Economic woes

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Oddly enough, US media outlets never reported that gold crossed $1000/oz- I only heard it through BBC, which is by now my main source of news as it sadly seems to do a better job of covering America than our own media does.

I know my economic views (moderate Austrian with Chicago influences) are outside of the mainstream, so I tried to be understanding in not judging Fed policy by those standards, but I couldn't find a single school of economic thought which endorses the current policies. Austrians and Chicago obviously are against it, as are the monetarists (who want STABLE expansion of the money supply) and neoclassicals. Even Keynesians tend to shy away from discretionary monetary policy, especially if they subscribe to the idea of rational expectations.

But then, much as I dislike Bernancke's policies, I would certainly not wish to be in his place right now; he's not the one who caused our economic troubles and I doubt anyone would be able to magically fix our problems at this point.

Interesting. I am not that surprised.

Chicago is the monetarists, via Milton Friedman. I would find the actions to be relatively Keynesian as only old Keynesians were distrusting of monetary policy. Rational expectations seems is a rather anti-Keynesian idea(Keynesians are better known for an idea of irrational expectations) and fits in with the Chicago school(very pro-market idea thought of by Chicago professor Robert Lucas).

Who would? Bernanke is stuck between a rock and a hard place.

Well, with the Keynesians, I'd say it depends on the type and how much they favor models like the Philips Curve, and most adhere to the idea that government should expand the money supply during recessions and shrink it during periods of growth. Overall though, I'd say the Keynsians (both modern and classical) would prefer increased fiscal spending (interesting note, Keynes himself argued the U.S. government should build worthless pyramids during the Great Depression), which is what the executive and legislative branches of government seem to be following right now (expansionary monetary and fiscal policy, should be lots of inflationary fun in the future; remember, MV=PY).

Yes, but I would say that an artificial increase in M will only result in a commensurate increase in P, leaving Y unaffected or (worst case scenario) actually causing Y to decrease because more people suffering from money illusion and the general instability of the financial sector under an inflationary system will impede the effective coordination of productive resources.

Bottom line -
As a college student, I see little economic hope for the future in the U.S. unless we radically change tax policy, trade policy, corporate policy, etc. It's obvious that our current system is decaying and will continue to fall apart until either a) band-aid fixes are continually applied, resulting in an economic crisis unlike we've ever seen one the band-aid fixes wear out; b) Insanely high corporate profits are substantially taxed, along with improved financial trade decisions (i.e. tariffs, etc.), more progressive taxes are applied, government cuts happen internally starting with Congressional pay cuts first instead of cutting health care, etc.; or c) the economy is left alone, and finally implodes upon us.

Any opinions?

Tariffs and progressive taxes would not be likely to help the situation. Those two ideas come from mercantilism and marxism, respectively. Leaving the economy alone would not cause it to implode; I would argue that such a decision actually would go a long way toward solving our current problems. I will agree with you on the futility of the band-aid solutions, and cutting the internal costs of government. However, I would also like to see the government get out of healthcare to reduce government costs even further.

Johnny's post and some others in this thread reminds me of a quote from Murray Rothbard,
"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Orwell's reply seems like a fairly accurate response as well (except that I would say tariffs would make the situation worse overall, considering other nations would counter with tariffs of their own, which in turn would lead us down a path of greatly decreased prosperity and economic freedom).

I'm very sure the Economy has already began to shrink. I think it was 63,000 jobs that were lost in February? Jobs were also lost in January, and I'm sure this month, too. I know in my area, there have been more places going out of business and nothing's replacing them (except in one case, but I never see customers in the new place, so I'm sure it'll bite the dust soon too).

The Fed's horrible policies are also only going to make things worse. Since they're devaluing the dollar and not giving any of their new printed money to the consumer, everything's becoming more expensive for the consumer. So if everything gets more expensive, people will buy less. If people buy less, the economy will shrink. We're already seeing this start to happen....so if they cut interest rates again on Tuesday it'll keep getting worse.

Are you sure that Keynes explicitly stated that the US *should* built worthless pyramids? I know he argued that doing so would be a means of stimulating the economy during a recession in his well known book, but to say that such was his literal recommendation seems a bit sketchy. Also, just to clarify, governments very rarely if ever shrink the money supply, they will just tend to inflate it less.


