The Budget Battle

[swansont]

I think it was pretty clear that he meant whether they reduce government spending. I don't believe I've seen any politicians bragging about how they reduce the population's spending.

 

Indeed. The topic of the thread is the government budget deficit, so I assumed we were talking about government spending.

[ParanoiA]

That successful economy was built in the past, when the USA did not spend the same percentage of its income on the military, on lawyers and lawsuits, on financial institutions or other useless things. That economy was built in the days that the USA actually manufactured things: Detroit made cars, Silicon Valley made computers, Boeing was (and is) the largest airplane manufacturer, etc... And the USA did so for a competitive price with superior technology. That's indeed how you build a strong economy.

 

The US decline in manufacturing is a baseless myth. I understand the media business sensationalizes outsourcing and unemployment, but don't let them fool you. Remember, they have a business to run and they build up information to increase value just like McDonald's makes those cheeseburgers look amazing in their TV ads.

 

http://articles.moneycentral.msn.com/Investing/CompanyFocus/the-myth-of-us-industrys-demise.aspx

 

I grabbed an MSN link, but this information is everywhere.

 

U.S. workers produce 21% of all factory goods made globally, or about $1.7 trillion worth per year. That's significantly lower than the peak of 28% in 1985 but only slightly below the long-term average of 23% for 1970 through 2006.

 

China, the second-biggest global producer, doesn't even come close. It makes just 13% of the world's stuff, or $1 trillion worth. Japan is next with 11%. And Germany, the vaunted workshop of Europe, comes in fourth with a paltry 7.4%.

 

America makes stuff...lots of stuff. And much of our manufacturing output is done with less and less humans and more and more technology. The cost of superior technology, I suppose. I'm not convinced it's a bad thing, but it certainly looks that way when you're getting laid off so a robot can do your job, that's for sure.

 

The only way that you can build an economy is that you have an industry that makes something that starts a feedback loop: with every product you make, you can more effectively make more products for less energy and resources. An economy, in the end, is only worth what is physically constructed... So, also a Wall Street adds nothing at all. Wall Street is nothing but a massive group of people who all try to predict which industry will grow the fastest. But the combined accumulation of wealth by such investors must be compensated by a real economy somewhere on earth...

 

Wall Street provides a major factor of production that cannot be ignored - capital. When they're predicting this and that, they're putting their money where their mouth is, and that means investing in capital - both human and equipment. Without Wall Street, we don't have a market for investment, which leaves us with a terribly inefficient and ineffective framework to find people to invest in firms. Without those people, only the entrepreneur's profit (another factor of production) can be allocated for investment. That means extremely slow growth, if at all.

 

Not to mention, Wall Street is also made up of the poor, middle class and rich. 401K retirements are one of the most obvious examples of common folk investing in stocks. When you invest, you are loaning money and receiving interest. The financial market is devoted entirely to this. It does translate into a real economy, real capital, real goods.

 

Or how about the huge legal system the US has? Again, it makes absolutely nothing. Again, it's good to have a few lawyers and a functioning legal system... but too much will be crippling.

 

I agree and the source of much of this is regulation and laws. I'm not saying regulation and laws are bad, but we still have too much and it's the source that creates the attraction for profit for that market. And yeah, I agree, it's like having an exploding broken window market - it increases GDP, but it doesn't increase wealth or grow the economy.

[swansont]

That's the fun of statistics. If you don't like what they say, try and find a way to make them seem to say something else. The US produces 21% of all goods. Great. Japan produces "just" 11%, but then, our population is more than twice the population of Japan. It shouldn't be a surprise that the US produces more than smaller countries; you have more people! If you normalize to population (with the US being 1 unit) so that the US production is 21, you get more than 26 for both Japan and Germany. i.e. they produce more than 20% more per capita than we do, which is why they are regarded as industrial powerhouses. The reason people take notice of China is because of where they will be in the ranking 10 or so years down the road, based on their current expansion.

[Marat]

Harvard University's total endowment is equivalent to the cost of about 3 U.S. Navy aircraft carriers plus their full complement of aircraft and other equipment. But while Harvard has produced a huge additional value for the money invested in it over the years, in everything from the 'Harvard mouse' in genetics to the brain of Bill Gates, what do aircraft carriers ever actually produce? They soak up some people who would otherwise burden the unemployment rolls, but otherwise they just steam around the oceans of the world uselessly worshipping the ancient god of 'American military world superiority,' which is no longer connected to the real levers of world power, which have long since become economic rather than military.

