Will Ending Unemployment Benefits Hurt the American Economy? .. You Betcha'! The HURT Clock - $18.8 BILLION!! [227*11]

THEY DIDN'T DO IT

1/15/2014: YESTERDAY, CONSERVATIVES KILLED THE ATTEMPT to restart the emergency unemployment insurance. They say it will save the "taxpayers" $25.5 billion over the next 12 months. Unfortunately, as any economists knows, that is a flat-out lie; it won't save us a dime. Instead, it is going to cost the American taxpayer over the long-run and I am going to start counting how much with my HURT CLOCK; it started ticking Dec 28, 2013 when the benefits ran out to the tune of $55 million a day! If you are a small business, get ready to suck it in because you have been kicked in the you know where. If you are one of these unemployed who have or will lose your insurance, you have my heart-felt apologies for what you are about to suffer through.

1/22/14: Today I learned that the number who have lost their unemployment benefits has risen to 1.6 million and is growing by 70,000 a week. One anecdote ought to warm the cockles of the hearts who oppose extending the benefits is the story of one women who found a way to make ends meet ... lower the temperature of her home to 50 degrees.

2/3/14: IF YOU ARE A SMALL BUSINESS OWNER, today marks the point where Conservatives have cost you $2 Billion in Sales. How do like them apples? Felling the heat yet; if not, you will.

AND, HOW ABOUT YOU LONG-TERM UNEMPLOYED? I know you have to be feeling the pain of having your legs cut out from under you while understanding at the same time the Conservatives are purposefully adding insult to injury because THEY KNOW employers aren't hiring the long-term unemployed. Why do Conservatives hate you so much and it you are Conservative, why do you keep voting for them?

2/18/14: THE STATES GET HURT TO, DID YOU KNOW THAT? That is because, for those that charge it, they don't collect it. My state, Florida, has 7.5% in State and local sates tax, but not on most foods. In total, then, and picking a conservative 3% figure, cutting off these needed funds where AT MOST one-third of them MIGHT be able to replace the lost income with jobs, the states and local governments (and this includes the Conservative States who applauded this decision and miserly unemployment insurance programs like Florida does) receive a double whammy by losing a combined $.1 billion in sales taxes along with similar amounts of forgone income taxes from the businesses who lost the sales PLUS the support costs of these people forced deeper into the welfare system. Further, the Federal Government lost revenues equivalent to the marginal tax rate on the businesses where this $2.9 billion wasn't spent so far; and it will keep growing as long as long as the Republicans keep voting No and there aren't jobs these people can fill.. Yep, America was well served by this political ploy.

2/26/14; Well, we slipped by $3.3 billion of national hurt and embarrassment. It sort of puts a lie to the Right-wings belief that there is a job available for every one that is looking for one if you simply cut off their benefits. Why hasn't the number employed skyrocketed; it should have if they were correct?

Oh My!! It Is $10 Billion in Lost Revenues for Small Business and Still Counting!

6/24/2014: ADD THAT TO THE $16 BILLION THE CONSERVATIVES COST US WITH THE GOVERNMENT SHUTDOWN and we are almost up to real money at $26 Billion suck out of the economy in the name of ... invigorating the economy and creating jobs; yeah right. As the saying goes, if you believe that, I have a bridge to sell you.

CBO Reports Deficit to Top $500 B, Up From April Estimate of $492 B

8/30/2014: The CBO just revised its FY 14 federal deficit report stating it now estimates the year will close out with a $506 B deficit rather than the $492 B it came up with last April. I wonder how much the Sequestration, the $16 B in lost sales from the government shut down, and the $13.7 B in lost sales from the cancelled extended unemployment benefits. Let's see, ~$30 B @ 15% effective tax rate equals $4.5 B plus Sequestration. How about them apples?

The Count Has Stopped

12/31/2014: WITH THE LAST UNEMPLOYMENT REPORT THE UE RATE stands at 5.6%. At this rate, the country is in the range of full-employment, although the percent of non-voluntary part-time status is still higher than normal. Also, the rate of long-term unemployed, what this hub is about, is also higher than normal. Having said that, I believe the impact of the Conservative's ridiculous action is now in the noise; it is still there but much less than the $58M/day.

Consequently, this will be the last update at $18.8B lost to the economy. That is $18.8B that did not flow through various company's cash registers to be used to pay additional employees, buy more inventory from other businesses. pay additional taxes (along with the personal taxes from the employees), and the like. Conservatives talk about wanting to improving the economy, creating jobs, and helping America and Americans. Well, they have a funny way of showing it with a total loss of $32.8B between shutting down the government and shutting off extended unemployment benefits.

FOR STARTERS, GDP WILL DECLINE 0.15 PERCENTAGE POINTS ... AND THEN FALL FURTHER

THAT IS ACCORDING TO MARK ZANDI, chief economist of Moody's Analytics. Why is it going to decline? Because Conservatives saw fit to let the extension of UI benefits expire on December 28, 2013 for 1,300,000 Americans. While the chances look OK for passage of a three month, $6.4 billion extension in the Senate, it will probably fail in the House; the reason is Democrats don't want to agree to Conservative requirements to defund other social programs or the military by the same amount.

In this hub, I would like to take a moment and examine some of the fundamental economic truths about unemployment insurance.

Source

IT WAS OK TO SHUT DOWN THE GOVERNMENT TO THE TO THE TUNE OF $16 B

BUT IT IS NOT OK TO SPEND $6 B ON AMERICANS OUT OF WORK. Frankly, I simply cannot understand that mindset; both are designed to bring down the U.S. economy. Well, maybe I can for destroying the economy will supposedly make President Obama look bad, and that is the political objective, the only political objective of this Conservative Party.

As the battle lines are drawn in Congress, the Senate found six Republicans willing to let the proposal go to debate (which surprised most everybody), the positions of each side are being articulated. The Conservatives say these are their main concern:

  1. The resumption (it is no longer an extension) of benefits must be paid for
  2. Paying people not to work disincentivizes them from finding work.
  3. Unemployment benefits use money that the private sector could use in creating jobs

Before addressing these, let me note that as mentioned earlier, the current lack of action by Congress will cause a small decline in GDP, but that is just for starters. It would be unnoticeable in a normal economy but very dangerous in the kind of sluggish one we have today. Next month, however, when the number of Americans who are about to go broke increases because they still can't find work, the economy will take a larger hit. It will do so again the next month, and then next; its impact becoming ever more severe as the months roll on. But why would the economy do so poorly when the government allegedly saves money?

Well, according to the Center on Budget Policy Priorities the national average for UI is $300 per week; doing a little math, that means that starting Dec 28, 2013, when 1.3 million lose their lifeline, local businesses will lose $390 million each and every week - why do I say local businesses; because virtually 100% of UI is spent locally. This will continue for about a month and then increase another 350,000, or an additional $105 million. After that, yet another 260,000 Americans lose their benefits, and then, in the final month of the quarter, 280,000 ... for total of 2.2 million unemployed losing their ability to feed and house themselves or their families. That amounts to nearly $1 Billion a week!!!

