Economic Ignorance: What To Do?

[JordanL]

Where do you start? It's such a daunting task to teach someone even the basics...

I recently was told this on another forum:


Well the Libertarians sure are serving the Republican party pretty loyally.

If by buy a TV first you mean feed/house ones family. Were did you get the number 500 trillion? What the hell caused the great depression? Sure wasn't debt there.

The first bit about Libertarians was the idea that he thought all the "tea party" protests recently were staged by the Republicans.

The second bit about a TV was a quip about when I explained to him that the current policy is something like getting a credit card bill, and running to go buy a TV.

The 500 trillion is about me quoting the size of the derivatives market.

The quip about the great depression speaks for itself...

I honestly wasn't sure where to start with this response....

[torchbearer]

analogies are often inaccurate and over-simplified.
Don't use them.

[JordanL]

Check out this...



It's also a pathological ideology to trumpet that the country should cut loose everything and do nothing whatsoever to try to correct the ship of the US economy.

Duopololy be damned -- where's the alternative plan that actually stimulates the economy? Republicans can't find it and simply want to tar and feather Democrats. So here's your (and Paul-ites) chance to propose an alternative. People are listening.

But if the alternative is "I am mad as hell and think that the little people don't matter while mega industries do!" as that CNBC guy's rant was all about... well, it's not a plan. It's throwing a fit and managing nothing constructive.

To be clear, Santelli never represented anything but a guy who came up with a way to express an emotion, not a guy with a firm grasp on the ideas that are important to us now, or the reasons behind what we do.

Paulites have never just been stomping their feet with no solutions... in fact their solutions have been so straight forward that people usually just ignore them: stop deficit spending, shrink the size of military, get rid of government entitlement programs and repeal the 16th amendment.

These all come from a core fact about government: government, by definition, cannot increase economic output or wealth. There are two sources from which government can obtain money to spend. The first is taxes, in which an equal amount of money is removed from the economy as is spent on the economy, making the best case scenario (where there is zero efficiency lost through government intervention) a net neutral result. The second is debt, which since it is a claim on future labor, and always includes interest, is always a net negative as you are creating a larger liability than the asset you are consuming is worth at the time of consumption.

Thus government's only purpose is to redistribute wealth and efficiency, with a minimum of no net increase in output, to the potential for much more waste.

Paulites ideas that both spending and taxes (not for the rich, for everyone) should be slashed is based on the idea that by definition of its income sources the best case scenario in government spending is a net neutral outcome.

The solution to the economy is the same as the solution to the debt situation: the claims on debt need to be diminished. There are only two ways of doing this. Defaults and inflation. Right now we are giving financial institutions tons of money that will be taken out as debt, and as such be a claim on future human labor, and thus contribute to inflation, and inflation is essentially a tax on people who have most of their wealth in cash (which is almost nothing but the lower and middle classes). Defaults cause some of these rich guys who screwed up to fail, but do not decrease the purchasing power of the wealth that is left.

This is the problem you seem to not be grasping: the government cannot stimulate the economy through spending... no matter if that spending is on rebate checks or bridges or medicare, government spending by definition can only be at best a net neutral.

So when you ask "where's the plan to stimulate the economy", the answer is the plan that involves as little government action as possible. Such an option would absolutely destroy the wealth of the most wealthy individuals in the country, as they are the ones holding the bad bets and bad speculations which have soured now that credit is more expensive. Any government spending program that perpetuates the status quo, no matter what it is spent on and who that money comes from, moves wealth from the middle class to the upper class, as it is the upper class who is holding the distressed assets.

The Republicans and Democrats are both making the rich richer through government spending... the sole difference is that with the Republicans it is sent straight to them, and with the Democrats it makes a one time stop in your wallet (but only sometimes) before continuing on back to their distressed assets.

My position that the government should step out of the way is not pathological ideology, because I do not base it on the assumption that the other side(s) is/are simply wrong. I base it on the reasoned approach of cause and effect of possible outcomes based on past experiences and perdictable facts of our monetary system.