 

The economic growth of a country is most decisively propelled by the tiny percentage of wealth left over from all the other ordinary activities each year which can be invested in research and development. A country which can afford to invest 5% of GDP in R&D each year rather than just 3% will have a decisive advantage accumulating interest into the future. But the tragedy of the U.S. is that it keeps its surplus capital otherwise available for R&D artificially low by diverting so much of that surplus to the 'religious' spending in worshipping the god of 1945 -- i.e., building tanks and aircraft carriers as though the world were still as simple as it was during World War II when all America needed was military might to solve all its essential problems.

[ParanoiA]

That's the fun of statistics. If you don't like what they say, try and find a way to make them seem to say something else. The US produces 21% of all goods. Great. Japan produces "just" 11%, but then, our population is more than twice the population of Japan. It shouldn't be a surprise that the US produces more than smaller countries; you have more people! If you normalize to population (with the US being 1 unit) so that the US production is 21, you get more than 26 for both Japan and Germany. i.e. they produce more than 20% more per capita than we do, which is why they are regarded as industrial powerhouses. The reason people take notice of China is because of where they will be in the ranking 10 or so years down the road, based on their current expansion.

 

Try to make them say something else? CaptainPanic repeated the myth of the US not actually making anything anymore - and I have stats that repudiate it. You can rearrange them per capita, per puppy, it really doesn't matter - the US does make stuff, and more than anyone else. I didn't try, nor did I need to "find a way to make them seem to say something else" - and neither did the author of that article.

 

Now, just for grins, how many workers are involved in that output? What is the form of capital that produces the output? You point out how Japan has half the population, but you haven't accounted for how many workers are doing manufacturing there verses here.

 

China has half the world's population, what happened to your number-of-people logic there?

 

The US is doing just fine in manufacturing and globalization has produced competition and not surprisingly other players have entered the market. There is no "the US doesn't make stuff anymore", rather it's "the US isn't the only one making stuff anymore".

[jackson33]

swansont, what industrial products are produced for world consumption, has nothing whatsoever to do with population of a Nation or is it relative to per capita statistics. It would be relative to consumption and I'm sure we're near the top there, as well. The US produces that 21% of products with the highest productivity/efficiency (far less labor) rate on the planet (or was), starting from Ford's assembly line and has lead in productivity for generations. You can probably blame organized labor over the past 50 years for making robotics more practical and that productivity increase, but that's for another thread...

 

ParanoiA; I rarely comment on a post I like, and in this case appreciate, or do I mess with Rep Points, but your post #27 is one of the best I've read on this forum....

[lemur]

The key to the issue is that greater government power, even greater centralizing power, can in many contexts mean more personal liberty. If I live in the 'freedom' of the United States, I enjoy no liberty because I have to guard myself constantly against the prospect of going bankrupt the first time I get seriously ill. I don't have the freedom to embark on an ambitious or non-careerist academic adventure, since the economics of a non-state-supported university education system will crush me if I try it. I don't have the liberty to attempt some innovative plan with potentially risky economic side-effects for my life, since I know in advance that if it goes wrong, the government will refuse to protect me at least with the basics of human dignity through an adequate welfare system. I am, quite simply, crippled by the LACK of big government in the U.S.

Have you ever thought about what it takes to economically guarantee people's welfare? For one person's food supply to be guaranteed, someone else's farm labor has to also be guaranteed. The same for housing, health-care, etc. So how can you provide some people the liberty of total economic freedom while taking away the liberty of others to choose not to perform the labor that provides that freedom for the others?

 

 

Indeed. The topic of the thread is the government budget deficit, so I assumed we were talking about government spending.

What is the purpose of government spending except to influence the broader economy?

Edited February 18, 2011 by lemur

[Pangloss]

... but 100% of it does not add to the real economy of the country. It's at best overhead costs. You always need a little, but too much can kill you.

Well as I've said before I believe Defense spending can be cut far more significantly than Congress or the President seem willing to consider. President Obama was raising their budget even before Republicans took over the House, and his new budget, while containing some cuts, raises it even further.

 

That successful economy was built in the past, when the USA did not spend the same percentage of its income on the military, on lawyers and lawsuits, on financial institutions or other useless things.

I was responding to an historical context. I also don't believe that the above statement is true. You may consider most of the $15 trillion economy "useless", but money is money. Most of that economy was built well after the appearance of military spending, massive lawsuits, and gigantic financial institutions. Perhaps there's a connection there, eh?

 

That economy was built in the days that the USA actually manufactured things: Detroit made cars, Silicon Valley made computers, Boeing was (and is) the largest airplane manufacturer, etc... And the USA did so for a competitive price with superior technology. That's indeed how you build a strong economy.