By comparison, the Federal shutdown sponsored by Conservatives last October cost business roughly $8 billion for the 16 days it was shut down and about $16 billion overall after residual effects are taken into account for the following 45 days for a total of about 60 days. The loss to business for the same time period because of this latest Congressional inaction is $3 billion or so.

RESUMING EXTENDED UI MUST BE PAID FOR

WITH THAT AS BACKGROUND, CONSIDER THE FIRST Conservative argument that the $6.4 billion for the 3-month extension benefit by reductions elsewhere in the budget. The implication of this demand, of course, is that this 100% of this money is a total loss, never to be recovered in any form by the economy or government and will simply be passed on lock,stock, and barrel to the National Debt and budget deficit. My first question, obviously, is why didn't they have the same concern when they shut down the government; why are they being so hypocritical??

But my real question to these politicians, pundits, and their army of believers is "what do think actually happens to that $6.4 billion?" Do the unemployed eat it or put it down the garbage disposal? No, of course not ... they spend it, almost every dime of it. That is a $6.4 billion infusion of cash into the local economies of the localities hardest hit by high unemployment! That is what happens to it. So why do Conservatives not want small businesses to receive this money? I haven't a clue, but receive it they will; and what do these businesses do with the money? Why they pay salaries with it, they buy goods and services with it, and they pay taxes into local, state, and federal coffers with it, potentially, they create jobs with it; and Conservatives appear to be against all of that. Go figure.

PAYING PEOPLE NOT TO WORK IS A DISINCENTIVE FOR THEM TO FIND A JOB

THIS SECOND CONSERVATIVE ARGUMENT IS widespread ... and wrong, even though they site authoritative sources to support their contention. They frequently use out-of-context quotes from both liberal and conservative thinkers provide support. They also use the results of studies done by the Federal Reserve of San Francisco and the National Bureau of Economic Research (NBER) that "proves" their thesis but citing the combined results that extending benefits has resulted in 600,000 not finding jobs and extended the average time a person stayed on unemployment.

Well since the NBER is one of my favorite sources for information, I went and found the report being referred to. Sure enough, the "headline" was "extended benefits slightly increase the time one stays on unemployment". It looks like that is as far as the commentators read (a favorite tactic of commentators, bloggers, pundits, news reporters, and the like, for both the Left and the Right). If you read the report just a little further you would have found that the reason people stay on unemployment longer ISN'T because they aren't finding jobs ... that rate didn't change ... it was because they didn't drop out of the work force! That is a HUGE difference in perception, don't you think?

You see, unemployment is made up of those actively looking for work. Those who have stopped looking aren't counted. As a consequence, if the benefits aren't restored, then the February jobless report is going to show unemployment under 7% for the first time since Obama took office and will be a big political plus for the Democrats. Isn't that ironic, lol.

There is another logical flaw in this Conservative position. In this case, we will take their argument to its logical conclusion, so let's think about that a second. There are roughly 10.9 million unemployed and 3.9 million jobs available, according the Bureau of Labor Statistics. Let's assume for the moment that all 3.9 million jobs are miraculously filled. Doesn't this leave 6 million still unemployed with NO POSSIBILITY of finding work? So my next question is ... "how does Conservative philosophy work in that situation?"

CREATING JOBS

Source

UI BENEFITS USE MONEY THAT THE PRIVATE SECTOR COULD USE TO CREATE JOBS

THIS IS THE THIRD REASON I HAVE READ OR HEARD in defense of not resuming UI benefits. This is the weakest and most counter-intuitive of Conservative reasons for forcing people into welfare. I have already made a case that providing extended benefits has the potential of creating job in its own right. However, let's consider how not paying the benefits might create jobs.

The way business creates job is increasing their investment in on-going or new businesses. To do that, they need a few things, 1) the availability of money, 2) the expectation of growing demand, and 3) a stable economic environment. What does NOT spending $6.4 billion dollars in three months or $25.4 billion in a year accomplish in a $3.8 trillion budget, of which $744 billion must be borrowed (added to the national debt). Theoretically, not spending the $25 billion, will reduce the deficit to $719 billion.

In theoretical economics, there is a relationship between government savings (when it is negative, it is called a deficit) and private investment. In theory, if the deficit goes down, then, in the long run, investment goes up; which would imply job creation as a result. The problem is, as it always is, it is not that simple. Also involved in the this relationship is the private savings rate, government investment, and something called the current account balance (which involves exports and imports). So, the only time that it is possible to tell if lowering the deficit actually increases jobs is if all of the other factors remain constant, don't you see.

Further, taking $25 billion out of the economy is more likely to decrease job growth (ironically while the unemployment rate decreases) and not increase it. As a consequence, any job growth that may theoretically occur due to a small decrease in the deficit is far outweighed by by the known decline in GDP and the job losses that normally follow such a drop.

WRAPPING IT UP

AS I HAVE TRIED TO MAKE CLEAR IN MANY of my other Hubs, it is conservative economic and social philosophy, not Conservatives per se, that warps reality in order to obtain an unobtainable principled goal. I drives their believe that by and large, if you don't have a job, you are lazy because there is always a job to be found (not true of course); that virtually all individual problems caused for external reasons are to be solved by the individual, their family and friends, and church;, but not the government, never the government; that a penny spent by the government is a penny wasted which could be put to better use by the private sector, forgetting, of course, the multitudes of Enron's and Worldcom's as well as the 5 to 8 out of 10 businesses that fail within 18 months to four years (depending on which source you look at).

Conservatives can't help but be conservative just as Liberals can't help being liberal, those world views are both genetic and environmentally ingrained in ones personality (I hve a few Hubs on that as well). Both, to their extreme, are bad for America, in my view, for they don't allow for what this country was founded on and what has made is survive for 200+ years, compromise of leaders. But, who is responsible for the actions of our leaders? We are, of course, you and I, whether you voted or not, put them their. And if you allow the extreme to take over one or both Parties, then you are responsible for destroying the American experiment. Today, that has happened with the Republican Party, to the extent there are only about 6 moderates left in the Senate. Voting dynamics has pushed the Democratic Party further to Left, but not nearly to such an extreme. (The Democrats use to be made up of a fairly balanced mixture of conservative, moderate, and liberal elements; over the last 20 years the conservative element has largely disappeared by either switching to the Republican Party or being beaten, largely by Tea Party Republicans in elections.)

The fight over unemployment benefits we see today is a foreseeable consequence of our votes. Fifteen or more years ago, this standoff would not have happened, a different type of Conservative was in the Republican Party, along with a healthy mixture of moderate and liberal Republicans (I was one of those). Almost all understood what the signers to the Constitution had in mind on how the government should operate in running this nation ... the art of compromise.

WHAT DO YOU THINK?

SHOULD THE UNEMPLOYMENT BENEFITS BE RE-EXTENDED?

