Politics: A new beginning

[sgtclub]

Originally posted by Secret_Agent_Man
and Walter Cronkite was no closet lib.

S_A_M

You are right. He is certainly out of the closet.

[sgtclub]

GDP rose by 7.2% in Q3. Discuss.

[sgtclub]

Originally posted by Connect_the_Dots
Conventional wisdom is wrong--as usual.

Agreed, but I'm still not sure why you say unrestrained spending is killing the economy, especially given that GDP rose 7.2% in Q3 (and will likely be revised up).

[Tyrone Slothrop]

Originally posted by sgtclub
GDP rose by 7.2% in Q3. Discuss.

Here's what Brad DeLong said before the numbers came out:

• About five hours from now the Department of Commerce is going to release its first early estimate of the seasonally-adjusted pace of economic growth in the third, summer quarter of 2003. It will be a big number--growth at an annual rate of 6.0% per year or more.
  
  Sometime in the following week, the Labor Department will combine that estimate of the rate of economic growth with its own estimates that the number of hours worked in America fell at an annual rate of 0.7% per year during the summer. It will then announce an estimate of the annual rate of productivity growth over the summer--something close to a 7.0% annual rate.
  
  How can such strong output growth coexist with such lousy employment news? It is this year's great economic data mystery. Everyone believes that it cannot last. Either (i) firms will find themselves unable to meet rapidly-growing demand with their current labor force, and will start hiring at a furious pace, rapidly expanding employment; or (ii) households will take a look at their less-than-certain employment prospects, cut back on spending, and the pace of demand growth will slow drastically.
  
  Current forecasts are smack in the middle: predictions of output growth at an annual rate of between 3.5% and 4.0% per year over the next year and a half or so, coupled with employment growth of perhaps 125,000 a month on average--enough to keep the unemployment rate from rising, but not enough to make unemployment fall.
  
  However, the longer the disjunction between fast output growth and stagnant employment continues, the less likely this smack-in-the-middle forecast becomes. Things are very likely to be either significantly better or significantly worse than the current consensus forecast--but we have no idea which.

[Connect_the_Dots]

Originally posted by sgtclub
Agreed, but I'm still not sure why you say unrestrained spending is killing the economy, especially given that GDP rose 7.2% in Q3 (and will likely be revised up).

Because it makes no difference if you tax and spend or borrow and spend. Tax and spend takes money out of consumers' pockets and borrow and spend does the same thing (by priniting more money you devalue your currency). While they can spin this and say that it is good for US exporters, it is not necessarily good for the rest of us. Only some people are exporters, the rest of us are consumers. By devaluing our money, it makes all imports cost more. Every TV, car, piece of clothing etc. that has foreign components will now cost each of us more. That means less money for us to buy things and less money spent in retailer stores. Moreover, many of the inputs used by manufacturers (who export) must be purchased from overseas with, now, less valuable dollars, which makes the export more expensive to produce.

If that is not bad enough...one of the reasons are manufacturers (and our capital markets) do so well is that the USD is used to pay for many foreign transactions that don't involve US goods. THat means that foreign central banks like to keep dollars in their reserves so that they can pay for things. They may be reluctant to keep reserves in a falling currency and choose to purchase dollars as they need them or (worse) to dump their existing dollars back onto the market causing it to fall further and making imports more expensive. Most international contracts (with a US counterparty) are denominated in dollars. If the counterparties don't like the currency risk, they will start demanding that the transactions be denominated in their home currency (or someone else's) and would shift the costs of hedging it to the US producer.

[Greedy,Greedy,Greedy]

Originally posted by Connect_the_Dots
Because it makes no difference if you tax and spend or borrow and spend. Tax and spend takes money out of consumers' pockets and borrow and spend does the same thing (by priniting more money you devalue your currency). While they can spin this and say that it is good for US exporters, it is not necessarily good for the rest of us. Only some people are exporters, the rest of us are consumers. By devaluing our money, it makes all imports cost more. Every TV, car, piece of clothing etc. that has foreign components will now cost each of us more. That means less money for us to buy things and less money spent in retailer stores. Moreover, many of the inputs used by manufacturers (who export) must be purchased from overseas with, now, less valuable dollars, which makes the export more expensive to produce.