 

The only way that you can build an economy is that you have an industry that makes something that starts a feedback loop: with every product you make, you can more effectively make more products for less energy and resources. An economy, in the end, is only worth what is physically constructed... So, also a Wall Street adds nothing at all. Wall Street is nothing but a massive group of people who all try to predict which industry will grow the fastest. But the combined accumulation of wealth by such investors must be compensated by a real economy somewhere on earth...

 

Or how about the huge legal system the US has? Again, it makes absolutely nothing. Again, it's good to have a few lawyers and a functioning legal system... but too much will be crippling.

 

But what's really doing the USA in is that you have all those combined. The American economy is crippled by too many people who do useless jobs.

 

... and when you realize the scale of the problem, it's sad ironic to see that huge groups of lobbyists (also a non-productive workforce) bicker over the best way to reduce spending, while they themselves are actually part of the problem: too many unproductive people.

Marat's comment was that the US fails to set high enough taxes for a "normal" society to do what he called its "moral duties". He's talking about social justice, not economic power. I was simply pointing out that in building that economic power that he so loathes, the US did in fact accomplish quite a lot of social justice. That oh-so-evil capitalism is HOW most of the people in this world who have escaped poverty have done so. If that statement is inaccurate, I'd love to know where and why. Marat doesn't seem to want to talk about it.

 

But in response to the above, I think those are interesting and valid points to consider. Manufacturing has declined, and there is a large school of thought that it takes manufacturing to build and maintain a successful economy. But I wonder if perhaps there's more depth there than that view recognizes, especially in a globalized environment.

[swansont]

Try to make them say something else? CaptainPanic repeated the myth of the US not actually making anything anymore - and I have stats that repudiate it. You can rearrange them per capita, per puppy, it really doesn't matter - the US does make stuff, and more than anyone else. I didn't try, nor did I need to "find a way to make them seem to say something else" - and neither did the author of that article.

 

No, I think the author of the article was implying that the US is still the manufacturing powerhouse, and abuses the stats to support the position. I was rebutting him, not you, but then, I didn't quote anything you wrote.

 

The author notes that "Germany, the vaunted workshop of Europe, comes in fourth with a paltry 7.4%." My point is that 7.4% is "paltry" only if you ignore the population difference. Also, the author notes that our fraction peaked at 28% in 1985, and is currently 21%, which is below the 23% average since 1970. But that does not say whether it's been a continual slow decline since 1985; if it has been, that would be inconvenient for his argument..

 

Now, just for grins, how many workers are involved in that output? What is the form of capital that produces the output? You point out how Japan has half the population, but you haven't accounted for how many workers are doing manufacturing there verses here.

 

China has half the world's population, what happened to your number-of-people logic there?

 

No. I'm not the one who wrote the article. I'm just saying there's more than one way to present the information, and how you do that can make your point seem stronger or weaker depending on how you do it. I mentioned China in my post. You can reread it.

 

The US is doing just fine in manufacturing and globalization has produced competition and not surprisingly other players have entered the market. There is no "the US doesn't make stuff anymore", rather it's "the US isn't the only one making stuff anymore".

 

I'm pretty sure "The US doesn't make stuff anymore" is meant to be figurative, not literal. Another thing not mentioned in the article you linked to, is what fraction of our economy is based on manufacturing, and how that has changed over time. That $1.7 Trillion for the US represents just 13% of the GDP for 2006. That's down from over 20% in 1980. So really it's how you want to spin it. Which was my point.

 

http://investing.curiouscatblog.net/2010/06/28/manufacturing-output-as-a-percent-of-gdp-by-country/

[Pangloss]

I'm pretty sure "The US doesn't make stuff anymore" is meant to be figurative, not literal.

Swansont advocating "figurative" speaking? Fascinating! (chuckle)

 

Anyway, I hear people state more definitive versions in the media all the time, e.g. "the US doesn't manufacture anything anymore". IMO it's valid to point out that US manufacturing still exists and still has an impact on the economy.

[ParanoiA]

The author notes that "Germany, the vaunted workshop of Europe, comes in fourth with a paltry 7.4%." My point is that 7.4% is "paltry" only if you ignore the population difference. Also, the author notes that our fraction peaked at 28% in 1985, and is currently 21%, which is below the 23% average since 1970. But that does not say whether it's been a continual slow decline since 1985; if it has been, that would be inconvenient for his argument..

 

And my point is that population difference doesn't tell us a damn thing. How many workers? Hell, how much and in what form does the capital take that is producing this output? Those are the relevant questions because that's what tells the story about our production capabilities, the technology and the employment - it describes what's happening to our manufacturing.