Gah!

[brandon]

Very well said!

Hopefully he actually reads what you wrote.

[brandon]

One thing you said is not totally true. You said...


This is the problem you seem to not be grasping: the government cannot stimulate the economy through spending... no matter if that spending is on rebate checks or bridges or medicare, government spending by definition can only be at best a net neutral.

The government can stimulate in the short term. If everyone is trying to increase their savings and no one wants to consume products or make investments, then the economy is not growing. The government can (and does) stimulate the economy by stealing these people's savings and forcing it to be spent. This will increase the velocity of money and get the economy "moving" again.

The problem is that the stimulation ends quickly, and afterwards tons of capital has been destroyed through government inefficiency and the economy is worse than it was before the "stimulus." All rational persons now attempt to increase their savings again to replace the money the government stole from them and the capital the gov't destroyed. Then the government claims we need another stimulus because the last one wasn't for enough! And the cycle continues....

[JordanL]

One thing you said is not totally true. You said...



The government can stimulate in the short term. If everyone is trying to increase their savings and no one wants to consume products or make investments, then the economy is not growing. The government can (and does) stimulate the economy by stealing these people's savings and forcing it to be spent. This will increase the velocity of money and get the economy "moving" again.

The problem is that the stimulation ends quickly, and afterwards tons of capital has been destroyed through government inefficiency and the economy is worse than it was before the "stimulus."

And that is why it is in fact not a stimulus. Any action can be characterized as a stimulus if you look at it during a sufficiently short period of time. You must look at the net result of an action, not its initial outcome.

EDIT:

I'm sure that's a point he'll bring up though.

[liberteebell]

Check out this...



Gah!

Nice piece, JordanL. May I share it elsewhere?



One thing you said is not totally true. You said...



The government can stimulate in the short term. If everyone is trying to increase their savings and no one wants to consume products or make investments, then the economy is not growing. The government can (and does) stimulate the economy by stealing these people's savings and forcing it to be spent. This will increase the velocity of money and get the economy "moving" again.

The problem is that the stimulation ends quickly, and afterwards tons of capital has been destroyed through government inefficiency and the economy is worse than it was before the "stimulus." All rational persons now attempt to increase their savings again to replace the money the government stole from them and the capital the gov't destroyed. Then the government claims we need another stimulus because the last one wasn't for enough! And the cycle continues....


Yes, and it's important to point out that government competing with the private sector also limits growth in the private sector. I love the Broken Window Fallacy for illustration, that which is seen and that which is not seen.

[JordanL]

Nice piece, JordanL. May I share it elsewhere?

Of course! Spread the word to as many as possible!

[JordanL]

Wow... listen to this astonishing response:


And also like I said above, if you think ANY of this will matter one iota when it comes to altering the government's course of action, you're not just naive, you're deluding yourself. The mainstream 'Republican ideal' represents 40% of the population at best these days, and the 'libertarian ideal' is alluring to even fewer people than that. No matter how you slice it, you have absolutely no path to a winning coalition in any kind of manner which would change anything in a compelling manner. With Dems in power, you have NO HOPE of changing anything whatsoever. You have no seat at the negotiating table (esp. not with Republicans being the party of 'no' these days), and polls only matter during election season... And when it comes to winning elections, you have NO HOPE of taking the reigns of the Republican coalition and winning actual majorities... The very best you people could hope for is a redux of 1992, whereby the Republican coalition fractures, creating a minority '2nd way', and an even smaller minority '3rd way'. Then, all that happens is the Dems kick even more ass than they would have against a united Republican Party, and wind up with near veto-proof majorities in Congress in an election all about reapportionment.

This just an excerpt of an even angrier-than-it-sounds post.

[JordanL]

Alright guys, so here's the mission:

http://forum.skyscraperpage.com/showthread.php?t=165760

This thread is where I've been discussing things with these guys. Help them understand the fallacy of an Obama-tinged view, but be respectful and knowlegable. Represent your demographic well.