If that is not bad enough...one of the reasons are manufacturers (and our capital markets) do so well is that the USD is used to pay for many foreign transactions that don't involve US goods. THat means that foreign central banks like to keep dollars in their reserves so that they can pay for things. They may be reluctant to keep reserves in a falling currency and choose to purchase dollars as they need them or (worse) to dump their existing dollars back onto the market causing it to fall further and making imports more expensive. Most international contracts (with a US counterparty) are denominated in dollars. If the counterparties don't like the currency risk, they will start demanding that the transactions be denominated in their home currency (or someone else's) and would shift the costs of hedging it to the US producer.

I'm trying to connect some very fuzzy dots here.

Are you saying that "unrestrained spending" by consumers is wrecking the economy because it is the principal and root cause of the current devaluation of our currency?

[sgtclub]

Originally posted by Connect_the_Dots
Because it makes no difference if you tax and spend or borrow and spend. Tax and spend takes money out of consumers' pockets and borrow and spend does the same thing (by priniting more money you devalue your currency). While they can spin this and say that it is good for US exporters, it is not necessarily good for the rest of us. Only some people are exporters, the rest of us are consumers. By devaluing our money, it makes all imports cost more. Every TV, car, piece of clothing etc. that has foreign components will now cost each of us more. That means less money for us to buy things and less money spent in retailer stores. Moreover, many of the inputs used by manufacturers (who export) must be purchased from overseas with, now, less valuable dollars, which makes the export more expensive to produce.

If that is not bad enough...one of the reasons are manufacturers (and our capital markets) do so well is that the USD is used to pay for many foreign transactions that don't involve US goods. THat means that foreign central banks like to keep dollars in their reserves so that they can pay for things. They may be reluctant to keep reserves in a falling currency and choose to purchase dollars as they need them or (worse) to dump their existing dollars back onto the market causing it to fall further and making imports more expensive. Most international contracts (with a US counterparty) are denominated in dollars. If the counterparties don't like the currency risk, they will start demanding that the transactions be denominated in their home currency (or someone else's) and would shift the costs of hedging it to the US producer.

It sounds like what you are saying is that unrestrained spending causes inflation, which also hasn't been the case. Or do I misunderstand you?

[Connect_the_Dots]

Originally posted by Greedy,Greedy,Greedy
I'm trying to connect some very fuzzy dots here.

Are you saying that "unrestrained spending" by consumers is wrecking the economy because it is the principal and root cause of the current devaluation of our currency?

No...unrestrained spending by the government. There is a limit to how much a consumer can spend. Sadly, not so with a government.

[Greedy,Greedy,Greedy]

Originally posted by Connect_the_Dots
No...unrestrained spending by the government. There is a limit to how much a consumer can spend. Sadly, not so with a government.

Then what was your point on encouraging tax cuts for those who invest rather than those who would spend?

[Connect_the_Dots]

Originally posted by sgtclub
It sounds like what you are saying is that unrestrained spending causes inflation, which also hasn't been the case. Or do I misunderstand you?

Unrestrained spending WILL cause the price of imported goods to rise (and eventually the price of domestic goods too). Not all price increases occur in all segments of the economy at once.

It usually occurs something like this:

Loose monetary policy (i.e. artifically low interest rates) makes too much money available. This creates false signals in the market regarding current (and future) demand and current production. This causes businesses to invest in riskier projects (i.e. with a longer production cycle) because the rosier outlook now appears to justify it. As whatever is being produced nears the end of the production cycle, businesses discover that the anticipated inputs that are needed at the end of their production cycle are not there (or at least not at the prices they anticipated). They then bid up the prices for these last links in their production chain which raises prices. Since the aniticipated demand is no longer there, this will eventually result in a recession/correction and prices (and output) will fall to lower levels. This is what happened in the dot-com boom, telecom boom, railroad boom etc. etc. etc.

[Connect_the_Dots]

Originally posted by Greedy,Greedy,Greedy
Then what was your point on encouraging tax cuts for those who invest rather than those who would spend?

(Most) People don't keep their money in a mattress. They put it in banks that lend to businesses, which will invest in productive capacity. Shifting money from consumption to capital investment in an economy helps long-term productivity increase. (increasing the amount of capital per capita of workers also usually increases the marginal productivity of your workers, which leads to increases in real wages, making everyone better off).

Spending on goods that are produced with capital that has already been invested (Cap Ex from years earlier) will shift income from consumers to businesses (and their shareholders etc.) but will have little to no effect on the long-run health of the economy.