 

I'm pretty sure "The US doesn't make stuff anymore" is meant to be figurative, not literal. Another thing not mentioned in the article you linked to, is what fraction of our economy is based on manufacturing, and how that has changed over time. That $1.7 Trillion for the US represents just 13% of the GDP for 2006. That's down from over 20% in 1980. So really it's how you want to spin it. Which was my point.

 

I know it's meant to be figurative, and that's why I also included my own in that same sentence since it's not as if we were ever the only ones making stuff. I'm taking the statement to mean our manufacturing has considerably declined. I'm haggling over the considerably part.

 

That manufacturing makes up 13% of our GDP doesn't tell us we didn't explode in production in other markets. If we suddenly double our output of cheeseburgers and fries, then we'll see the percentages of GDP drop for all other "classes" of output even though there is no decrease in output for any of those other classes.

 

What I see is a maturing economy. I see globalization and free trade making an impact. Comparative advantage and competition is determining what country does what the best. We do really well in manufacturing and while there's ups and downs there is no flight of manufacturing here - instead it's changing shape, responding to new technologies and the competition encountered in the international market.

 

The small declines we notice is natural for a market with increased competition. In fact, it would be weird if it didn't.

[Marat]

Lemur: While I agree that it costs someone else's labor power to pay for the social safety net used by others, as long as this shift is made in a progressive way it is good rather than bad. Thus if a steep progressive tax rate means that a billionaire has to pay an extra million dollars in taxes and so cannot buy another, better yacht this year, and instead the government takens his cash surplus and distributes it amongst 100 homeless people who each get $10,000 which saves their lives, then 100 people live at the 'cost' of one billionaire having to put up with his inadequately luxurious yacht!

 

To increase the ability of a fixed amount of money to do real human good by distributing it more rationally away from those for whom it cannot make much difference to those for whom it will make an enormous difference is the height of utilitarian rationality. That redistribution could only be rigorously criticized as morally wrong if we could first prove that the existing distribution of wealth were morally right, which cannot be done, given all the arbitrary, morally meaningless factors which have generated the current distribution of wealth, such as the luck of inheritance, the misfortune of disease, the ill-fate of being born into a poor, uneducated, or over-sized family, political interferences with career development, remuneration for work which is grossly disproportionate to the real skill, difficulty, or value involved in the work, etc.

[lemur]

Lemur: While I agree that it costs someone else's labor power to pay for the social safety net used by others, as long as this shift is made in a progressive way it is good rather than bad. Thus if a steep progressive tax rate means that a billionaire has to pay an extra million dollars in taxes and so cannot buy another, better yacht this year, and instead the government takens his cash surplus and distributes it amongst 100 homeless people who each get $10,000 which saves their lives, then 100 people live at the 'cost' of one billionaire having to put up with his inadequately luxurious yacht!

I understand this logic, which I've heard many times. But the fundamental assumption you are making is that money can, should, and must determine the economic choices of what people choose to do with their labor. It really doesn't matter if you tax the billionaire to pay the yacht-maker to provide social-services to homeless people, the point is that that person may not WANT to provide such services regardless of the amount the government is willing to extract from the billionaire to compensate them for doing so. In other words, some people actually have reasons other than money to choose how to allocate their economic labor. If, for example, I think that homeless people should cook for themselves, why should I have to work in a soup-kitchen or other situation that provides prepared food for the homeless?

 

Now, having said that I think it is possible to discuss the need for certain basic necessities to be guaranteed, but I don't think those require enormous amounts of taxation and expenditure. People need access to sufficient nutritional intake and some form of shelter that protects them from the elements, or at least the means to construct such a domicile for themselves. They need access to basic health-care, but the government shouldn't be used as a means of mandating funding of proprietary care-givers and pharmaceutical companies that exploit the inability of the government to refuse care by extracting high-revenues by pedaling expensive goods and services to people with an inability to pay.

 

Now, the reverse of this is to ask whether it is ethical for people to receive higher quality of care because they have more financial means, and the answer to that is no - but until there is some means to mandate equal provision of things like health care WITHOUT this being used to exploit some to fill the pockets of others, these businesses are just going to use the system to milk taxpayers to the point of provoking them to deny care to the needy in the interest of their own finances. If you pay attention to welfare-state media, you will see that every public service is always attacked by tax-payers and the fact is that it is simply not necessary to expose recipients to this level of hate when the services they deserve only have such high costs because of the high profit-margins and salaries enjoyed by providers. I just think something needs to interrupt this triangle of funder/profiteur/beneficiary. Otherwise social welfare will continue to be used as an instrument of extortion, which is NOT good for the beneficiaries because it makes them seem like more of a burden than they actually are.

