Generic "Economy" thread

[Jaguar]

This thread is about a few different economics topics. Here are the questions I would like to be answered/debated.

1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

[Dis]

technically we are not in a recession.

but it had to happen as the tech stocks were overvalued. they wern't worth that much. and that money was pissed away.

since the spanish-american war, wars have tended to boost the stock market as a whole. So I have to go with history on that one.

[Urban Ranger]

4. No. The interest rate is so low that cutting taxes will not have any effect at all. W. should increase government spending instead.

[Dis]

I agree a tax cut will not work. But increase goverment spending? I diagree. I say decrease spending and reduce the debt.

[Solly]

Some rushed answers.

1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

No too big a thing at the moment, might be if it doesn't get sorted out though - looks like doing with fall of dollar and weakness of American demand.

2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

Too much investment in "IT, "dotcom" or whatever you want to call it. Natural cycle. September 11th.

3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

Might boost the economy but spending the defence money eslewhere would have a greater impact. Effect on oil prices is an unknown.

4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

Tax cuts can have multiplier effects, but the evidence suggests the tax cuts have been not been towards the poor. The poor have higher income elasticities so the multiplier won't be as great as it could have been.

5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

No.

[Drogue]

Originally posted by Jaguar Warrior
1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

In the long-term, yes, in the short-term it deopends on the circumstances. Deficit spending can be good to pay your way out of a recession (new deal style, or something less ambitious) under the basic idea that more spending, either by consumers or the Government, will boost the economy. However it must be paid back later from taxpayers funds. Therefore having a long-term deficit is generally bad.

Originally posted by Jaguar Warrior
2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

Partly worldwide economic downturn, partly Septermber 11th, and mostly overpricing of shares (dot com/tech boom) and business cycle, as Bod's said.

Originally posted by Jaguar Warrior
3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

It will have an effect, probably short-term boost, due to higher spending, but a long-term problem since it has to be paid back, as much of the money spent on defense is wasted , as it is used up.

Originally posted by Jaguar Warrior
4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

Neither. It will possible help the economy *slightly*, but create a bigger defecit and lower government spending.

Originally posted by Jaguar Warrior
5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

Yes ( to Boddington)
It can work, but it won't, at least not in the near future in the UK. Although possibly something in between the two would be better, having higher taxes, better services, but not quite going as far as Sweden.

[Kropotkin]

What is a Sweden-style economy then? Some definitions, please...

Also, as a side note; the swedish relative decline in economic growth in many aspects ran alongside the american relative decline compared to leadning OECD-countries for the bulk of the post war period, until around 1990.

[DAVOUT]

A trade deficit is not a bad thing when it is financed by other income from abroad, such as dividends, interests on loans or invisible exports such as tourism.
You have to worry when the financing is made by borrowings or the proceeds of selling assets.

However, even if satisfactorily financed, on the long term a consistent trade deficit can results in a technological dependence which you have to worry about.

[DuncanK]

Originally posted by Dissident
I agree a tax cut will not work. But increase goverment spending? I diagree. I say decrease spending and reduce the debt.

Decreased spending is the last thing we need. That's like saying we need less consumer spending. They both create jobs the same way. And you certainly don't want to try and reduce the debt if there is any danger of going into a recession.

[DuncanK]

The trade deficit doesn't cause economic problems, but it is the result of economic problems. It exists because of the reluctance to hire Americans to produce the things they consume. Instead Americans are hired to do lower paying service jobs. If it weren't for these McJobs, we wouldn't have many jobs at all. Corperations give the better jobs to people in other countries, because they will accept less pay.

The trade deficit doesn't cause any financial problems because the corporations just suck that off of us in profits, interest and rents and have plenty left over.

[Main_Brain]

Keynes Followers.. everywhere ..

[DAVOUT]

Originally posted by DuncanK


The trade deficit doesn't cause any financial problems because the corporations just suck that off of us in profits, interest and rents and have plenty left over.

