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Originally posted by Capitalizt I work for one of those big banks and it has affected me. I was forced to cut back from 40 to 30 hours per week and got a lousy 2.1% pay raise this year which is less than the rate of inflation. This makes it very difficult to pay bills, but I'm not about to ask you to do it for me. It's not your fault or responsibility.

Ha, that beats my salary freeze.

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Yes of course oc..I know we don't live in bubbles and markets are not 100% perfect. Innocent people will be hurt in a downturn and that is very unfortunate..but this does not mean the market is going to fail. Like I said earlier, it all boils down to prices. After a bit of pain, an equilibrium will eventually be reached. I'm just saying despite the sometimes messy and sloppy way that people deal with negative externalities, it is better to let them get on with it and muddle through themselves than impose a grand "solution" using government..which sends false signals and distorts everything on a much larger scale. The sheer size of these bailouts and stimulus plans is what gets me.. I wouldn't be so worried if we were talking about a one time $200-300 billion injection in infrastructure or something that is not profitable for private industry...but when you include what was done last year, over $3 trillion new dollars have been printed for these bailouts. This is major overkill..more than 500% what we've wasted in Iraq over the past 6 years..and by all accounts this spending has done nothing but prop up failed enterprises and postpone the correction. The economy has cancer, and an ugly recession is the only cure in my view. All of these spending programs are nothing more than expensive aspirin pills. I say bring on the chemotherapy.

Ok now you've clarified your position somewhat let's get into the nitty gritty. I'm going to divide your argument into two different areas since that will be easier to discuss, the bailout package and the fiscal stimulus package.

Let's start with the fiscal stimulus package: So you say you're an advocate of some forms of fiscal stimulus, primarily infrastructure enhancement projects providing that they are not profitable to private industry. I would disagree with that last bit since infrastrcture enhancements will typically benefit private industry in some respect (for example enhancing roads or railroads will naturally reduce costs for the transportation industry) however, that's unimportant to me. What are your opinions on the other components? There's really only two components to fiscal stimulus: reduced taxation or increased spending. Increased spending can be subdivided into infrastructure enahancements or social welfare programs (unemployment, welfare, medicaid, etc.). So you've already indicated support for infrastructure stimulus programs, what about reduced taxation or increased spending on social welfare programs?

edit: and after re-reading your argument allow me to throw it out there that it might not be the tools of fiscal stimulus you're opposed to but simply the size?

The next component of your argument is the bailout. What part of the bailout are you opposed to? The $700 billion capital injections via the CPP? You kind of reference a $3 trillion figure so it sounds like you're referencing one of the Federal Reserve's programs to expand lending (Term Auction Facility, Term Securities Lending Facility, Primary Dealer Credit Facility, Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, Money Market Investor Funding Facility ...) I dunno, you're going to have to be more specific about whether you disagree with any one in particular, ALL of them, or whatever in order for me to give a proper response.

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Retro ...

Last edited by occrider on Feb-04-2009 at 06:46

Lets just say I'm against most interventionism in general. I subscribe to the beliefs of the Austrian school..Mises, Hayek, Rothbard, and other anti Keynesians...and I think nearly every aspect of life would be better off with less government intrusion. I don't take it to an extreme like some folks (who want to privatize highways etc) but the level of meddling today is doing tremendous harm. As for taxes, HELL YES please cut them across the board, along with social spending. Taxes are a penalty on productive activity..and decreasing that penalty for both workers and employers would be the ultimate stimulus. A corporate tax rate of 0% would benefit far more people than extending unemployment benefits a few extra months. We've been trending towards a welfare state for some time now and have very perverse incentives (high penalties for success and generous benefits for remaining idle). I accept the need for a bare minimum safety net but with welfare today it is possible to remain comfortably unemployed for many months..and the general attitude of most Americans is that businessmen are an adversary to be overcome. Our priorities are just ass backwards.