I disagree with a lot of this assessment. I mean, the major self-destructive behavior that the US shows is the worthless creation of federal deficits, which is noted for hurting our trade deficit, everything else is not that aberrant. Our tax policy could use to be a lot simpler, but few politicians would implement it, our trade policy could use to be simpler and less schizophrenic, and our corporate policy could probably use to be simpler as well. Corporate profits are not *really* insanely high unless we simply look at them as lump sums rather than percents or things of that nature. Tariffs really aren't that good of a move either, they might slow down certain changes, but we could hardly implement them efficiently enough to be worth it, especially given that tariffs really don't have a lot to do with the trade deficit given a floating currency regime. Tax progressivity is also not our major problem, the rich already shoulder most of the burden of the government and frankly, the big problem with the tax system is really its size and the ability for skilled accountants to manipulate it, and the need for accountants in the first place. Finally, congressional pay is hardly the big part where we pay in our government, at most we could get a few million out of our trillion dollar government. Really the major burdens are going to be social security, defense, interest on the national debt, and the medical programs we do have. The US economy, in the long run, is not likely to implode from anything other than political nonsense such as overly high deficits or something of that nature. It is really a relatively good economy.

I dunno, if you disagree with my assessments then we can discuss that, but I think I have been mostly accurate.

I suspect that what will happen is that a gradual shift towards a worldwide socialist economy will begin. Many countries when the economic recession strikes will face unprecedented chaos.

Already overcrowed, underfunded and inconsistent in quality schools, universities, police and fire and ambulance forces, social services, prisons, probation services and psychiatric hospitals will fail to cope with a further breakdown in societal values as desperation takes hold of people in the grip of a loss of resources and opportunities.

The meat of this crisis is in real estate. That's really going to bite people and cause some upset. When their homes are on stake, and since a home is required for a bank account and a right to services, people will become quite brave enough to rediscover what has long been lost in the recently corporate world: political initiative.

The exact direction events will unfold is difficult to predict. My suspicion is that either corporate organisations will be taxed more on a worldwide basis in realisation that they are unable to shield people from poverty and hardship through the market alone or else people will demand corporations make less profit and have more rules applied to them, for example strict codes of ethics and a duty to give more of their profits to charity.

While socialism might appear to be more popular amongst the masses, I think many politicians would be weary in heading in that direction. The old central planning and classical Marxist style of socialism died with the Soviet Union (of course the Austrian school of economics already defeated them in terms of theory with Mises and Hayek many years earlier). In its place we see movements like environmentalism and pro-welfare groups. While I would say these groups tend to have negative effects, true socialism would be much worse.

If a recession should occur in 2008 or 2009, I highly doubt it will be of "unprecedented chaos". Wiemar Germany in the 1920s could maybe count as unprecedented chaos, but I doubt we'll be seeing anything like that again in a modern country in the immediate future (and Wiemar Germany was more because inflation than anything else). I believe Alan Greenspan recently said he thought a recession in 2008 would be fairly similar to the one the late 1980s (which none of us really remember today); in other words it was relatively mild.



I fail to see how if an economy enters a recession it will lead to the breakdown of societal values. Countries enter recessions all the time, and it generally does not lead to the destruction of society. Even during the Great Depression, Americans did not suddenly form biker gangs and go around looting.



You're partially right in that the collapse of the real estate "bubble" has lead to this downturn. The main reason I would argue is the government decided it would be a good idea to encourage home ownership, so it encouraged lenders to make these "sub prime" loans to people who should not have received them in the first place. The market merely reacted to reality afterwards. Also, I'm not sure about you, but I do not need to own a home in order to have a bank account (I currently rent with some roommates, and I have a bank account, and have access to services everyone else has).



Corporations are not meant to shield people from poverty; most exist to make profits for their shareholders (and shareholders only, do not fall for that silly notion that corporations give a share of profits to the workers, workers have always receive zero profits; shareholders receive what is left over after the expenses are paid). I currently work at a job, and I probably indirectly help many people in doing so; but, that is not my prime motivation. I work out of my own self interest, to make money; businesses follow the same philosophy. People who fail to understand this concept do not understand why businesses or corporations exist. As Adam Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

On a side note, despite businesses not caring about "shielding people from poverty", they tend to do just that. When some corporation builds a factory in a third world country, they are paying their workers more money than they would make otherwise, and in many cases, the workers work fewer hours. Sure, the workers are paid little by our first world standards, but those people willingly chose to accept that pay (which again is more than they would make working in the field). If we tax or discourage such corporations, then they would likely pull out of those areas since it would be less profitable, making everyone worse off (we pay higher prices for whatever goods were being produced, and the former workers there now have to go back to the fields for longer hours and less pay).

The market does not inherently care about "fairness" or ethics, but the invisible hand seems to do a fine job of punishing those who go too far or violate other people's self interest.

Poverty of opportunity leads to poverty of ambition. Thus people who would in a reasonably fair world, be working hard or achieving something and being productive, can in a world that's corrupt become so disillusioned that they turn to crime.

