[jeffkrol]

He sure is funny.................

“Tax reform” means cut taxes on the wealthy while broadening the tax base, by taxing more poor people. Entitlement programs, being federal agencies, never can be insolvent unless Congress refuses funding. No federal agency ever has been bankrupt.

If Congress and the president can’t reach a grand bargain in the next 47 days, there is an alternative solution. We poached a few of these ideas from interviews with Marc Goldwein, senior policy director for the bipartisan Committee for a Responsible Federal Budget. Goldwein probably has forgotten more about these crises than most of us ever will know:

Translation: We know absolutely nothing; Goldwein knows next to nothing. So he knows more than us.

•At minimum, our leaders need to temporarily extend today’s tax and spending rates rather than drive off the fiscal cliff.

•Second, Congress would signal that it’s serious about attacking deficits by plucking some low-hanging fruit, such as ending mortgage deductions for second homes, certain breaks for oil and gas companies, and deductions involving those corporate jets that so many politicians scorn (when they’re not flying in them as VIP guests).

Translation: The solution is to temporarily extend the current deficit. Meanwhile, Congress should cut the deficit. (“Mother may I go out to swim? Yes my darling daughter; hang your clothes on a hickory limb, But don’t go near the water.”)

•Third, Obama and the leaders . . . would agree that going forward, here is how much money we’ll budget for social programs and other discretionary spending, for employee pension and other mandatory spending, and for health care. Here’s how much tax revenue we’ll raise. And here’s our dollar target for Social Security reform.

Translation: Although we should not reduce the deficit (that would hurt the economy), here is how we should reduce the deficit: Screw the middle and lower classes by cutting Social Security, Medicare, Medicaid, food stamps and other social programs. And as a final stomp on the head, let’s also attack pensions for the middle and lower classes.

•The point would be to demonstrate to Americans and the world that, in future years, deficits will fall and debt will be a declining percentage of our Gross Domestic Product. “We want our growth rising faster than our debt,” Goldwein says, “not our debt rising faster than our growth.”

Translation: The guy who forgot more than we knew also forgot that GDP = Federal Spending + Non-federal Spending – Net Imports, so cutting the deficit has a negative effect on GDP growth (it’s simple algebra).

A The Simpson-Bowles report remains a superb framework for a Go Big deal. Strengthening that plan’s entitlement reforms should push to more than $4 trillion the amount that Simpson-Bowles would slice from federal deficits over 10 years. That’s enough to begin lowering our perilous ratio of debt to GDP.

Translation: A $560 billion, first year deficit reduction would send us over a “fiscal cliff,” because deficits reduce GDP. So we recommend a $4 trillion “Go Big” deficit reduction over ten years — $400 billion per year. No problem, there.

Simpson-Bowles is thick with proposals to cut spending, overhaul taxation, target health care costs, raise eligibility ages for Social Security and use a stingier measure of inflation to drive increases in all manner of government (social) programs.

One of Simpson-Bowles’ great features was its explanation (not recommendation) that eliminating all deductions, credits and other so-called tax expenditures would allow today’s tax rates to plummet to 8, 14 and 23 percent. A middle approach that retains but limits deductions and credits for charitable giving, mortgage interest, retirement savings and employee pensions, and that phases out the deduction for employer-provided health insurance over 25 years, would let rates drop to 12, 22 and 28 percent.

Translation: This would save low income taxpayers $0, and middle income taxpayers next to $0. But the rich would benefit big time. And anyway, why encourage charitable giving, saving for retirement, pensions and health insurance? Who needs that stuff?

sort of......................................
–Chicago Tribune nominated for Guinness World Record

[Nesster]

Translation: The guy who forgot more than we knew also forgot that GDP = Federal Spending + Non-federal Spending – Net Imports, so cutting the deficit has a negative effect on GDP growth (it’s simple algebra).

but if the problem is seen as Federal Spending 'crowds out' Non-federal spending in the equation, and Net Imports stay the same, then reducing Federal Spending automatically increases Non-federal Spending because... welll... because that's math. The GDP doesn't shrink!!! Or only shrinks when Federal Spending gets too large.





never mind

[jeffkrol]

but if the problem is seen as Federal Spending 'crowds out' Non-federal spending in the equation, and Net Imports stay the same, then reducing Federal Spending automatically increases Non-federal Spending because... welll... because that's math. The GDP doesn't shrink!!! Or only shrinks when Federal Spending gets too large.





never mind

guess it "depends" what you read and or "believe" in...............