[Greedy,Greedy,Greedy]

Originally posted by Connect_the_Dots
Spending on goods that are produced with capital that has already been invested (Cap Ex from years earlier) will shift income from consumers to businesses (and their shareholders etc.) but will have little to no effect on the long-run health of the economy.

Sorry, you're just dead wrong on this one. The reality is that the investment cycle is such that there is a lot of money on the side-lines, weathering the storm in cash-equivalent and very conservative investments. Venture funds and buy-out funds are grossly over-invested, and a lot of debt funds are finding that the only way to put money to work is to invest it overseas. There is money ready to deploy for the productive sector. Unfortunately, this is a daily reality of my work.

What there is not is a demand sufficient to justify sticking that money into investments that will move the economy forward. We NEED consumers to take the money out of their mattresses, banks, etc. and deploy it more effectively to get the investment.

Also, we currently have excess capacity, so trying to fuel investments that will build capacity is not going to get you much.

That means that if someone wants to cut taxes (separate debate), they shouldn't be cutting capital gains taxes but instead they should be lowering rates on the non-luxury goods spenders, and that was what I thought the focus of the debate was.

[Connect_the_Dots]

Originally posted by Greedy,Greedy,Greedy
Sorry, you're just dead wrong on this one. The reality is that the investment cycle is such that there is a lot of money on the side-lines, weathering the storm in cash-equivalent and very conservative investments.

In other words, it is invested. These investments already end up in the hands of businesses.

Venture funds and buy-out funds are grossly over-invested, and a lot of debt funds are finding that the only way to put money to work is to invest it overseas.

I assume you mean under-invested. Under-invested compared to what? The amount in them at the height of the dot-com bubble? Since you think it is under-invested, what is the correct amount of investment in venture funds, as opposed to vulture funds? Secondly, if there is an excess capacity here (as you alleged infra), why are they investing their money overseas? (to create excess capacity there too)?

There is money ready to deploy for the productive sector. Unfortunately, this is a daily reality of my work.

Filling out S-4s doesn't make you a stock analyst, and stock analysis doesn't make you an economist. So, unless you are an economist...I don't buy it.

What there is not is a demand sufficient to justify sticking that money into investments that will move the economy forward.

It is already invested in the economy. I think you mean that the incentive isn't their to shift it to riskier investments (like venture capital financing). I agree with that, if that is what you meant.

We NEED consumers to take the money out of their mattresses, banks, etc. and deploy it more effectively to get the investment.

Ugggh....It's not in mattresses...and it's already "deployed".

Also, we currently have excess capacity, so trying to fuel investments that will build capacity is not going to get you much.

OKAY! Now we are getting someplace. Excess capacity doesn't exist everywhere, right? Where is there excess capacity? In Telecom and certain production sectors that over-invested in longer (riskier) production cycles b/c they were misled by demand signals and indicators of available productive capacity. Why were they misled? B/c a loose monetary policy made credit too easily available (i.e. money was being printed too rapidly) which caused the tech bubble. More government "stimulus" is what got us into this mess in the first place, its not what will get us out of it.

That means that if someone wants to cut taxes (separate debate), they shouldn't be cutting capital gains taxes but instead they should be lowering rates on the non-luxury goods spenders, and that was what I thought the focus of the debate was.

They should be cutting taxes that will encourage people to work, save and invest. Cutting the marginal tax rates? Yes! Cutting capital gains...maybe. Cutting rates on non-luxury goods spenders? Depends what rates you are talking about.

[Hank Chinaski]

from a page on last week's protest, a poster each of us would like to have (some out of sarcasm)
http://home.comcast.net/~abunny2000/...cture_132a.jpg

[Hank Chinaski]

Howard Dean, is a metrosexual, as long as there's nothing wrong with it. What a hip guy!



http://www.denverpost.com/Stories/0,...729382,00.html

Dean declared himself a "metrosexual," the buzz phrase for straight men in touch with their feminine sides, as he touted his accomplishments in "equal justice" for gay and lesbian couples.

But then he waffled.

"I'm a square," Dean declared, after professing his metrosexuality to a Boulder breakfast audience with an anecdote about being called handsome by a gay man. "I like (rapper) Wyclef Jean and everybody thinks I'm very hip, but I am really a square, as my kids will tell you. I don't even get to watch television. I've heard the term (metrosexual), but I don't know what it means."

maybe a staff position open?