  • YES
  • NO
  • NOT SURE
See results without voting

DEMOGRAPHIC SURVEY #1

DO YOU CONSIDER YOURSELF POLITICALLY LEANING TO

  • RIGHT MOST OF THE TIME
  • LEFT MOST OF THE TIME
  • LEFT OR RIGHT, DEPENDING ON THE ISSUE
  • SOME OTHER DIRECTION
See results without voting

DEMOGRAPHIC SURVEY #2

ARE YOU

  • MALE
  • FEMALE
See results without voting

More by this Author


67 comments

HSchneider 2 years ago from Parsippany, New Jersey

Excellent analysis, My Esoteric. The unemployed have to spend this unemployment insurance. There is no maybe. Those opposed are taking these funds directly out of circulation in the economy. Anyone who says that this disincentivizes the unemployed from looking for work is insane. I was unemployed for almost 4 years and you can barely get by and only if you go into debt. These conservatives are cruel and hateful ideologues. How about we have them justify their corporate welfare tax incentives? Maybe we should cut those to retain these benefit extensions. Think Exxon will miss theirs. I doubt it.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I agree that every piece of corporate welfare needs examining to make sure it returns more than it spends. Thanks, HS.


JayeWisdom profile image

JayeWisdom 2 years ago from Deep South, USA

As usual, your explanations are rational, reasoned and provable. I applaud you for managing to write about this issue without losing your cool. I, on the other hand, can't write about it or even think about it without becoming infuriated. I apologize because the remainder of my comment will be a rant.

Those conservatives who support cutting unemployment to Americans who cannot find work because jobs are not available are misinformed, incredibly ignorant, short-sighted and cruel almost beyond belief. They could read your article and blithely ignore it since it doesn't mesh with their misguided beliefs. Perhaps I should have written "...blindly ignore it....", for blind they are to anything not straight from their propaganda machine.

I would never wish harm to decent people, but the blind supporters of cutting UI benefits to those in desperate need are not decent. They are not humane. Therefore, I wish every one of them would personally experience in some way an equivalent of the misery the jobless live with every day and which will overwhelm them if UI is not resumed.

The trouble with too many affluent people--particularly those who grew up wealthy and had everything handed to them on a silver platter (including any resource needed to remain affluent and grow still wealthier)--is that they make no effort to understand the problems faced by anyone outside their own "social class." In fact, anyone who is not "one of us" simply doesn't exist!

This is a generality, of course, and I realize there are wealthy people with consciences, people who do care. They are the ones who are philanthropists and/or true civil servants (as opposed to simply venal politicians) and spend their lives trying to make a difference for those less fortunate than themselves. Those who don't care about the rest of the human race aren't worth anything more (morally) than the actual value of the chemicals of which their bodies are made, no matter how much wealth they own. (Or, as my late grandfather would have put it, "...not worth their salt.")

End of rant.

Voted Up+++

Jaye


cmoneyspinner1tf profile image

cmoneyspinner1tf 2 years ago from Austin, Texas

“IT WAS OK TO SHUT DOWN THE GOVERNMENT TO THE TO THE TUNE OF $16 B BUT IT IS NOT OK TO SPEND $6 B ON AMERICANS OUT OF WORK.”

OK. I don't really want to publish a HUB about this. My rule is if you go over 750, you might as well write an article. So I'll try to limit my statements.

First. Let me say that your usage of ALL CAPS is most appropriate.

Second: IF you say that my self-initiated home business projects - blogging, freelance writing, partnering with real estate professionals, and affiliate marketing - which are hardly generating enough regular and consistent income to:

- (A) be reported to the IRS, nor

- (B) for my husband and I to run away from home and live on our own (we currently live with our two sons – my husband has health issues; and I gave up looking for work outside the home, years ago and started working from home);

- AND you don't want to call those home based projects “jobs” OR “work” -

THEN you can class me among the “UNEMPLOYED”.

If I am deemed unemployed (which is not the same as “unemployable”), then perhaps I should have applied for “Unemployment Benefits”. Or rather the question should be: WHY did I not apply for these “benefits”?

The answer is: I DID APPLY. But there was nonsense excuse given to me about a social security number that I have used for almost my entire life (since 5th grade!), making me ineligible and creating the appearance that I was attempting to commit fraud.

- MY REACTION?

Uuuuhhh … What??!! Duh??! For the record: I had not even thought of applying. But at the last job that I held outside of the home which was with the City of Austin's Public Works Dept., they mentioned or hinted or suggested that since I had worked for an entire year – that I would probably should apply for AND should be able to receive unemployment compensation. Since it wasn't really MY FAULT that the City could not hire me on permanently because they did not have the “budget” for it.

I had not even thought of applying because you see:

- I'm not really accustomed to “gaming the system”; and

- Silly me, I thought since I had experience and skills, I could just go find a job.

However, time was passing (flying), job offers were not being made, and family members kept murmuring about me not having a job saying that there were “gov't programs” to “help” and why won't I apply! Yadda yadda yadda … blah blah blah ...

So at present (as of January 2014), since I'm not even receiving these alleged “benefits” - that everybody else is arguing about - one might say I really don't have anything to add to this discussion. IT AIN'T ADVERSELY IMPACTING ME! WHY SHOULD I CARE?!!

Following that logic, then I don't really have anything to contribute.

In point of fact, my remarks lend themselves to an entirely different scenario and conversation and discussion AND I am probably THE ONLY PERSON IN AMERICA that has this “problem”.

You are more than welcome trash these comments sir. It's your HUB. Voted Up!

P.S. The answer to your question is YES!!! In response to your poll question: When it comes to politics, I don't lean. I STOMP!!!


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Thank you @JayneWisdom and @Cmoneyspinner for your insights and contributions to this very important subject. @Cmoneyspinner, the last job you held shouldn't have "hinted" about your right for unemployment, there is a federal requirement for all employers to outright tell you about it as well as have it posted in a common area easily accessible to employees. I am not sure what to say about about your social security problem other than I have heard of similar cases and you should check with the Social Security Administration to make sure your identity hasn't been compromised. I do know some conservative States like FL go out of their way to make it hard to draw unemployment and use the silliest of excuses to deny it. My step-son got caught up in one of those.


cmoneyspinner1tf profile image

cmoneyspinner1tf 2 years ago from Austin, Texas

@My Esoteric - Very kind of you to publish my comments. My name is "Treathyl". My identity was never a question! The only last two names that I have ever used in my entire life were not compromised either! No need to check with the SSA because the SSA and the IRS always checked with me!! Funny how two separate federal agencies never had a problem verifying my identity!

Should I also add that I worked for federal and state agencies that put me background checks?? One agency, TX DPS (Texas Department of Public Safety) did mention that their background check disclosed some nonsense about a Korean using my number. But they also said it wasn't really a problem. So they hired me. I worked there a few months and I resigned peacefully. That's another TOTALLY UNRELATED story.

