn started. And if this rhetoric sounds too polar or non-compromising...excuuuuuse meeeeeee!
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Posted by Rick Kuchynka (+4459) 12 years ago
The problem is, Bob, that the government was intimately involved with the problem to begin with.

The mortgage agencies that were already under government direction and control ended up being the biggest bad actors of them all, and became the source of the mother of all bailouts.

http://www.bloomberg.com/...llion.html

It's hard to argue that it was the private sector's bad accounting that caused the mess, when it was the government agencies in the market that led the field in it.

The free market would normally punish bad actors accordingly. But that can't happen when the government is in the middle, holding itself completely unaccountable for all that it helped create.

To this day, though, nothing has been done about Fannie and Freddie (short of writing them blank bailout checks) 'Reform' was only against the private sector. Which lends credibility to the charge that they're always only interested in setting other people's houses in order. Meanwhile they do whatever they want.
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Posted by Stone (+1592) 12 years ago
I agree with Levi. Well said.
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Posted by howdy (+4952) 12 years ago
ditto what Levi said !!! Very excellent point !!!
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Posted by Tracy Walters (+298) 12 years ago
Umm ... Levi....you stated:
Regulation and government are not the same thing. You can have more regulation and less government at the same time.


I can see where you could MAKE more regulations, but without people to enforce them, they are completely ineffective, which IMHO is the situation we are in now. There are lots of regulations out there, but they are conflicting, they can't all be checked or enforced, and increasing the number of people doing the checking just adds to the burden.

I believe less regulation, but in key areas, and fewer bureaucats who 'are just doing their job' would be more effective. Those individuals who repeatedly are unable to effectively accomplish their tasks in government should be released ... but it seems they never are.
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Posted by Levi Forman (+3708) 12 years ago
Well obviously the regulations are meaningless if they're not enforced. That's not what I'm talking about. Trust me, enforcing the law is a tiny part of the federal budget.

What I don't like is the way that on every single issue the debate has to come down to the same old left vs. right crap. A rational person who is in favor of free markets and small government should be able to look at what happened to our economy and say "ok, we tried giving the big corporations complete freedom to do what they wanted and they were totally irresponsible and brought the national economy to it's knees. I guess we went too far." and support some increased regulations on the people who have proven themselves unable to regulate themselves in the best interest of the country.

This doesn't mean you have to become a socialist or that your core beliefs are all wrong, it just means that you are adjusting your position based on new information. Unfortunately, that is not an option in the current political atmosphere. Either you're one thing or the other and there's no room for common sense because we can't ever admit that we were even a tiny bit wrong or that "the other guys" were even a tiny bit right. It's not about designing the best government, it's about scoring points in the culture war.

Of course this is great for politicians on both sides of the aisle. As long as your supporters are brainless sheep who voted for you based on the 'R' or 'D' next to your name, all you have to do is vote the way that the people who give you money want you to vote and blame "the other guys" for anything that goes wrong and you are sitting pretty.

To quote the aforementioned Mr. Keynes,

"When the facts change, I change my mind. What do you do, sir?"
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Posted by Richard Bonine, Jr (+15197) 12 years ago
Well said Levi. That sums it up very nicely.

Paul Harvey used to say regularly that self-government without self-dicipline doesn't work. 90% of the regulation on the books today is the result of some entity caring more about their checkbook than they care about their employees, or the environment or their customers. Unfortunately, we have a real shortage of self-dicipline right now.
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Posted by Denise Selk (+1667) 12 years ago
As long as your supporters are brainless sheep who voted for you based on the 'R' or 'D' next to your name, all you have to do is vote the way that the people who give you money want you to vote and blame "the other guys" for anything that goes wrong and you are sitting pretty.

To quote the aforementioned Mr. Keynes,

"When the facts change, I change my mind. What do you do, sir?"


to you Levi.
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Posted by Gunnar Emilsson (+17809) 12 years ago
Levi quoting Keynes.....I like it.

Do I see Rick K. quoting Paul Krugman in the not-too-distant future?

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Posted by Bridgier (+9362) 12 years ago
I'm sure rick <3s Elizabeth Warren, just like the mighty Krugthulu, and will be posting here about it in the near future.
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Posted by Bob L. (+5103) 12 years ago
I'm sure any quotes posted by the Rickenhawk wouldn't be taken out of context. Heavens, no.
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Posted by Rick Kuchynka (+4459) 12 years ago
A rational person who is in favor of free markets and small government should be able to look at what happened to our economy and say "ok, we tried giving the big corporations complete freedom to do what they wanted and they were totally irresponsible and brought the national economy to it's knees.


I'm not sure that "ok, we tried giving the big corporations complete freedom to do what they wanted" is a rational characterization at all.