 

 

To increase the ability of a fixed amount of money to do real human good by distributing it more rationally away from those for whom it cannot make much difference to those for whom it will make an enormous difference is the height of utilitarian rationality.

Not really, because it would save bureaucratic work to simply require providers to provide needed services directly without compensating them. Then, those providers could choose to set their prices as high or low as their paying clients would accept. Granted, it makes sense to spread the cost of certain things across a larger number of people to reduce the cost per capita, but that method of funding has imo resulted in a general inflation of services to cost-levels that collect maximum revenues from available funding pools. So there seems to be no other method to fiscally discipline the supply side except to reduce the availability of collective funding.

 

That redistribution could only be rigorously criticized as morally wrong if we could first prove that the existing distribution of wealth were morally right, which cannot be done, given all the arbitrary, morally meaningless factors which have generated the current distribution of wealth, such as the luck of inheritance, the misfortune of disease, the ill-fate of being born into a poor, uneducated, or over-sized family, political interferences with career development, remuneration for work which is grossly disproportionate to the real skill, difficulty, or value involved in the work, etc.

That is correct. The existing distribution of not only wealth is not morally right, but WHAT'S MORE the distribution of REVENUE/INCOME is not morally just or fair. Thus, when you redistribution wealth, it gets spent on commodities and generates revenues that get distributed according to the existing price/revenue structures of economic institutions. So you could redistribute all the wealth that exists, but as soon as that wealth was spent, it would become unequally distributed among those who control the accounts it was paid into. So it is easy to overlook that side of economic unfairness in favor of attacking wealth-inequalities, but all you would really be doing would be impoverishing people whose wealth-based income exceeded their employment-based income. In other words, you'd be disenfranchizing investors to enrich employees. What's the point of that? Why is a middle-manager who spends 40+ hours/week in an office more deserving than someone who makes income by investing inherited wealth privately? Obviously the poor and disenfranchized deserve access to basic necessities, but why should that be used as an impetus to enrich corporations at the expense of private wealth-holdings?

Edited February 19, 2011 by lemur

[Pangloss]

To increase the ability of a fixed amount of money to do real human good by distributing it more rationally away from those for whom it cannot make much difference to those for whom it will make an enormous difference is the height of utilitarian rationality. That redistribution could only be rigorously criticized as morally wrong if we could first prove that the existing distribution of wealth were morally right, which cannot be done, given all the arbitrary, morally meaningless factors which have generated the current distribution of wealth, such as the luck of inheritance, the misfortune of disease, the ill-fate of being born into a poor, uneducated, or over-sized family, political interferences with career development, remuneration for work which is grossly disproportionate to the real skill, difficulty, or value involved in the work, etc.

 

Why is it okay to have the government enforcing moral laws pertaining to wealth distribution, but not okay to have the government enforcing moral laws pertaining to marriage, religion, race or abortion?

 

Bear in mind that the majority determines the laws of this country, and the majority has been damned hard to move away from moral restrictions on marriage, religion, race and abortion. Do we really want the majority to return to a policy of enacting new moral laws? Just when we seem to be moving past that sort of thing?

[swansont]

I guess CaptainPanic should have just said manufacturing is a much smaller part of the US economy than it was. The parts that have gotten bigger don't really add to a strong economy. That way nobody would have gotten distracted by the shiny hyperbole.

[ParanoiA]

I guess CaptainPanic should have just said manufacturing is a much smaller part of the US economy than it was. The parts that have gotten bigger don't really add to a strong economy. That way nobody would have gotten distracted by the shiny hyperbole.

 

You mean that way nobody would have gotten distracted from the original hyperbole in his statement. I'd like to know how his description of the scope of manufacturing decline in his statement about when the US used to actually manufacture sutff misses your hyperbole charge, yet when I counter with evidence to the contrary without any use of exaggeration or pop-culture memes, you accuse me of hyperbole.

 

Never mind, I already know how that happens.

 

 

Hey CaptainPanic, please don't misunderstand. None of this is directed at you buddy, I just didn't agree with your argument and I know you haven't had a chance to respond yet.

Edited February 19, 2011 by ParanoiA

[swansont]

You mean that way nobody would have gotten distracted from the original hyperbole in his statement. I'd like to know how his description of the scope of manufacturing decline in his statement about when the US used to actually manufacture sutff misses your hyperbole charge, yet when I counter with evidence to the contrary without any use of exaggeration or pop-culture memes, you accuse me of hyperbole.