Only corporations importing goods are remotely concerned by this statement. It is absolutely acceptable that a developping country exporting high technology products prefers to import low tech product such as shoes, dresses, toys etc. If you want to be paid for your planes, your client must make some money on other items.

It must not be forgotten that the international trade results for each country in balances which are deficits or profits, and overall NIL, by definition. The only reason why the US trade deficit is so big is simply because the US can borrow without limit to foreign $ holders.

[DuncanK]

Originally posted by DAVOUT
The only reason why the US trade deficit is so big is simply because the US can borrow without limit to foreign $ holders.

Of course we borrow from foreign dollar holders. They end up with the dollars from their exports and need to invest it somewhere. The natural place is back to the US. It doesn't reduce the wealth here in the US though. The US keeps getting wealthier and wealthier every year. That's because of profits, interest and rents.

[DuncanK]

Originally posted by DAVOUT
Only corporations importing goods are remotely concerned by this statement. It is absolutely acceptable that a developping country exporting high technology products prefers to import low tech product such as shoes, dresses, toys etc. If you want to be paid for your planes, your client must make some money on other items.

The thing is that there is labor here in the US to produce those goods. If we could produce many of those goods ourselvs it would force the corporations to pay us more, and we would be better off. It's not advantageous for us to import these goods if the result is a smaller paycheck.

[Solly]

Oh please, carry on DuncanK.

You're second only to Laz.

[DAVOUT]

From an economic point of view, profits, interests and rents are the final result (with salaries ans pensions) of a highly productive country, but they are also an important source of income. The problem is perhaps in the way this income is distributed, but this is a different story ...

[DuncanK]

Do you have any idea what we are talking about Boddington?

[Solly]

The thing is that there is labor here in the US to produce those goods. If we could produce many of those goods ourselvs it would force the corporations to pay us more, and we would be better off. It's not advantageous for us to import these goods if the result is a smaller paycheck.

[DuncanK]

Originally posted by DAVOUT
From an economic point of view, profits, interests and rents are the final result (with salaries ans pensions) of a highly productive country, but they are also an important source of income. The problem is perhaps in the way this income is distributed, but this is a different story ...

The reason the distribution sucks is because labor can not negotiate better wages. It's the same story.

[Andrew1999]

Well, consumer confidence is officially in the toilet. People feel worse now than they did after Sept. 11:

The Conference Board, a business research group based in New York, said its closely watched index of consumer confidence dropped to 64 from a revised 78.8 in January. Economists, on average, expected a reading of 77, according to Briefing.com.

It was the lowest reading for the index since October 1993. It was the biggest month-to-month drop in the index since a 23-point drop in October 1990 and the fifth-largest one-month drop on record.

Thanks, Mr. Ridge! Thanks, Mr. Bush! I guess if you tell people often enough that the world is ending they will begin to believe it.

[DAVOUT]

Originally posted by DuncanK


The thing is that there is labor here in the US to produce those goods. If we could produce many of those goods ourselvs it would force the corporations to pay us more, and we would be better off. It's not advantageous for us to import these goods if the result is a smaller paycheck.

All developped countries have had this terrible problem : low tech products are irresitibly taken over by developping countries (mainly under the pressure of the consumers hangry of low prices), which let the less qualified workers jobless.
There is no easy solution, but it is clear that long term planning is the first coming to mind : we can hardly accept that the closing of a factory or an industry be decided with six months notice.
An appropriate delay would make possible to adapt the workforce to new jobs through education, training, etc.
And meantime, the cheap imports could be taxed (in order to soften the interim period), with the important condition that the amount collected through the special import taxation be send to the developping country for financing investment, technology transfers, etc.

[Solly]

[DuncanK]

DAVOUT,

I don't think that so many factories should be shut down at all. I don't think it's in our best interest to have such disparity in the skill of our labor force. We have very highly skilled labor and then we have a bunch of very low skilled labor. The moderate skilled labor jobes are disappearing and that's causing a problem with distribution.