REVISION: It was unfair of me to say that the City "hinted". Let's just say that I was totally ignorant about the process and they let me know that there was a possibility that I might be entitled to receive unemployment compensation or benefits, so I should look into it. Truthfully if it had not been mentioned BY THE VERY NICE AND PROFESSIONAL PEOPLE THAT I WORKED WITH IN THE CITY OF AUSTIN, TEXAS, just before I left that temp job, I would likely have not thought to do that on my own. I know that they were genuinely trying to help. I do sincerely thank them for that. So MY BAD! Please don't beat up on the City of Austin folks. They are very fine people!


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Hi My Esoteric!

An example of what cutting these benefits has been done in North Carolina. They reduced the cash that the unemployed received and reduced the number of weeks they were eligible to receive benefits.

All of this led to the unemployment rate felling within months, to a five-year low in the unemployement rate.

Sure, there may be other factors involved, but this DID indeed happen.


clairewait profile image

clairewait 2 years ago from North Carolina

Sorry but I wholeheartedly disagree. It's not 2008 anymore. It is time to move on.

http://blogs.marketwatch.com/capitolreport/2014/01...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Thank you for your comment @CMerritt and I am glad to see you are still reading me. Question: Did the rate drop because more people came off the unemployment rolls because they found jobs or did it drop because they stopped looking for work? The study I mention in the hub suggests the latter reason.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Thanks for commenting @clairwait, but I am not sure what you are disagreeing with. I realize it is not 2008 any more, but what happened there has very long-term impacts. It is like saying five years after Hiroshima, it is time to move on. While the devastation of the latter was orders of magnitude larger than the former, the the 2008 recession was just an order of magnitude less than the Great Depression of 1929.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

My pleasure, Treathyl, and I understand about Austin; thank you.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Just something to chew on, you could probably cut the unemployment rate in half if you got ride of UI altogether. The reason for that is the rate uses those actively looking for work in the last four weeks; if you haven't looked longer than that, you are considered "marginally attached" and are not counted as unemployed. All people receiving UI must actively look for work to receive UI; consequently, if there is no UI, then, since there is only one job for every three currently counted unemployed person (and it is worse than that when you add in the marginally attached people), many people who used to receive UI will give up and fall out of the unemployment pool, thereby lowering the rate.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

I always enjoy reading your work E, I have slowed down on my time responding to hubbers....

I know that Raleigh, NC is the 4th fastest growing cities due to job growth according to Forbes. Through tax breaks and incentives.....the states economy is growing...and reducing the unemployement package is forcing many people back into the workforce.


Aunt Jimi profile image

Aunt Jimi 2 years ago from The reddest of the Red states!

It seems our do-nothing Congress is still arguing over whether or not to extend unemployment benefits while taking away food stamps from millions. Republicans are trying to start poor people to death. They hate the site of them which is why so many cities have made it against the law to be poor -- see Au fait's article on Who Are the Homeless People of America.

Republicans do mean spirited heartless things and then they wonder why we call them out for who they are. I think there's a disconnect in their brains. What we would call a 'short' if they were an electrical appliance. They have all but destroyed the middle class and they are hoping that the working class and especially the poor will just die. They are certainly doing all they can to that end and then they expect us to call them compassionate and thoughtful.

This is an excellent hub and I'm voting it up and awesome and useful for those with the faculties to digest it! Also sharing.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

While I agree that the "appearance" of the Conservative (whom I distinguish from Republicans) stance is as you say, I have different reasons as to why it seems that way. Nevertheless, I appreciate your thoughts so much, @Aunt Jimi, thanks for leaving them.


junko profile image

junko 2 years ago

Austerity at this time is just an attempt to assure The Obama Presidency is a failed Presidency. If Austerity was used during the great depression America would have never became the economic leader of the world. Because Austerity is being used after the great recession America is being represented as economically weak and unstable. The people are suffering because the President is disrespected and hated.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Very astute about austerity, @Junko. After the necessary application of the Keynesian model, FDR, a rather fiscally conservative, but nevertheless pragmatic politician in the long-run, applies the Tea Party model in 1937. We all know what happened after that.


junko profile image

junko 2 years ago

My Esoteric, case in point! just in case everyone doesn't know what happened in 1937.

http://www.rooseveltinstitute.org/new-roosevelt/re...


stanfrommarietta profile image

stanfrommarietta 2 years ago

I've been waiting to see that 1937 dip happen again. The current unemployment figures may portend it. What concerns me is that if Congress passes this budget, and takes money from some other sector of the budget to pay for the unemployment benefits, that will just be the same as if the government stopped paying for those benefits and everything was left the same. It means a reduction in money going into circulation through government spending. That will lead to a diminishment of private sector saving.

What Congress should do is just restore the funds terminated and leave everything else the same in the budget. That leaves the same amount of money (though miserably meagre at that) in circulation. But now even less will be in circulation--unless we luck out with a positive trade balance, or people stop buying imports at WalMart. So, maybe we'll have that dip after all. Hang in there!

Who is advising President Obama these days. He seems to have bought the idea that we need to cut deficits, reduce spending. 1937 here we come.

Janet Yellen, we hope you are a post-Keynesian! Tell him like it is!


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I appreciate you jumping in @Stanfrommariettta with your thoughts. 1937 was a bit more than a dip, it was equivalent to 2008 or worse, giving its starting point. While I agree, Right-wing economic policy, if it were followed by President Obama, would probably put us back in a slight recession, it would be a "dip" rather than a "return". Maybe it would be enough to wake people up to the fact that Conservative economics simply doesn't work except when the economy is good.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Are suggesting that if we was to open up and encourage Oil production and Natural Gas production across this Nation, as it is being done in North Dakota, which is a huge part in Conservative economics, that we would be seeing a recession right now?

I think we would be seeing one of the largest economic BOOMS this nation has ever seen.

Healthcare would NOT be an issue as it is right now.

Sorry, just had to throw that in the mix...

:)


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

And thank you for that, @CMerritt.

So long as it doesn't destroy the environment 2o years in the future like other such unregulated adventures have (I think you are old enough to remember the dead rivers and lakes, poisoned ground waters, poisoned air, denuded our forests, and an ozone layer being destroyed), I don't have a problem with exploiting our resources; we can take advantage of what the earth has to offer us without destroy earth in the process, that won't happen under "unregulated" capitalism - the proof is in 200 years worth of pudding.

Besides, your example is sectional, not national, so it wouldn't impact healthcare at all if the employers don't offer it and the applicants have pre-existing conditions, which is likely in that industry.

But, when you look at the economy in its entirety, my last concluding statement is simply the historical truth; classical economic theory fails in times of "heavy" stress; it "always" has and it always will (I use quotes, rather than capitals for emphasis), it is a mathematical certainty due to the positive feedback nature of classical economics; their isn't one historical instance that I can find in American economic history where this fact isn't true.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Why wouldn't they offer Healthcare to their employee's? That is an extremely common benefit that nearly ALL employers offer. Especially in this day and time. A strong economy will encourage competition among business.