The federal government has long owned a majority share of the secondary mortgage market, as pointed out in that article I linked earlier. And as it also pointed out, the government mortgage agencies' bailout could dwarf all of the private sector bailouts, combined

That doesn't really mesh with the theory that "Government was just lettin' those evil bankers do their thang, then all hell broke loose."

[This message has been edited by Rick Kuchynka (7/27/2010)]
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Posted by Levi Forman (+3708) 12 years ago
So are you saying the corporations weren't irresponsible? If not, then who cares if the government was as well? Both things need fixing.
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Posted by Richard Bonine, Jr (+15197) 12 years ago
The federal government has long owned a majority share of the secondary mortgage market, as pointed out in that article I linked earlier. And as it also pointed out, the government mortgage agencies' bailout could dwarf all of the private sector bailouts, combined


Not to completely exonerate Freddie and Fannie, but, I think if you do some research you will find that Freddie and Fannie simply provided loan guarantees to the banks for risky loans. It was the banks (corporations) who were repackaging these secondary mortgages into risky financial instruments such as derivatives,etc. and attempted to sell them in the market that failed. The result was the upheaval in the market. It was the Bush Administration's SEC that changed the uptick rule and gave the advantage to short-selling these and other financial instruments. Freddie and Fannie got caught holding the bag and had to bailout the banks, largely due to the greed of the big banks and investment firms.