 

Never mind, I already know how that happens.

 

Yes, that's exactly what I mean. It was CaptainPanic's hyperbole I was referring to; I never referred to any other hyperbole.

 

Swansont advocating "figurative" speaking? Fascinating! (chuckle)

 

Not that it's evil or anything, but identifying something someone else said as figurative speaking is not the same as advocating it.

 

What is the purpose of government spending except to influence the broader economy?

 

Um, fulfill the obligations and responsibilities it has? (under the Constitution, in the case of the US) Like providing for the common defense and general welfare of the country, among other things.

 

The fact that other countries have a higher taxation level as a percentage of GDP does not equate to a factual basis for determining "normal". There's no objective right and wrong here.

 

No there isn't. But if comparisons to other countries don't mean that our taxes are too low, by what standard are they too high (or even just right)? The history of the US economy shows that economic growth occurs with taxes being higher. The last decade has seen historically low federal income tax rates, and that hasn't done much for us in comparison to historical GDP and jobs growth.

 

http://www.data360.org/graph_group.aspx?Graph_Group_Id=149

http://blogs.wsj.com/economics/2009/01/09/bush-on-jobs-the-worst-track-record-on-record/

[CaptainPanic]

I guess CaptainPanic should have just said manufacturing is a much smaller part of the US economy than it was. The parts that have gotten bigger don't really add to a strong economy. That way nobody would have gotten distracted by the shiny hyperbole.

Thanks. That's exactly what I should have said.

 

You mean that way nobody would have gotten distracted from the original hyperbole in his statement. I'd like to know how his description of the scope of manufacturing decline in his statement about when the US used to actually manufacture sutff misses your hyperbole charge, yet when I counter with evidence to the contrary without any use of exaggeration or pop-culture memes, you accuse me of hyperbole.

 

Never mind, I already know how that happens.

 

 

Hey CaptainPanic, please don't misunderstand. None of this is directed at you buddy, I just didn't agree with your argument and I know you haven't had a chance to respond yet.

Yeah, I was away for the weekend, only to come back afterwards to a thread that's twice as long

 

Anyway... My point (imho) still stands that the USA, compared to its younger self when it was the undisputed powerhouse of the world, has relatively much more overhead costs. It has a larger percentage of people who are not working in production than before. Note that I do not make any comparison to any other country, and neither do I take the productivity per capita into account. I just compare the percentages of the actual productive class of the USA now, and the USA some time ago... and I think that everybody agrees with me on this.

 

Another point I tried to make is that if the USA would reduce that overhead, and employ a certain percentage of its population in real production, then its economy would grow. Again, no comparison to any other countries needed. More production with the same people and also less overhead costs directly leads to economic growth. And, to bring this back to the main topic, economic growth leads to increased tax income, which leads to a reduction of the deficit.

 

My final point was that the government can have a hand in this, by reducing the government-related overhead costs, and therefore forcing some people to employ themselves into more productive ways. Then the government both reduces expenses, and increases income (on the long term) from tax.

 

You can bicker among yourselves whether Wall-street, defense, lawyers are really overhead costs. From my perspective they all just cost money... but feel free to make your own list. Douglas Adams proposed another set of people in the Hitchhiker's Guide to the Galaxy, and in one part of the story, the main character Arthur finds himself on a space ship, the B-ark with all the "hairdressers, tired TV producers*, insurance salesmen, personnel officers, security guards, management consultants, telephone sanitisers and the like". Same thing. My point stands. Too much of that, and your economy fails. And the USA has too much. (Europe is not doing very well either, btw, but the topic of this thread is the USA).

 

None of these things are a black and white picture. Of course you need a few investment bankers - I am not saying you should close the entire sector... but perhaps the financial sector got way too big. Please note that I am not saying we should abandon armies and defense altogether... but the percentage of your economy devoted to defense is higher than ever, so a reduction might not be a bad idea. And the whole legal sector also went through a long and steady growth for decades, but they probably sued everybody who published the numbers about it - I cannot find any graphs about their growth... Anyway, again, I do not advise you to kill your justice system. I am just wondering if you could do with a little less.

 

The point is that a lot of people consume goods, but return little or no value on the long term to society. If your financial, defense, legal, sectors would grow another 4 decades at the same pace, then ALL Americans would either have to be working in those sectors... I hope you can all agree that this is not a healthy situation for a large economy. So, this reduces the discussion to: "What is a healthy percentage of overhead costs for an economy". Too little and the system fails, too much and it also fails.