This paper examines the impacts of deficits on investment, consumption and output.
Specifically, an error correction vectorautoregression (VECM) is employed to determine the
predictive power of shocks to taxes, government spending, and deficits on investment,
consumption, output and interest rates. Results show very little support for any crowding out
affects. While interest rates appear to respond very little to deficits, reductions in taxes or
increases in government spending appear to cause a relatively small increase in private
investment, suggesting that the Keynesian multiplier effect outweighs or at least offsets any type
of crowding out.

http://www.aabri.com/manuscripts/11808.pdf

So what happens when government deficit spends during a “liquidity trap”, as seen above? First of all, the government need not offer a very high rate to borrow in such an economy. Private interest rates will be close to zero, so even a 0.1% return on government bonds will attract lenders. So the supply of loanable funds may decrease, and demand may increase, but crowding-out will not occur because there is almost no private investment spending to crowd out! Here’s what happens:

http://welkerswikinomics.com/blog/2012/11/06/a-closer-look-at-the-crowding-out-effect/

Of course in "reality" the Fed does NOT need to borrow to spend.............but one more:

The critics say: Government spending cannot, in principle, stimulate growth in the economy. one dollar of government spending will merely replace - or crowd out - one dollar of private-sector spending. The stimulus leaves the economy right where it was, except with a higher government debt.

In these skeptics' view, individuals and companies realize that they will ultimately have to pay for any government spending now through higher taxes later. So they save the money now to pay the taxes later. This argument has been advanced by academics and pundits, such as Eugene Fama and John Cochrane of the University of Chicago.

The CBO replies: The theory that government spending will crowd out private spending is based on "unrealistic" assumptions. "This type of model generally assumes that people are fully rational and forward-looking, based their current decisions on a full lifetime plan." These models assume that people "have full access to credit markets" to maintain their desired level of lifetime consumption, even if they lose their job temporarily. These theories also assume that involuntary unemployment is impossible.

None of those assumptions are realistic. If the government were crowding out the private-sector, interest rates would rise to reflect less private investment in the future. Interest rates aren't rising, CBO said.

http://articles.marketwatch.com/2010-02-23/economy/30794007_1_stimulus-gover...ending-economy

If the federal government borrows from savers when the economy is at or near full employment, then there will be either (1) “crowding out” of domestic investment, or (2) transfers to foreigners of ownership in American assets – land, capital, or corporations. During the 1980s, record government budget deficits under President Reagan drove the U.S. from being the world’s largest creditor nation (foreigners owed us) to being the world’s largest debtor nation (we owed them.). Much of this relative indebtedness to foreign interests was eliminated by the smaller deficits and eventual budget surpluses during 1993-2000. Unfortunately, our current twin deficits, fueled by the budget deficits of 2001-2005 [and forecast to continue indefinitely] have reestablished the United States as the all time and uncontested champion of debtor nations.

Do deficits always crowd-out” investment?

Suppose, as was true in the United States at the beginning of World War II, that a nation is significantly underemployed when the central government runs a deficit. In such cases, it is possible for gross domestic product to grow so rapidly that budget deficits neither “crowd-out” investment nor cause positive inflows of foreign saving because C and I and G and S and T may all grow. Open the file fiscal policy and the great depression for a discussion of this exception to the crowding-out hypothesis. See also aggregate expenditures and crowding in.

http://www.unc.edu/depts/econ/byrns_web/Economicae/Figures/Absorp_Equation.htm

for more fun w/ math:
crowding-in:

Crowding in is the increase in private investment or private consumption induced by the multiplier-accelerator process when government spending financed by deficits stimulates increases in national income and output. Open the file fiscal policy and the great depression for an example of how crowding-out may be a moot issue if the economy is operating below capacity. Contrast with crowding-out.

http://www.unc.edu/depts/econ/byrns_web/Economicae/EconomicaeC.htm

I'm pretty sure you are more aware of this than I am..

The crowding-out hypothesis is the idea that increases in federal spending inevitably cause reductions in private consumption or investment. For example, increases in government borrowing to cover a budget deficit may increase interest rates, reducing investment. The crowding-out hypothesis assumes that the economy is initially at a full employment level of output.

Errr... found one more..............

(read article beginning)
This tidy, all-purpose critique of public expenditure suffers from a fundamental flaw. It is nonsense. The entire logic, if one can call it that, rests on the presumption that the economy continuously operates at its full potential. If the doors open to a half empty elevator, no one need exit to let a new person in. The analogy is appropriate for public and private sending, and most emphatically appropriate when deficits increase.

When resources are fully employed, governments, business, or households can each spend more only if one or two of the others were to spend less. When resources are idle, governments, business, and households can all spend more. In the experience of the advanced countries over the last several decades resources have been idle much more often that they have been fully employed.

After 2007 idle resources in almost every advanced country reached scandalous levels. The suggestion that public expenditure might crowd out private investment and consumption has little foundation most of the time, and none since the global financial collapse of 2008. As for public borrowing driving up interest rates, this depends entirely on the specific circumstances of each country.

http://therealnews.com/t2/component/content/article/81-more-blog-posts-from-...t-the-problem-