As for the fed, yeah..I'm against practically everything they've done over the past year. I favor a strong currency. It doesn't need to be backed by gold but it does need to be stable so that people can plan for the future..so they can start saving again and make prudent long term investments rather than chasing the latest bubble. The nation's money supply has doubled over the past year and the fed has cut rates to 0%..so people are once again being forced once again to make poor investment decisions in an effort to beat inflation. It's the same thing that led to the 2007/08 bubble in the first place. All of this fed/government action is preventing those bad investments from being liquidated. We won't have a healthy recovery until that happens. We're just throwing another party by maxing out the credit cards. The dollar is going to be destroyed if we keep this up.

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Originally posted by Capitalizt Lets just say I'm against most interventionism in general. I subscribe to the beliefs of the Austrian school..Mises, Hayek, Rothbard, and other anti Keynesians...and I think nearly every aspect of life would be better off with less government intrusion. I don't take it to an extreme like some folks (who want to privatize highways etc) but the level of meddling today is doing tremendous harm. As for taxes, HELL YES please cut them across the board, along with social spending. Taxes are a penalty on productive activity..and decreasing that penalty for both workers and employers would be the ultimate stimulus. A corporate tax rate of 0% would benefit far more people than extending unemployment benefits a few extra months. We've been trending towards a welfare state for some time now and have very perverse incentives (high penalties for success and generous benefits for remaining idle). I accept the need for a bare minimum safety net but with welfare today it is possible to remain comfortably unemployed for many months..and the general attitude of most Americans is that businessmen are an adversary to be overcome. Our priorities are just ass backwards. As for the fed, yeah..I'm against practically everything they've done over the past year. I favor a strong currency. It doesn't need to be backed by gold but it does need to be stable so that people can plan for the future..so they can start saving again and make prudent long term investments rather than chasing the latest bubble. The nation's money supply has doubled over the past year and the fed has cut rates to 0%..so people are once again being forced once again to make poor investment decisions in an effort to beat inflation. It's the same thing that led to the 2007/08 bubble in the first place. All of this fed/government action is preventing those bad investments from being liquidated. We won't have a healthy recovery until that happens. We're just throwing another party by maxing out the credit cards. The dollar is going to be destroyed if we keep this up.

that said almost nothing and didn't even attempt to respond to occrider's post :/

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Originally posted by pkcRAISTLIN that said almost nothing and didn't even attempt to respond to occrider's post :/

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There's really only two components to fiscal stimulus: reduced taxation or increased spending. Increased spending can be subdivided into infrastructure enahancements or social welfare programs (unemployment, welfare, medicaid, etc.). So you've already indicated support for infrastructure stimulus programs, what about reduced taxation or increased spending on social welfare programs?

I said that I preferred fiscal stimulus that focuses on tax relief over expanded welfare programs.

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The next component of your argument is the bailout. What part of the bailout are you opposed to?

I thought I explained my opposition to almost every aspect of the bailout, including everything the fed has done in the past 12 months. All of the programs oc mentioned have done essentially the same thing (drastically increase the money supply). This is only postponing the inevitable. Things need to correct, and the only alternative is temporary prosperity bought by trillions in additional debt and the destruction of the dollar. Let the market correct. It will be ugly, but it is the lesser of two evils.

Only 15% of Bush's 2008 tax refunds actually made their way into the economy through consumer spending. How is that bang for your buck in terms of stimulus? A far greater percentage of this current stimulus package being debated actually gets injected into the economy (which is, after all, the point of a stimulus).

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I agree that one time refunds/rebates aren't going to do anything. Investors and businesses need long term visibility, which means PERMANENT tax rate reductions. Gimmicky short term rebates aren't going to make a difference. You need to improve the long term incentives of working and hiring.

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Originally posted by Capitalizt I agree that one time refunds/rebates aren't going to do anything. Investors and businesses need long term visibility, which means PERMANENT tax rate reductions. Gimmicky short term rebates aren't going to make a difference. You need to improve the long term incentives of working and hiring.

Not financially solvent in this kind of economy. Decreasing government revenue isn't going to solve anything unless you decrease costs as well - and we both know what you're going to target for budget cuts. Medicare, public education expenditures, unemployment benefits, subsidies, etc.

Those things may not be vital in times of largesse, but they sure are today.

And please don't tell me you're one of those "let's privatize social security" folks... cause that's just ludicrous - especially given the state of the stock market.