Edited February 21, 2011 by CaptainPanic

[Marat]

Higher levels of civilization produce higher levels of overhead, part of which is manifested in increased taxes becoming necessary to ensure that everyone has a decent standard of living, so less wealth is available for investment in productive capital. Consider again the situation in Ireland in the mid-19th century. There was a failure of the potato harvest, but rather than divert large amounts of capital from its industrial expansion to keep the Irish population from starving, Great Britain (which then included Ireland) chose to let tens of thousands of Irish starve to death, let many others live on the verge of starvation, and let still others flee to other countries in search of the means of survival. No one cared much about this humanitarian catastrophe, since the level of moral civilization in the mid-19th century was very much lower than it is today.

 

So we can decrease overheads and pour more money into productive capital if we just let retired people live in penury, which is what the Republican demands for reductions of Medicare and Social Security benefits amount to, or we can fund the requirements of social humanitarianism to the standards now set by the 21st century.

 

Generally, the U.S. falls below those moral standards, which is why the U.S. gets away with taking just 28% of GDP in taxation in contrast to England at 39%, Germany at 40%, and France at 46%. The huge debt/deficit problem in the U.S. arises from the fact that its adherence to 21st century standards of social morality is not quite as low as its extraordinarily low tax level requires, so the gap between humanitarian funding for the sick, the poor, and the suffering exceeds what the wealthy are willing to part with in taxation. The Republicans want to solve the debt/deficit problem by bringing humanitarian spending down to the extraordinarily low tax level, while the Democrats want to reduce the debt/deficit by raising the extraordinarily low tax level up to the low level of humanitarian spending.

 

Meanwhile, Europe looks in horror at the barbarism of America's 28% tax level and what little humanitarian spending it permits.

[Pangloss]

That's Europe's problem. I refuse to accept without objective evidence that there's some specific tax-percentage threshold that marks a society as "civilized", and that any country that doesn't spend that amount is "barbaric".

 

The fact that "everyone does it" is not evidence that "it" is a good idea. And I don't think you, Marat, would like a society that worked that way, because if it did you'd sitting in a pew on Sunday mornings, sir.

 

But if comparisons to other countries don't mean that our taxes are too low, by what standard are they too high (or even just right)?

Sure, that's a great question, but that's not my problem, it's yours. If you want to levy a tax to pay for some social experiment, you have to convince the majority to go along. It's not the other way around.

[swansont]

Sure, that's a great question, but that's not my problem, it's yours. If you want to levy a tax to pay for some social experiment, you have to convince the majority to go along. It's not the other way around.

 

Balancing the budget and reducing the deficit is a social experiment?

[Mr Skeptic]

Sure, that's a great question, but that's not my problem, it's yours. If you want to levy a tax to pay for some social experiment, you have to convince the majority to go along. It's not the other way around.

 

The majority already agrees with higher government spending than would be allowed by our current tax revenue. Now they just need to be convinced that they should pay for it instead of borrowing it.

[Pangloss]

Balancing the budget and reducing the deficit is a social experiment?

Adding social services during prosperous times is a social experiment.

 

The majority already agrees with higher government spending than would be allowed by our current tax revenue. Now they just need to be convinced that they should pay for it instead of borrowing it.

I don't know that this is the case. If you're referring to the difficulty inherent in getting everyone to agree on which spending programs should be cut, that does not equate to the majority agreeing with the current level of government spending as a whole.

[CaptainPanic]

[...] Meanwhile, Europe looks in horror at the barbarism of America's 28% tax level and what little humanitarian spending it permits.

Yes, let's talk about the tax level. I will shock most of you by claiming that it's irrelevant to this discussion, as I will explain below.

 

First of all, Europe is in just as much sh*t as America... so apparently the tax level makes little difference.

 

We've all learnt to think in dollars or euros... but the thing we're really dealing with is labor and resources. Goods. Tangible, physical things. People going to a real place to work. That's what is "The Economy"... and nothing else. All the money is just there so that we can exchange that labor and those goods. Remember? You all learnt that in school that this was how money was invented many years ago... Nowadays people happily yap away about bail-outs and other plans to push money around. Quite irrelevant if you don't see the bigger picture... and I am quite certain that most people no longer see that bigger picture where money is not the primary goal, but instead is just a means to exchange goods and labor.

 

The real problem if an economy fails is that the tangible real things and the labor are allocated to the wrong places. In the Soviet Union it was easier to understand, because you had only the government (the boss of the plan-economy) to blame. We were taught that their economy failed because the government allocated everything. Wrong. It failed because the government allocated it to the wrong places. Nowadays it's more complicated because there are more players in a capitalist game... but it's the same problem.