That crime takes many forms. From the violent riots that have a semi-political motivation to avowedly political terrorism to apolitical street crime like selling and using dangerous illicit drugs, engaging in violence, burglary, robbery, gang warfare and anti-social behaviour.

I'm not a Marxist. I'm well educated and know that the Soviet Union was corrupt and that China is and that neither are worth imitating.

The extremely confident, cocksure capitalism of the past few years since the 1980s has been the product chiefly of the US and the UK. Both countries have thrown enormous weight into private enterprise to the detriment of some quite basic collective rights.

What will now occur is that private enterprise will be revealed as the highly risky proposition that it is. I won't deny private enterprise has always succeeded in innovation where state-owned industries tend to not have.

That's why I'm not a strict Socialist, I'm a logical socialist who believes in reform to reach the best balance. I believe primarily in equality of opportunity, basic human and collective rights, and corporations regulated by environmental and social duties.

Most people can agree private corporations have been extremely useful in the past few years in bringing the wealthy access to powerful and useful technology yet by being given too free a reign some corporations have capitalised on the very necessary aspects of life like real estate which shouldn't be for sale.

I wouldn't mind a capitalist world that was more sensible. That is, with meritocratic education systems that got the truly most talented workers and innovators into positions of work. And with basic safeguards like a right to safe, hygienic housing and a right to decent social services for elderly people and disabled people. This is what we currently lack in for example the USA, UK, a few other European countries.

Countries which I think will be emulated in the coming years are the likes of Sweden, Norway, Denmark, Greece, Germany, the Netherlands i.e. countries that have found a more fine balance.

The challenge is to reach a state where government intervention and regulation doesn't stifle healthy competition and advancement and where private enterprise doesn't stifle equality of opportunity and common decency.

Authoritarian socialism is by its nature not truly socialist. Thus what the world doesn't need is Soviet Unions and Chinas. However, democratic, world-weary, educated, socially-responsible capitalist nations like the Scandinavian and some of the Continental European nations offer a vision for a future.

I think the middle classes will demand changes of this sort. The educated, reasonably wealthy enough people. They'll lead the more disenfranchised and poor people to support their cause who lack the knowledge of what can be done to change things for the better. Then they will have the mass of people needed to force governments to make the necessary changes to prevent what I would call unprecedented chaos.

Unfortunately, most statistical studies have shown little to no statistically significant correlations to poverty in an area and crime in the area. If you find an actual legitimate study that does have a decent r squared, I would be interested in looking at it. I would argue government rules and regulations is what would influence marginal behavior more than poverty. For example, if the government decriminalizes stealing, then normally law abiding citizens may stay stealing because they were a victim of theft (so, they'll steal before they get stolen from).



Even assuming people are now somehow poorer en masse for no logical reason, it does not seem clear that they would riot (people riot for many reasons, but when was the last time you saw the poor in America riot for being poor) or engage in terrorism. Many people did become poorer and unemployed during the Great Depression and by and large this did not occur. As for the other crimes, they already occur today, but it seems unlikely that former middle class Americans would suddenly join gangs and engage in such anti-social behavior just because they are now slightly poorer.



If you know this, then you should be aware that men are neither angels nor devils, but somewhere in between. As such, ideas like the New Soviet man are impossible, which in turn effectively makes most forms of socialism unfavorable.



I would not say both countries really through weight into private enterprise as much as private enterprise has been allowed to prosper on their own in these countries. I'm curious as to what "basic collective rights" have been lost because of this (I can't think of any).




So, when a business cycle comes to a recession, it reveals private enterprise as a risky proposition, but when it prospers it is just evil or something? In the modern world, countries experience periods of growth and recessions, and while there is some risk, the market tends to do a pretty job of controlling it if left alone. This cost of this risk is far less than the alternative of state run or state regulated control of the private sector.



Not just the wealthy, but everyone in the world. The saying goes "In a rising tide, all boats are lifted"; growing the economic pie benefits everyone, fighting over the distribution of the pie is wasteful. Real estate should not be for sale, you say? I'm curious as to what alternative you would propose to private land ownership, and still claim to not be a communist. Aside from the obvious tragedy of the commons that would occur without land ownership, you would also ignore people's private subject values on land (some people might not like alot of land, while others want many acres, but not allowing the sale of real estate, you harm both groups).