So Levi's point: "A rational person who is in favor of free markets and small government should be able to look at what happened to our economy and say "ok, we tried giving the big corporations complete freedom to do what they wanted and they were totally irresponsible and brought the national economy to it's knees." is very rational. What is not rational is a failure to recognize that the system is broken and needs to be fixed in light of the current situation, not based on what happened two or three presidents ago. It's easy to regurgitate all of the right wing talking points here and point the finger at Freddie and Fannie. Unfortunately, the problem is not that simple.

~~~~~~~
More to the original intent of the thread:

Like many, I want as small and efficient a federal government as possible. I think what we have is too big. But I also recognize the reason we have a federal government the scope and size it is, is largely due to the selfish behavior and lack of self-decipline of the private sector.

So perhaps if conservatives are serious about smaller government and increased liberty, they need to take actions over the next generation that demonstrate they have changed and can handle the responsibility. In fact, this is an area where we all need to improve regardless of political affiliation.

Meanwhile, I believe I need to read Mr. Keynes book.

[This message has been edited by Richard Bonine, Jr (7/28/2010)]
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Posted by Tracy Walters (+298) 12 years ago
I agree that the corporations definitely had a role in creating the financial meltdown, and so did the government.

However, because that happened, I don't think we should dump the existing free enterprise system ... throw the baby out with the bath water, so to speak. Similiarly, I don't believe we need to dump our entire health care system and put the government in charge.

How about if we make some small changes... Not guarantee those risky loans ... maybe look at helping a family into a home if they are willing to put some of their hard earned dollars and sweat equity into the building of it, or repairing a seized or abandoned one? Some program simliar to that, but minimize the red tape involved.

Similarly, with Health Care, don't throw the whole thing out and start over with the government running it. Allow insurance agencies to sell medical insurance across state lines and bring competition, also provide subsidized insurance to those in low income brackets that can't pay for it, something along the lines of the automobile insurance high risk pool, but with subsidization added, probably on a tiered system based on income. I don't want us to suffer with what the Brits have.

I think they should do the same thing with Indian Health Service...talk about a failed program! We guaranteed health care to the recognized tribes...buy them insurance instead of having the government trying to run a whole health care organization..currently they can't get doctors, can't fund prescriptions, are reducing services (my wife has been on the list for dental care for months and there is little hope she will get in) and the whole system is crashing around the ears of the Native Americans. I am about to add her to my insurance policy to the tune of $400 a month because IHS is so bad. I fear greatly that it is a portent of things to come with Government-run health care.
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Posted by Rick Kuchynka (+4459) 12 years ago
but, I think if you do some research you will find that Freddie and Fannie simply provided loan guarantees to the banks for risky loans.


Talk about understatement of the year...

It's called perverse incentive, Richard. When markets are distorted, it's generally not the result of someone holding a gun to someone else's head and saying "Hey, make stupid financial decisions!" It's far more subtle than that.

Here's an experiment for you.

Open up a Gillette used car dealership in your front yard.

Put an ad in the paper stating that you will pay $5,000 for any automobile, so long as the seller agrees to write out a statement saying they believe the car to be worth $5,000.

Wonder in disbelief as your junker-drowned grass dies under the weight of vehicles you can't even pay someone to take off your hands.

Blame capitalism.

Anywho, in free markets, the name of the game is buyer beware. Normally, in a free market, this is a good thing, as it separates the foolish from their money (and market) pretty quickly. But when the government does it, it actually forces the market to do irrational things.

And if crying about derivatives is your best argument, it's important to remember that Fannie and Freddie pioneered those as well. It's a tough sell to classify something as a 'free' market, if the best you can say is that the private sector players should've known better than to do what the government sponsored market majority was doing.

Oh, and I found this one kinda ironic

What is not rational is a failure to recognize that the system is broken and needs to be fixed in light of the current situation, not based on what happened two or three presidents ago. It's easy to regurgitate all of the right wing talking points here and point the finger at Freddie and Fannie.


considering the only specific presidential policy mentioned was when you just brought in the Bush SEC.

I believe it's been pretty widely established that professional fence-sitters can be every bit as dogmatic as the party-goers.
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Posted by Rick Kuchynka (+4459) 12 years ago
Oh, and let me just say, since I know this'll be the continued line of attack... yes the private sector acted irresponsibly.

But to me, a rational free-market based government response would ask the following questions...

Why is the government in the business of guaranteeing mortgages?

Then if they have a rational answer for some limited involvement, the next question would be.... "Why in the heck is the government guaranteeing a large majority of the country's mortgages?"

Any talk of market-based reform without fundamental answers to those questions is pure gamesmanship, which is what we're seeing from our politicians today.

The SEC, Congressionally modified accounting regulations, the FED, Fannie/Freddie/Ginnie/etc, corporations, and even consumers all deserve some credit for what happened. And it happened across different administrations and party lines.

But when Chris "Friend of Angelo" Dodd looks you in the eye and tells you it's just the corporations who need to change, and otherwise the solution is some more government agencies... you can be sure, he's not leveling with you.

[This message has been edited by Rick Kuchynka (7/28/2010)]
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Posted by Bob Netherton II (+1913) 12 years ago
Very nice, Rick. Again I ask...when did this downturn begin?
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Posted by Levi Forman (+3708) 12 years ago
Why is the government in the business of guaranteeing mortgages?

Then if they have a rational answer for some limited involvement, the next question would be.... "Why in the heck is the government guaranteeing a large majority of the country's mortgages?"


Why are you calling Fannie and Freddy "the government"? They were established by the government, but they did not receive funding from the government (until 2008) and their loans were never guaranteed by the government, and still are not today.
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Posted by Richard Bonine, Jr (+15197) 12 years ago
I have been posting here since June of 2004. Over the last six years I have complained early and often about the impact of government on free markets and life in general. Recently, I have come to realize that while there is a lot wrong with government, the private sector is also to blame and needs to bear its share of the responsibility. I have concluded that I am intellectually dishonest if I only point a finger at government as the source of all evil and corruption and fail to consider the involvement of the private sector.

I am also concluding that partisanship inhibits people from analyzing the FACTS in a rational manner, as most arguments become about putting the R or D first. I think its time we put partisanship aside and put America first. That happens best when we quit droning on with our own strawman perspective and listen to what others are saying, and try to understand why they are saying what they say.

Frankly, Rick, it has been a refreshing exercise to step back and attempt to view life with a less jaundiced perspective and challenge some of my own beliefs. I am a better informed person for reading things that are written from a different perspective than I have normally allowed myself to be exposed. Hopefully, I can over time become a more proactive and balanced individual, rather than the shrill whiner that I have been to this point.

[This message has been edited by Richard Bonine, Jr (7/29/2010)]
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Posted by Bob L. (+5103) 12 years ago
Wow. That's an ugly chart. (FNMA five year stock price)

http://data.cnbc.com/quotes/FNMA/tab/2
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Posted by Bridgier (+9362) 12 years ago
Interesting. Much like the 17th amendment, I hadn't realized that 30 year mortgage was such a social ill...

http://www.irvinehousingb...-mortgage/
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Posted by Rick Kuchynka (+4459) 12 years ago
and their loans were never guaranteed by the government, and still are not today.


That might've earned you a smile and a couple elbows to the ribs back in say 2005, Levi.

Even back then, everyone knew the whole "These aren't really government guaranteed" line was a joke even before SHTF time.

2008 just offered the pudding as proof. Implied Guarantee was a forgone conclusion. The GSE investors understood it all along. The disclaimer was worth far less than the paper it was written on.
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Posted by AJS (+216) 12 years ago
There are those who cast their bread upon the waters hoping it will be returned toasted and buttered.

When GOD measures men, He puts the tape around the heart, not the head.

Here is a truth that stands out sharp and clear as a cloudless day; GOD does not, cannot, answer prayers that people never pray.

[This message has been edited by AJS (8/3/2010)]
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