 

From here on, I discuss only the government, not the entire economy:

In a simplified model, tax money can be spent in 3 ways:

- Good investments: 1 dollar spent will return more than 1 dollar to the economy

- Neutral investments: 1 dollar spent will return 1 dollar

- Bad investments: 1 dollar spent will return less than 1 dollar (but often not zero, which is why some people can make it sound good)

 

Good investments

We can be brief about these: these are things that are just essential to the economy. Infrastructure is an obvious example. But good education might on the long term also have a very positive effect on an economy. Of course, people will be complaining if the payback time is too long... and the short-sightedness of people is a real problem here, and often these investments aren't made because of short-term-thinking. (Economy and society is not a short term thing).

 

Neutral investments

Also (this is probably gonna be debated in the next posts), I postulate that social expenses - or social experiments as Pangloss calls it - fit in the 2nd category. They will have zero net gain... You just take money from one consumer, and put it in the hands of another (poorer) consumer. That's all. Some governments do this to a huge extent (Scandinavia, West-Europe), and they are the socialists. Others, like America, don't. But ordinarily, this shouldn't make much of a difference to any economy.

 

Neutral investments bordering on the bad

Of course, if you attach a mighty bureaucracy to the redistribution of wealth, then its net gain will drop below 1... and it's a net loss. And I believe that for example medicare has managed to become such a massive bureaucracy that it's way below one. In that case, the discussion shouldn't be about the right or wrong of medical insurances, but about the bureaucracy that comes with it. The insurance itself is just a relocation of money from citizen A to citizen B. If you employ a million people just to do the management of the medical insurance, its overhead costs become too much, and it fails. In America, a lot of money meant to pay medical costs disappears to somewhere else (with a lower payback: overhead)...

 

Bad investments

Note again that in this part I talk about the government alone, and not the economy as a whole... So although for the whole economy, the bad investments still include all those things which I called overhead (earlier I mentioned the defense, Wall-street and the legal system), the government only directly controls defense... Obviously, the government cannot directly control Wall-Street or the legal system. It's a free capitalist country after all. The government might at best make some regulation to discourage further growth of these sectors (many people unfortunately fail to understand why these should not continue to grow - after all these sectors make money?).

Anyway, the only bad investment would be a defense system that is not necessary. Note that I will not make the claim that it actually IS unnecessary - I'll leave that to the Americans themselves to judge this time - although some of you may know my opinion already .

 

The Tricky Bit

The really tricky part is to evaluate the tax expenses. Some will claim that all social 'experiments' fall under the bad investments - but I claim that some of them are certainly good ones - like education.

 

The main message that I try to convey here is that government money isn't only spent. It's not just gone afterwards. It's a government's way of relocating labor and resources. If they do it the right way, it can give the economy a boost. If they do it the (correct) social way (without too much bureaucracy), it just relocates money from A to B without doing much harm. If they are stupid about it, they get their priorities wrong, and kill their own economy.

 

And that's why I think it's irrelevant to discuss only a tax level and social issues alone. It's only part of a MUCH bigger picture. The government itself is only part of the entire economy... and the discussion should primarily be about the economy as a whole, with the government as the largest player in it.

 

The Tricky Bit of the Big Picture

As I said before, many people fail to see why legal and financial sectors should not continue to grow - after all, they make profit?

Let me put it like this: their picture would look quite different if they too had to make a Cradle-to-cradle analysis of their business, like some chemical industry does. It will undoubtedly appear that these sectors are for a large part parasitic on the economy as a whole.

 

But if I hear some economists talking (I never understand them), then I am probably just a stupid left wing socialist hippy who doesn't understand anything about the economy...

Apologies for length

Edited February 22, 2011 by CaptainPanic

[Mr Skeptic]

I don't know that this is the case. If you're referring to the difficulty inherent in getting everyone to agree on which spending programs should be cut, that does not equate to the majority agreeing with the current level of government spending as a whole.

 

No, I'm referring to the part where we're spending tons of money and people go along with it. Yes, of course a lot of people disagree with a lot of programs, and "think" those programs should be cut. Yes, of course people want to cut programs they're not interested in to save money on taxes. But no one is willing to make the cuts. People are more interested in maintaining the "good spending for our programs" than they are in cutting the "bad spending for their programs". Otherwise, there would be no problem doing a wide budget cut leaving the budget in the same proportion just with less. Similarly, no one agrees on any specific program to cut either.

 

So yes, people want the budget cut, but without cutting any specific program or programs. And I want a pet unicorn. Some wishes are unreasonable.