The current system already allows the talented and innovative workers to succeed, and are more likely to than under some standardized system that says "only those who pass X test are innovators" (as that isn't how modern innovation works). Capitalism is the one system that encourages innovators and entrepreneurs more than any other economic system. Even poor kids are able to go to top universities if they are smart enough under the current US system (on a side note, it is debatable how useful university education really is, considering you won't use most of what you learn there). In the US, even poor people do have running water, and they live within a safety level they consider acceptable (we outsides do not have a right to judge other people's subjective decisions, doing so usually harms the person you are seeking to help because of unintended consequences). Also, people do not and should not have rights to safe housing or rights to social services. It is like saying everyone has a right to a job; you have the right to pursue a job, but the job itself is not an inherit human right.



Have you checked their unemployment and tax rates recently? Sure, they "take care" of the poor, but it is much more difficult to get job, and when you do, you can pay up to 70% of your income in taxes. This also has the added bonus of inviting the moral hazard problem in (Germany still has a serious problem with this), where people claim to unemployed to collect benefits, but really work and are paid "under the table" or in the black market. Also, their GDP growth is much lower than that of the U.S. GDP growth is what grows the economic pie, and it is perhaps the most important policy goal that a government should set. Using the rule of seventy and GDP growth rate, you can see how long it will take a country to double its living standards (it does make a difference).



All forms of socialism is authoritarian in one way or another in that they all coerce people to engage in activities they would not otherwise engage in ("If you don't pay 60% of your income to the poor people, then we'll throw you in jail"). All forms also seem to lead to greater centralization and expansion of the government. All also induce greater moral hazards, which inevitably presents problems for the government, which in turn results in the government using more coercion. You cannot change fundamental human nature, even through socialism (the Soviets tried and failed to do so).

I also think you are mistaken if you think the middle class in the U.S. actually cares as much about the poor as the claim to. People claim to care so they can signal to other people that they are a nice, caring, moral person. In reality, most do not pay any money or time to help the poor. The poor in America are only relatively poor as well, an important fact to remember. The poor person in America is 100x better off than the poor person in Nigeria. Also, the poor in the modern United States tend to be poor for legitimate reasons (i.e. a person is poor because he is not smart of is lazy, or as in the case of half minimum wage earners, because they are a teenager). If a person does not have the brains or concisenesses to earn a "decent" wage,then they are merely being paid relative to their current abilities. I fail to see a problem with this arrangement. Considering the middle class likely does not care about the poor as much as you think, and the fact that most middle class Americans are fairly content, they are not going to be leading any revolts against the rich anytime soon.

Most of the replies to this topic are so warpped it's unreal. For anyone with a brain, don't sit around hoping the government is going to make your life better, go apply yourselves and work around the liberal mess. There is nothing wrong with the economy for people who will go apply themselves.

"Pull yourself up by your own bootstraps", eh?
I'm sure the millions of young disabled adults and children are just waiting to hear that advice. Even though they don't have the money for their own healthcare - much less a means to earn the substantial payments for it - by golly they just need to apply themselves and "bam!" their problem is solved.

Come down off of your high horse and read between the lines. No one here is sitting around hoping the government will make their lives better - in fact, many, if not all, apply themselves on a daily basis as much as they can. When they need help, they ask for only the amount they need to move themselves up and out of the problem they were in before.

There are problems with an economy that values extremely cheap labor, obscene corporate profits (Halliburton, ExxonMobil, etc.), devalues personal character, integrity, morals and ethics; and using any way shape and/or form to make a buck.

True, our federal deficit is a major problem in our economy. But corporate profits are getting a little out of control, considering the golden parachutes CEOs have been given lately.
The rich already shoulder most of the burden of the government?? I greatly disagree with this statement. If they are "shouldering" most of the taxation burden, then why are the members of this upper class becoming more wealthy? Why is the middle class disappearing?
True, we may not put the majority of our money into congressional pay, but I have to disagree that it isn't a major burden. Paying for the health insurance and wealth of elected officials and their aides is a significant drain on our economy and our government.
Social Security is a burden, but that's due to the fact that we can't seem to balance a budget or provide quality health care to everyone at an affordable cost.
We've paid way too much in the way of defense, with the Pentagon's budget exploding over the past 7 years. That, of course, is in correlation with the illogical and greedy wars waged by an administration tied to corporate agendas.
Sure, the economy may not fall apart in the next 10 years or so, but the fact that our societal and cultural values are tied up into an aggressive capitalist economy that is rapidly outsourcing jobs and erodes local and small business is a sign of an economy that will eventually fall.

Sargon - just because I don't use technical economic science terms and phrases doesn't mean my ideas or opinions have any less merit. I didn't shout my opinion across the web - I merely expressed it on this forum. If you have a problem with that, then you obviously are in the wrong place.
You may not support my views, and I may not support yours, but I will defend your right to say whatever you want just as I would defend my own opinions.