Even if training programs were better that would just bring down the wages in higher skilled industries. There aren't enough high skilled jobs available for everyone in America, and there never can be.

[DAVOUT]

May I help you ?

Edit : To Boddington

[DuncanK]

The problem with the current division of labor is that you concentrate types of jobs. This creates an advantage with employers becuase they have a greater supply of labor to hire from. They get better negotiating power at the expense of labor. Look at the low paying service jobs here in the US. Employers of high skilled labor would love to see an increase in skilled labor employees, because that would allow them to pay ****, just like they pay the low skilled workers.

[Ned]

Originally posted by Jaguar Warrior
This thread is about a few different economics topics. Here are the questions I would like to be answered/debated.

1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

I think the US economy and money supply continues to grow a lot faster than the trade deficit. We could keep this up indefinitely without harm.

2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

The ruling by the FCC that telephone companies had to share broadband infrastructure while their cable competition did not. This cause a freeze in telecom spending that had a ripple effect, causing a ballooned stock market to begin to retract. This occurred exactly when Greenspan began to raise interest rates to in the spring of 2000. The combo killed the stock market and caused the current stagnation.

3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

War spending in a stagnant economy has always done wonders.

4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

Tax cuts have always had a stimulative effect. There is no reason to believe this would be any different.

5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

I don't see how an economy can be "robust" if there is no incentive to work hard.

[DuncanK]

Ned,

The question is whether the the tax cuts will create a budget surplus, not whether they would have a stimulating effect. This is about the Laffer curve. Laffer predicted that a cut in taxes would create an increase in tax revenue, which is absolutely absurd. Taxes would have to be at extremely high levels to see that occur. Is Bush actually saying that his tax cuts will ballance the budget or create a surplus? I haven't actually heard him say that. That would be funny.

[Japher]

technically we are not in a recession.

recession:
A period of general economic decline; specifically, a decline in GDP for two or more consecutive quarters.

So, technically we are in a recession.

1. Is a trade deficit a bad thing? The United States has a big trade deficit, and has had one for a long time, and it seems to be OK. But would it be better off if it broke even?

I don't know.

2. What caused the current recession? Careless 1920's style spending during the Clinton administration, or Bush's lack of an economic plan? Obviously 9-11 had some effect as well. Just how much of an effect did it have?

Poor planning. Lack of contingencies. An over inflated market, of low replacement rate products generated large companies, with small capitol, large inventories, and non-established repeat buisness accounts.

3. Will war with Iraq boost the economy, send it further into recession, or have no effect?

It will kill the economy in the short term, help it in the long term.

4. Will the Bush tax cut cause an economic upturn, and in turn create a budget surplus? Or just the economic upturn, or neither.

It will help, and may off set the short term downswing caused by the war.

5. Can a Sweden-style economy work under any circumstances? Sweden's economy has really slowed down over the past 50 years, but could it work if it was applied to, for example, the UK?

I agree with Ned. An economy needs to be robust and over rewards equal to the amount of effort put into it. Sweden is going the way of Argentina. A stagnant economy is worse then a falling economy.

[Japher]

The question is whether the the tax cuts will create a budget surplus, not whether they would have a stimulating effect.

DuncanK, maybe you should read the question again... the entire question.

[DAVOUT]

DuncanK,

I cant see any solution to any business problem when they are analysed in term of conflict. Skilled labor is normally considered as the primary wealth of a corporation, and the more employes are skilled the more the employers should be happy, because it is the guarantee that the company will be efficient, and consequently successful. It is generally observed that high skilled employes have no difficulty in finding jobs (under normal economic conditions of course).
The problem of the low paying service jobs is totally different; they are lowly paid primarily because they are not highly valued by the end user, and also because these jobs have an efficiency which cannot be technologically improved.
Where you have a point, is about the fact that although the corporations should act in the interest of the shareholders, they should not act ONLY in their interest, but they should recognize ALSO that the employes have legitimate rights which are to be taken into account in the strategic decisions.