Healthcare was not an issue during the Reagan economic boom. It only became an issue, when the UAW milked the system dry. (I am probably getting way off topic, but I am just responding as I see fit). Yes, time of stress is when everything falls apart. But, when we remedy that stress, we pull it back together. The best remedy is a booming economy. The surest way to do this at this time, is to exploit our natural resources.

Yes, I think everyone is all in favor of keeping our enviorment clean and safe. We have laws in place to accomadate this. I do think we are naturally overregulated, and perhaps we could utilize some common sense in these situation. Something I think we have failed to use while implementing some of these regulation..


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

That was back in the day, @CMerritt, the world you and I grew up in; it is much less common today, and when it is offered, much more of the burden is put on the employee (personally, I thought the benefits had gotten too generous in the past, they should never be free to the employee). It is your older, well established corps, or those with unions, who offer reasonable health plans; newer ones, like Walmart, is pretty skimpy and restrictive.

The problem with the fracking, is there are no federal laws in place regulating the process and states, who benefit from the short-term economic turn a blind-eye to the environmental problems, real and potential, caused by the process to enforce existing laws or enact better ones; they often ignore the cries for help from the impacted communities and local lives who are destroyed by an unregulated boom; sort of what happens downstream to towns when the dam bursts.

Not only do things fall apart in times of major stress, classical economics makes it much worse via the positive feedback mechanism. That is the reason that one version of another of Keynesian economics, with its government interference, has "almost" always worked to shorten, lessen, or prevent a recession for its main characteristic is injecting negative feedback into the system. The reason for the "almost" is the Fed has screwed up two or three times and actually made things worse themselves.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Just a note worth passing on, I recent read where the Washington Examiner compared their health insurance program to the Obamacare program and found that Walmart's plan is more affordable and provides significantly better access to high-quality medical care than Obamacare.

http://washingtonexaminer.com/surprise-walmart-hea...

As far as fracking.....Hydraulic fracturing has been safely and effectively regulated by states for decades. This administration is merely trying to enforce regulations that are redundant and unnecessary. THAT alone seems to tell me that common sense is no longer prevalent in this administration. THAT is negative feedback in my opinion.

I fear our Fed is actually making things much worse as we speak.


junko profile image

junko 2 years ago

The ACA is not perfect but, nobody has to go broke if they or a love one gets sick. Capitalist hate taxes and regulations in that order but, Unregulated wall street caused the recession and tax cuts cause reductions in Federal Revenue and the ability aid the American people affected by no fault of their own. Uncommon sense is being applied to cause the failure of the Federal Government which has been the cash cow of the Private Sector and States since the concept of American Capitalism. The Private Sector and States are the children of the Federal Government.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

The Private Sector and States are the children of the Federal Government.....WOW! REALLY?

Says who?

ACA is not perfect? It is not even remotely decent. My sister WAS paying $300 a month for insurance. Her company has dropped it. It NOW costs her $625 a month. She cannot AFFORD it.

IT sucks and sucks very, very bad.

IF we got the economy rolling by the means of Oil and Gas....Federal Revenue would explode! The American people would flourish in opportunities and wealth opportunities. Aid to the "down and out" would be there.


junko profile image

junko 2 years ago

Oil and gas don't pay taxes(revenue). We need to get the economy rolling by any means, not just oil and gas The Amercan people that can't afford the price of oil and gas and stock share will not flourish with opportunities and wealth. The people want Jobs and a living wage where they live. Aid to the down and out could and should is available right now, it shouldn't depend on oil and gas.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Oil and gas creates jobs....jobs equals taxes (revenue). Google North Dakota oil boom. The average salary is 6 figures. The unemployement rate is below 3%. The housing industry is booming. New schools are being built. All because of the oil and natural gas boom.


junko profile image

junko 2 years ago

Jobs are needed all over America. Six figure oil and gas jobs are not a possible solution for a vast majority of unemployed Americans. Rebuild America's infrastructure and employ Americans all over America. Why not have two booms, oil and gas and infrastructure. Which is best for people?


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Junko, just stop and think this through.

IF we have an oil boom. We hundreds of thousands of jobs in the oil industry. That creates labor in the food industry to feed these people working in the oil......more labor in small machine shops making drills, tools and repairs........more labor in clothing.........new houses are being built, so the building industry is booming....new schools are built and more jobs for teachers..........more hospitals are needed.........so we have a market for nurses.........we need more mechanics to fix all of the cars that are being bought..........the tire industry picks up........it is a snowball effect.

The thing is.......this is not just a dream......this CAN happen. Our legislators can spur this on. Washington CAN do some real good here.

But the tree huggers and those who think only oil men are going to get rich are against this. Those who despise capitalism are doing everything they can to keep this from happening.

It is so sad, that we are THIS close to having healthy nation, yet we continue to struggle. ..... and we will until we change our leadership.

What I just stated is best for the people.


stanfrommarietta profile image

stanfrommarietta 2 years ago

I agree that opening up oil and natural gas production in this nation would possibly result in a boom. But there is another thing to consider. Suppose the oil and gas companies drew down on their trillions in savings to do this. They produce the gas. The money of their employees and the purchases of the companies to do this work will send money into circulation. But in a while that money will all end back in savings. This is something that most people don't realize. Any money invested or government-spent into circulation will pass from one party to another, over and over: Beginning with the first persons to get income to do this oil/gas boom work, a portion of their income will not be spent. That will be saving. So, what they send on to the next person will be a portion of the original income by buying something from him/her. Overall saving across everyone will increase by the portion of the initial income investment not spent. The next person will also spend a portion but not all of the invested money, and in doing so, pass that portion on, while adding the not-spent to the aggregate or overall saving. So, over and over the original input of money into circulation will cycle around and at each cycle a portion will be not spent and a portion passed on. At each cycle the amount passed on decreases as more and more gets unspent or saved. Ultimately the accumulated aggregate amount not spent will be equal to the initial input. In other words, spending into the economy results in the economy in aggregate saving the same amount spent.

So, what we learn from this is that you make an economy go by spending. But if you do not have a government continually creating new money and spending it into the economy, causing the amount ultimately saved to equal the government's spending of new money, the economy will not grow, but just function at a given level with periods of boom and quiescence, as companies catch their breath. And the Savings of the whole economy may end up in the hands of a different mix of persons, not just the original oil and gas companies. The electronics manufacturers may have captured some of that money and so there will be less money for oil and gas on the go around. Here is where the Federal Government with its power to create new money and spend it into the economy will keep the economy going and growing. The amount of newly created money (spent by deficit spending) will accumulate in aggregate savings. It will not be inflationary as long as the same raw materials, the same productive processes, and workers are available to be hired at the same prices and wages. Inflation will occur if government spending newly created money (as opposed to old money already in circulation taken up by taxes) reaches a point where there is full production and full employment and the spending of new money keeps going on.. There will be more money chasing goods and services than needed to clear the market at current prices, and vendors will raise prices until buyers stop buying up all that is produced. That produces inflation. At this point government should stop deficit spending, cut spending of tax money, increase taxes to drain money out of circulation, lower tariffs (to encourage imports to drain money to foreign producers), encourage savings while raising interest rates on loans to inhibit creating new money at private banks by lending.

