Global economic downturn

I understand the point. However, Government spendings have two advantages over tax cuts :

1. the money is invested in the country,
2. the money is...well... invested ! (not saved...)

It is interesting that no one is talking about implied tax increases.

First point is the US each State has income taxes which range from 0-11% also localities (Counties etc) also have taxes.

If Government cuts down on spending to Cities and States, lets say in NY for the MTA (transit system)--they then need to raise money which they do by increasing fares. There are lots of discussions in NY about Subway hikes and such which is in effect an implied tax increase due to Government altering its subsidies

Let's look at other problems with all of this. The FDIC insures savings and as such is running low as it has had to bail out lots of banks. So they are going to raise fees to the member banks to help build the reserve fund. All this does is force these same troubled institutions to pay more and passing it along to the consumer.

I was told housing accounts for roughly 25% of all jobs--and clearly the housing  collapse started the consumer freeze so housing prices need to stabilize before anything good can happen. 

The current stimulus plan is going to help localities which is good and provide jobs (or keep the jobs) of current Government workers but really is just a modest help. No one can prove when or how Gov't spends money efficiently

The whole economic structure of getting business done needs to changes including health care, Social Security, lobbying etc.

Also not that it matters but I am a Democrat (and voted for Obama) but feel he is getting bad and mixed advise and doesn't have a plan besides good rhetoric to get anything done

In looking at the stimulus package I find it hard to concede that the government is efficient or knowledgable at determining where to invest.  The 8-9,000 earmarks, by both parties, look to be typical transfers to core constituencies and pet projects.  I can invest my assets better than Congress.  I don't remember the last time I called Barney Frank or Dick Lugar for financial advise.  I have a better chance of Kasparov coming to my house for a game of bughouse, dinner and drinks.

Sorry, have to leave.  Someone is at the door!

 Maybe, but personnally, any money left from tax cuts will go directly to pay off my loans

Out here in California things are looking pretty grim. Unemplyment just went over 10% state wide. The State government itself is in very serious trouble (again) for a number of reasons. The collapse of real estate prices is casuing a domino effect due to prop 13. Houses are selling (when they sell) for half of what they sold for a year ago therfore the State gets half of the property tax on that same house as they did a year ago. Every day the bad news gets worse as mass lay-offs continue. The public and private sectors are both bloodied and beaten fairly equally at this point. We are in deep s##t out here...

The idea that the government can stimulate the economy through spending is a popular fallacy. All they can do is steal resources from one person and give it to another, they cannot create wealth.

Whenever a government says "stimulus" what they're really saying is "inflation".

Oh I'm not saying what he said in that clip is in any way false. Glenn Beck is known for being well...kinda dim, and I didn't want him to detract from the message of the video. Hence the "he's an idiot" remark.

Anyway, if anyone is interested here are some links to good literature on basic economics.

http://jim.com/econ/contents.html

http://mises.org/books/ballve.pdf

And my favorite video on the subject of housing and the US economy:

http://www.youtube.com/watch?v=6G3Qefbt0n4

Here's another video, this one was just released. It should be educational for all interested in the world economy, but especially us Canadians.

http://watch.bnn.ca/#clip146021

The idea that the government can stimulate the economy through spending is a popular fallacy. All they can do is steal resources from one person and give it to another, they cannot create wealth.

Whenever a government says "stimulus" what they're really saying is "inflation".

Why so ? They can borrow money from other countries, or even ask their Central Bank to buy their bonds.

Then someone will probably pay...but later

And if the government builds a school, isn't it creating some wealth ?!

Sorry to annoy you with all these questions, but this is a great opportunity to practice my "non-chess" English

What happened to the "no politics" rule?

When the government builds something it isn't creating wealth, since it always has to take money away from the private sector. Sure, the government can build a school, but to do so they have to tax (steal) money from private hands, thus depriving others of the ability to build something.

The government never creates wealth, they only redistribute it.

Probably the worst thing about the government spending money is that they spend it so inefficiently. How does the government know what should be built and when and for how much? The market should be determining these things not a bunch of bureaucrats.

Central government planning never works. They tried it in the Soviet Union and look where it got them. The US has been trying it since 1913, and look where they've ended up.

But as I pointed earlier, I don't have the impression the government has to tax "private hands" : it can borrow the money too...

As for the inefficiency of government spending, is it always the case ? I don't know... What about the railway industry in the UK ?

As long as we're not expressing any preference for one political system over another and are just discussing the economic role of the government, isn't it ok ?

But tell us if we cross the line

I am not sure I agree with Ericmittens comment that 

When the government builds something it isn't creating wealth, since it always has to take money away from the private sector. Sure, the government can build a school, but to do so they have to tax (steal) money from private hands, thus depriving others of the ability to build something.