For every dollar that a rich person saves, how much of it goes toward a new Learjet and how much toward employing one additional person? The focus has always been on maximization of profit - never on the welfare of employees. Why do you think off-shoring has become so popular?

I've yet to see anything to convince me that capital gains tax relief genuinely stimulates the economy on anywhere near the sort of magnitude that infrastructure projects do.

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Originally posted by Lebezniatnikov Why do you think off-shoring has become so popular?

Unions.

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Originally posted by Lebezniatnikov I've yet to see anything to convince me that capital gains tax relief genuinely stimulates the economy on anywhere near the sort of magnitude that infrastructure projects do.

the common misconception among people is that high capital gains taxes prevents investment. This idea is ridiculous because people would rather have their money earn 70% (assuming a 30% tax rate) of their gain, than 0% of no gain. The impediment caused by a high capital gains rate is that sometimes people with gains that would be taxed at the capital gains rate may not move their investments because they don't want to pay taxes on that gain. However, there is only a taxing preference if the capital asset is held for a long term (> 1 year), which means assets with rate preferences can't be flipped, and must be held for a period over which that person will likely recapture the lost taxes by a higher return (which is the entire purpose for making a new investment). Admittedly, there is a small impediment to the movement of capital by higher rates, however, it also means new investments will be more highly scrutinizes, which means the money likely will be invested in the most economically efficient manner.

Example:

(1) asset currently appreciates 5% annually, and you have a 100 gain recognized on the sale of the asset

(2) 15% tax on gain is $15, and at 30% is $30.

(3) new asset appreciates 10% annually. It would only take 3 years to recover that difference with the excess return on appreciation (the extra 5% return on asset).

The entire point of preferential rates is that the asset is held for a long period (thus the incentive are actually in line with congressional purpose), and it furthers the most efficient use of capital.

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Originally posted by Lebezniatnikov I've yet to see anything to convince me that capital gains tax relief genuinely stimulates the economy on anywhere near the sort of magnitude that infrastructure projects do.

This is the problem with government spending...It always has thousands of visible beneficiaries and millions of invisible victims. You can always point to the "success" of some spending program or another by the number of people it has directly benefited..but you never see the jobs that were lost or those never created in the first place because the necessary capital wasn't available. By definition, the only way government gets tax revenue is by taxing people and businesses that were ALREADY BEING PRODUCTIVE.. Government can only siphon wealth away from those who were succeeding in satisfying the demands of the market. But because it does this on such a large scale and over such a long time horizon, it's very difficult to pinpoint exactly who loses because of it. Taxes always have an effect incentives. They can stifle normal behavior...prevent investments from being made..and prevent some businesses and jobs from ever being created.

Those who favor lower taxes (like me) can't point to these victims of high taxation and say "See? The capital gains tax prevented $1.8 trillion from flowing into U.S. stocks last year! or "The corporate tax cost us 2.5 million jobs!" It's impossible to demonstrate the damage done by taxation because it's negative effects are widespread and invisible...while the benefits of spending tax money are tightly focused and obvious.

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Originally posted by Capitalizt I said that I preferred fiscal stimulus that focuses on tax relief over expanded welfare programs. I thought I explained my opposition to almost every aspect of the bailout, including everything the fed has done in the past 12 months. All of the programs oc mentioned have done essentially the same thing (drastically increase the money supply). This is only postponing the inevitable. Things need to correct, and the only alternative is temporary prosperity bought by trillions in additional debt and the destruction of the dollar. Let the market correct. It will be ugly, but it is the lesser of two evils.

see, all i saw was more of your tired tired rhetoric (devoid of any detail) in response to very specific economic questions.

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Originally posted by Capitalizt Those who favor lower taxes (like me) can't point to these victims of high taxation and say "See? The capital gains tax prevented $1.8 trillion from flowing into U.S. stocks last year! or "The corporate tax cost us 2.5 million jobs!" It's impossible to demonstrate the damage done by taxation because it's negative effects are widespread and invisible...while the benefits of spending tax money are tightly focused and obvious.

investing in stock does not help produce economic activity. Once stock is outstanding, purchasing the stock doesn't add to the corporate earnings or ability to produce goods (except to the extent the corporation can use its own stock to borrow (and market purchases increased the value of the stock)).