It is important to understand that we assume above that the trade balance between money coming in from exports and going out in buying imports remains the same. We also assume that the rate of saving is not changing, and taxes remain unchanged in what the government collects and what portion of that it spends. I mention this because fiscal policy only concerns reaching a balance between spending and taxes. But exports bring money into circulation while exports drain it out. Savings drains it from circulation while investments (out of savings) increase money in circulation. And one seeks a balance between all these sectors of the economy that leaves increased savings in the private sector. There need not be a balance between taxes and government spending.

But money is needed to make any boom happen. Just having the raw materials alone is not sufficient. If factories worked only with robots who do not need to be paid money, they would produce goods

mechanically. But if there is no money with which to buy the raw materials, with which to pay workers to produce the goods, and the workers do not become consumers because there is no money, there will be no boom. Money is the medium of exchange and someone has to create it. You can't play Monopoly without money. Our Federal Government has the power to create and spend money. It needs to do this in order for there to be a functioning economy.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Stan, I may not be an expert in economics, but I do have a great deal of common sense. It seems to me that you are making this way more complicating than it really is.

What happens to the money that people save and not put back into the circulation? Is that what essentially you are driving at?

I really don't think people still put money under their matress, but they invest. That keeps the stock market healthy. Wouldn't it be nice to see the people of this country funding our stock market instead of the fed utilizing quantive easing?

If peoples 401K's would actually pay off some real divendens?

Money will be there when it has to be. If there is a market for something, there will be money. Oil and natural gas would spur the market......

I really don't see a down side to this. It has worked magnificainlty in the past, and common sense dictates it will, without a doubt do it again.

Government is the ony road block we have in achieving this.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@CMerritt, @Junco and @StanfromMarietta, I appreciate your conversation.

Just some points as I feel you are all, for the most part, right; but with critical parts missing in each of your positions. For example, @StanfromMarrietta, there is actually another, non-governmental source for "new" money in a growing economy and that is banks. If fact, it is counter-productive for gov't to invest if it means growing the debt "at the same time aggregate business is actively investing". You have already stated the reason, Total Investment = Total Savings, in the long run and debt is negative savings. So, in good times, you don't want the government creating money, let the banks do that for they have that unique property.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@CMerritt, your scenario rests on the presumption that most of the labor in the oil and gas industry came from the ranks of the unemployed. If it comes from currently employed people in other fields, then it doesn't have the impact you suggest. To do so, you have to stretch your example further to say that those companies who had their employees poached went and hired from the unemployed at the nearly the same rate they lost them. Hopefully you see my point; there is no substantial growth unless you can first bring down the ranks of the currently unemployed sufficiently quickly, which means across-the-board growth, not sector by sector as your scenario suggests, which will then encourage discouraged labor to rejoin the labor pool and look for work as well; a trickle simply doesn't have the same type of impact as a flood.

Also, to the point I made with @Stan, there "is" a time when government does have to increase debt to get the economy started, and that is when business refuses to do it, which is almost always true after a large, financially driven recession or depression. Unfortunately for Obama, the data he had to plan with didn't reveal the true disaster of 2008 until after his plans were made in 2009 his stimulus ended up being a mild stream rather than the flood it needed to me to business off its but. The other problem he had of course, if my oft-told refrain that for the first time in American political history, the opposition Party publicly cared more about destroying a Presidency than preserving the Country.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

I don't buy for one minute that anyone was out to destroy the POTUS. Even Limbaugh who started the verbage, was not a litteral message to destroy, but rather NOT merely give in to the radical liberal ideas that was presented. I get tired of the media and left shouting that the right is the say NO congress. There is a logical and common sensical reason as to why they said NO.

There was NO bridge building whatsoever by the Obama Administration.....it was Obama whose first statements to the republicans was that they could "go along for the ride but to stay out of the way"........and if a republican brings a "knife to the fight, we bring a gun".

Simply put, HE is not a leader. HE lead us down the path, that could have been avoided, but rather he choose to blame everybody but himself.

When you talk about "across the board growth" .... I stand behind the Oil and gas plan, that it will indeed spur across the board growth.....it open up the market from everybody who can weld, to hard working laborers, to restaurant managers, hotel clerks, car salesman, nurses, teachers, heating and air experts.......the whole gambit of labor is open........JUST because of what the oil and gas industry brings. Just google North Dakota and see what is happening. This will explode especially for middle class growth....which is the meat and potato's of this nation. This would cause a spike in our nationl revenue in epic proportions.

Development of the Marcellus Shale alone could create 160,000 jobs in Pennsylvania, 20,000 jobs in New York and 30,000 jobs in West Virginia by 2015.

The opening of Florida to exploration and development could result in up to 100,000 new Florida jobs by 2016--just with increased access to federal areas within the Gulf of Mexico.

U.S. State Department approval of the Keystone XL pipeline could generate nearly 85,000 jobs by 2020.

what we need are sound government policies that encourage...not discourage...the development of our domestic resources. THAT has been lead by the left and this POTUS.

I'm not saying the republicans have all the answers and don't have some serious problems they can leave behind, but for NOW, we need this oil thing to happen and the right wing party are the only ones that can/will make this happen.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

We have covered that ground before regarding the agenda of those who control the Republican Party @CMerritt, there is no doubt in your mind as to the truth of your statements above and there is no doubt in mine and that is because we view the world from two entirely different mindsets; different things are important to each of us.

As to what is going on in the fracking world, there is very little that I see which the federal government is doing to get in its way, they don't have the regulatory authority to do so and, of course, are being strongly opposed in court, generally successfully so far, I think, when it has been tested.

I do know that America is now less dependent on foreign oil than it has been in many decades and that it passed Russia in either proven reserves or production, I forget which. America is a gasoline exporter, not an importer and has been for awhile now; in fact, we even export some oil in some arraignment I don't understand. In the mean time, alternative energy sources have been growing exponentially, so it isn't like Obama has been dead-in-the-water regarding energy production.


junko profile image

junko 2 years ago

We don't have to agree but, we should listen to what one another say when we write. Personally, I've learn more listening than talking. Conversation is the art of talking and listening, one person at a time ideally. We will not agree with most of what each other say if we have opposing views. If we really listen we find some things we are in agreement with, most things we won't agree. If it's only 5 or 10% of agreement it gives validation and new information and a different view to the listener. Rather than listen many of us think about what we are going to say or write when we speak again about what we want agreement. We must take the positives in conversation @ whatever % it comes in and decide to accent the positives not the negatives. In reply comments knowing we will never agree 100% we have to mine our conversation for positive gems.


stanfrommarietta profile image

stanfrommarietta 2 years ago

@Mr. Esoteric:

"@StanfromMarrietta, their is actually another, non-governmental source for "new" money in a growing economy and that is banks."