This assumes everything is a zero sum game but it is not so--Governments run at a deficit and can print money so they can build schools, creating jobs and causing a spending multiplier to ripple throughout the economy BUT the worry is inflation caused by printing too much money or not enough people to buy your debt

Yes, countries can borrow, which is what most countries have been doing. The problem with that is at some point the loans have to be repaid! The US national debt is now approaching 14 trillion dollars, how are they ever supposed to repay that money? Other countries have similar, though less gigantic, debt problems. The minute wealthy countries like China and Japan stop lending, it's over.

As to the inefficiency of government, the very nature of government promotes inefficiency. Look at it this way.

If you work for a government bureau your department is given a set budget every year. Now, say your department works hard and does their job very efficiently and comes in under budget. Whats going to happen? Your budget is going to get cut!

Now say you're all lazy and inefficient and you go over budget? What happens then? Your budget is increased! Because clearly you lack the man-power or monies to do your job!

Now lets compare that with the private sector. In the private sector if you do your work efficiently and come in under budget what happens? Your company has extra capital it can use to expand. Maybe you might get a raise, or some new people might get hired, the business prospers. If on the other hand you go over budget you're likely to lose money. People might get laid off, or planned expansions may have to be put on hold.

So you see, by its very nature government rewards inefficiency, whereas the private sector is always striving for the most cost effective, efficient solution.

Of course, building schools for a national education system will hardly profit the entrepreneur in the short term. However, the wealth created by a well-educated society is real, immense and immeasurable. Just as the wealth created by a healthy society. By the way, the privately owned and operated health-care system of the United States the costliest in the world. (http://www.jhsph.edu/publichealthnews/press_releases/2005/anderson_healthspending.html)

To me, that's not generating but substracting wealth

Furthermore, the idea of "leaving everything to the hands of the market" because it knows better created this whole mess, starting with the sub-prime mortgage crisis. Here is just one of many articles critisizing the extensive deregulation that has occured in the last decades:

(http://www.morganhilltimes.com/opinion/248916-deregulation-is-reason-for-subprime-mortage-crisis)

Of course, the public can't be as efficient as the private sector. It never will. That is the cost of making a decision benefiting the common good.

As for the stimulus packages helping the economy, well i guess it depends. If it invests in durable, long-lasting projects they can easily help the economy. For example, most countries (including Canada) are gearing up for infrastructure projects. Surely, building and improving roads will benefit the economy in the short-term, by creating jobs, and in the long-term by making trade faster and easier.

 weal for income tax about 30%,im not sure about health care

No, that's not true in itself.  On the face of it, that is what happened, but in essence what happened was banks kept borrowing to feed demand.  Once Lehman brothers crashed a reassessment took place which restricted the flow of money to the market and that is what caused the crash.  Demand still exists but the flow of money no longer does as markets have realised they were inflating a bubble economy rather than a value creating one. 

The truth is market economics are still the key, but the lesson is they need to be regulated and regulated hard!

Well it's not too bad, even if we can do better i'm sure.

Here is the total health expenditures per capita of the U.S. and 17 other countries from the OECD. (http://www.kff.org/insurance/snapshot/chcm010307oth.cfm) 

We can see that Canada is in 8th place out of 17, which is respectable albeit still a bit high. However it is MUCH better than the U.S. at almost double the rate.

I have often thought that if I paid no tax, but he government gave me responsibility for other people, we would actually all be better of as we would remove the middle man from the equation.

Of course that is feudal economics which doesn't work either as I will be better at looking after my own family than the others for which I have responsibility.  Having said that, central government is inefficient so we are back to square one.

By the way, I am making sure no-one strays from economic arguement to polictical ones, otherwisde I will shut this forum down muyself.  But thanks to all for staying within the spirit of the debate!

Lack of oversight,allowing banks to also become investment banks, and slicing and dicing the sub-prime mortgages into investment securities, among other things, puts us where we are.  We all likely have an opinion as to where the fault lies.  However, initially we were told the solution was to prop-up the dubious/unknown value of the mortgage securities, reverse "mark to market" valuation, and get liquidity into the banks to promote lending.  Small banks, in my area, are backed up with loan applications.  People are finding loans for homes, cars, and refinancing:  if they qualify (as in the old days).  Unemployment is a problem everywhere.

By the way, none of the initial solutions were done, except to print huge amounts of money.  My grandson will likely earn $100,000 in an average job.  Of course, his refrigerator will cost $6,000, house $450,000, and chess.com monthly fee $250.  Excuse me, Kasparov wants another sherry.