You are right. But bank money is debt money and the money multiplied on it collapses by an inverse multiplier effect once the original debt is paid with money taken from the current circulation. Am I wrong in this?

I'm still feeling my way here. But it seems to me that the Federal Government's money creation is debt free, meaning the government does not need to be paid back for the money it creates. To do so would simply take all the money in existence out of existence. We don't want that.

So, being debt free, an economy can grow only with additional debt free money.

" If [In?] fact, it is counter-productive for gov't to invest if it means growing the debt "at the same time aggregate business is actively investing". You have already stated the reason, Total Investment = Total Savings, in the long run and debt is negative savings. So, in good times, you don't want the government creating money, let the banks do that for they have that unique property. "

I agree. I'm a follower of Modern Monetary Theory. That teaches that when you have business at full production with full employment any further government spending of new money will be inflationary. Thus if you have (serious) inflation, you need to cut government spending, cut deficit spending (which creates new money), maybe raise taxes and interest rates, encourage imports (by lowering tariffs), encourage savings by creating things like 401k and Roth IRA's, have Fed sell securities to banks to drain their reserves and crimp their lending, etc..

But during deflations, like our recession and depressions, you should increase government spending, especially deficit spending (which leads to new money creation), cut taxes, raise tariffs, encourage investment (not just speculation in the stock market which doesn't involve new investment), lower interest to near zero, encourage exports (which brings in new dollars from overseas).

I began my post with the recognition that the oil and natural gas companies had already socked away a lot of money in savings, and they might be the first ones to invest in America's still abundant oil and natural gas fields. But once their money ran out and they were not sustaining further economic growth, not just in oil and gas but other parts of the economy like wind and wave energy, more dams, and whatever, then the government will need to create and spend new money into the economy.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Junko,

I 100% agree....that is why I come here and read Mr. Esoteric, he and I do not agree on many political issues, but he makes so much sense as to why he thinks the way he does...and I really appreciate that, and he has caused me to rethink many things, or at the least he forces me to do research and to reinforce my thoughts.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I appreciate that, @CMerriett; if I have done those things, then I feel I have been successful and my effort has not been wasted.


junko profile image

junko 2 years ago

Gentlemen and Scholars: Some things we know but don't know we know until we hear the words.


stanfrommarietta profile image

stanfrommarietta 2 years ago

I'm going to assume that a strong stimulus to conduct infrastructure upgrades and repairs will go into effect.

If there are a lot of unemployed construction workers, they will be hired directly. But even if only some are hired the first time around, those doing the work on the projects will be consumers buying goods and services. These will create demand for these goods and services and businesses will respond by upping production, hiring additional employees to do the work. The infrastructure spending is not designed to put everyone to work immediately, but simply to create additional consumer demand that starts the spiral upwards.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

In my opinion, that kind of spending (along with basic R&D) is always beneficial to the country. In fact, although it wasn't originally built into the budget process, gov't capital projects, like roads, buildings, military installations, etc ought to have automatic inflation protected planned, continuing maintenance built into future budgets unless voted to deny it. In addition, an automatic replacement clause would be included after the useful life has expired should be built-in along unless a vote to kill and remove it is taken.

Massive infrastructure spending (stimulus) is one of the best medicines for a recession where 1) unemployment is high, 2) banks aren't lending, and 3) business isn't investing. If one of those elements is missing, then stimulus is problematic and maybe harmful.

In today's world, all three elements are still true, but less so. The difference is, the reason is each is true, I believe, is the inability of Congress to govern (I would say because of the Republicans refusal to compromise, @CMerritt would put the blame on the Democrats). Both the banks and business are sitting on mountains of cash with which to produce massive growth, but because of gov't stupidity, refuse to do so.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

I still stand solid, the best stimulus is by tax cuts....allowing the people of this nation spend their own money on how they best see fit. I think giving a massive tax break to small business would stimulate our economy in epic proportions.

I know, if I was to get my entire paycheck for 6 months, I would be traveling more and doing some home improvements. As it is, no vaction is planned and minimal home improvements is in the forecast.


stanfrommarietta profile image

stanfrommarietta 2 years ago

I don't think tax cuts would generate enough money in circulation equivalent to the needed stimulus to get the economy moving again. Still they could be part of the solution, as long as we consider deficit spending on infrastructure with large projects. And we ought to look into curtailing imports as long we we have a negative trade balance. If every citizen were to buy $100 more in a month than they do now, from their savings, it would generate a lot of money also. But new money will only be created for deficit spending or exports.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I have a hub for that, lol.


stanfrommarietta profile image

stanfrommarietta 2 years ago

@Cmerrit: "I really don't think people still put money under their matress, but they invest. That keeps the stock market healthy. Wouldn't it be nice to see the people of this country funding our stock market instead of the fed utilizing quantive easing?"

While it looks like investing, buying Treasury bonds is a form of savings. Buying CD's at the bank is saving. Banks don't use your deposits to create new loans, but just create the loans out of thin air, as long as they have sufficient reserves to

cover the loan should it go bad. Putting your money in a savings account is just

'saving'.

I've always been puzzled why Bernanke thought QE would be helpful. Perhaps it does, if the only problem was that banks thought they and other banks had toxic assets that would cause them to be insolvent. Then clearing these toxic assets out of the banks should make them confident that they could loan and borrow to and from other banks, and even make loans again. What he seems not to have considered is that to make loans you need someone who asks for one. Businesses usually are the borrowers. But if they do not see increasing demand for their goods, they are not going to expand. And that is where we have been during this recession. So the banks are now with horrendously huge excess reserves, but are not lending, because businesses are not borrowing. And businesses will not borrow and expand until there is more new money circulating in the economy to increase demand. That is where the government as money creator has to come in and spend new money on generally beneficial infrastructure projects, educational projects, training, public safety. And to do that Congress needs to do deficit spending, because deficit spending ultimately ends in the creation and spending of new money.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@CMerritt - Studies show, and I have reported in other hubs, that tax cuts are the weakest forms of stimulus tools available; further I believe I provided ample examples of when they failed and actually hurt, the latest being the Bush 43 cut.

Also, the average citizen isn't "investing" in America in the sense you mean when they buy and sell stock in the stock market. They are buying somebody else's ownership in a company and hoping to get a return on that companies profits larger than the money they spent buying it. The investment you mean, providing more capital for expansion, "only" occurs when a company offers new stock on the market and very few average American's have a shot at those shares.

@Stan, I must beg to differ ... banks do, in effect, create money "out of thin air"; that is on their main functions in life. That is one reason the Aggregate Investments = Aggregate Savings works. I created a set of charts to show how that happens which I will be adding to one of my hubs on economics in a little bit.

The also for you is the reason the QE2 is a good thing in such an economy as we have had since the Great Recession of 2008 is it provides does two things, 1) it takes some financial toxic waste of the books of banks, strengthen them and giving the more incentive to lend and 2) more money to lend. Banks have been one of the major obstacles to recovery, they won't lend. The other two are large business, they won't borrow, and Congress, they won't govern (which is now the reason banks won't lend and big business won't borrow).

I must note there is a pent up demand for loans at the small business level, but banks still aren't lending to them.


stanfrommarietta profile image

stanfrommarietta 2 years ago

I generally agree with you My Esoteric. Tax cuts are only one, and a weak one at that, means to fighting a recession. The most powerful means is to deficit spend a lot of money on the nation's infrastructure--something everyone will benefit from. That money hires contractors, who hire workers, who earn incomes they did not have while idle, and soon they are buying household goods, automobiles, flat screen TV's, dish washers, furniture, etc. etc.. The industries that produce these expand, hire more workers (who were idle or working at lower pay jobs), and they also begin buying goods and services. As investment money out of business savings runs down, businesses then go to banks for loans to expand. Demand is good and the banks agree and make loans.

Banks do create money out of thin air, but their money is debt. The Fed can issue debt when a bank needs additional reserves to back new loans it has made and other banks do not come to their aid. But the Fed, when it creates money and buys treasuries, it creates debt-free money out of thin air and uses it to buy securities. That puts debt-free money into circulation. The Fed is not owed for the securities it buys with money it creates. it is just acting as an agent of the government in managing the economy through open market operations. When Fed is buying it is not lending. Thinking the Fed is still operating under fractional reserve banking is a major fallacy of critics of the Fed. The Fed can create and issue new money without accompanying debt. Banks don't wait to make loans when they see a good prospect. They make the loan. Then they go looking for money to boost up their reserves to back the new loans. Banks no longer lend money out of their depositors' accounts. They lend by creating money out of nothing.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Stan, agreed, but that kind of infrastructure stimulus is only effective in limited circumstances and only applies in certain circumstances of high unemployment coupled with tight credit and big business unable or unwilling to expand ... exactly what Obama faced upon assuming office.

When you say,

- "But the Fed, when it creates money and buys treasuries, it creates debt-free money out of thin air and uses it to buy securities." - this isn't actually the case; the Fed doesn't print new banknotes. Instead, it issues 1) uses cash-on-hand, 2) issues new short-term U.S. debt to buy the long-term bank debt, or 3) use the increased reserves resulting from the purchase of the banks debt. The Fed actually only "prints" inflationary money when Fed finances the National Debt on a somewhat permanent basis (http://www.federalreserve.gov/faqs/money_12853.htm...

The last part of your statement is actually illegal; banks cannot make loans without adequate reserves, if they do, they are, hehe, by definition bankrupt. In today's world, you still need to replace the your word "good" with "stellar", in my opinion. Banks have always created money "out of nothing", that is why they are banks.

For example, say the reserve requirement is 10% and they have $100 in total deposits. Let's make that our entire economy. They must keep $10 of the deposits in reserve and lend the other $90. Before they lent the $90, the M1 was $90 (the $10 in reserve doesn't count as available cash), but after they lent the $90, the M1 is $180; and viola, $90 magically appeared with the bank keeping their fingers crossed a depositor doesn't come in asking for a withdrawal greater than $10.


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

My Esoteric, it just seems to me that some of the info you supplied regarding tax cuts is more complicating than it really is. I have witnessed how it does affect our economy. It only makes sense, if people have more money to spend, they do. The more they do, the more federal revenue is generated.

According to Forbes that official IRS data shows the top 1% of income earners paid $84 billion more in federal income taxes in 2007 than in 2000 before the Bush tax cuts were passed, 23% more. The share of total federal income taxes paid by the top 1% rose from 37% in 2000, before the Bush tax cuts, to 40% in 2007, after the tax cuts.

Total federal revenues soared from $793.7 billion in 2003, when the last of the Bush tax cuts were enacted, to $1.16 trillion in 2007, a 47% increase. Capital gains revenues had doubled by 2005, despite the 25% capital gains rate cut adopted in 2003. Federal revenues rose to 18.5% of GDP by 2007, above the long term, postwar, historical average over the prior 60 years. CBO was projecting surpluses to return indefinitely in 2012 through the end of its projection period in 2018.

The proof is in the pudding over the Bush tax cuts. They were followed by a record 52 straight months of job creation, producing 8 million new jobs, with the unemployment rate falling to 4.4%. Business investment spending, which had declined for 9 straight quarters, reversed and increased 6.7% per quarter, producing all those new jobs.

For the life of me, I don’t understand how THIS can be denied. IT WORKED.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@CMerritt, it would be nice if you were right, but for the tax payers who pay most of the taxes, the 1% you mention, the data shows you are not. The data shows that the higher you go on the income ladder, the less percentage of any marginal increase in disposable income goes into the American economy as new purchases; normally it is used as savings, investment, or paying down debt, none of which is stimulating in the sense of immediate impact on the economy. That is why unemployment benefits are so effective; almost 100% goes right back into the economy as new purchases.

As to your Bush figures, except for 2003 and not counting 2008, % change in GDP was anemic, on par with Obama's recovery numbers. Overall now, given each President's starting point, Obama has now bested Bush in almost all categories except unemployment and poverty, legacies of the recession and the gridlock in Congress.

By looking only at certain Bush 43 numbers, there is no possible way to ferret out whether his tax cut was responsible for the resulting economic statistics. That can only be done by gathering together similar tax cuts and tax increases over time and studying their aftermaths and eliminating other cause and effects; that is what I use to do for a living. Even what I just said about Obama doesn't hold a lot of water, because I am only comparing him to Bush 43. To draw any useful conclusion, I would have to toss in several more Presidents into the mix.

Question for you to research. While the unemployment rate was falling to 4.4% by the end of 2006, I think it was, why was the average wage falling with it? Normally when things are going good, wages go up with increased business investment.

Another question. Did Federal Revenues grow relative to GDP because revenues were increasing so much or because GDP was flat. An axiom in statistics is "remember the denominator, lol"


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Now, I totally respect you and realize that YOU are heads and shoulders above me on understanding economics. I am a simple-minded person, which may or may not work against me. BUT, doing a quick research on the median household income, it was flat until the Bush Tax Cuts, then it grew steadily every year after the took place....at least until the housing market hit and when the tax cuts expired, they dropped, went flat, then they finally rose a tad in 2012. But CLEARLY during the bulk of the tax cut era, (2003 thru 2007) they were, indeed rising.

2012 $50,099

2011 $49,158

2010 $48,415

2009 $48,916

2008 $49,406

2007 $49,341

2006 $47,317

2005 $45,496

2004 $43,544

2003 $42,560

2002 $41,624

2001 $41,458


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

Also, to that the federal revenue druing the Bush Tax Cuts increased by $800 billion from 2001 to 2008.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@CMerritt, I initially included median income in my question until I remembered the 1% you mentioned. Median is midpoint, 1/2 earn more and 1/2 earn less, not average. Let's take a point in time and say the median income is $50,000. Now, let's take the absurd situation that all of those people who earned less than $50,000 now earned $1 and the rest remained the same. As hard as it may be to believe, the median income is still $50,000 because 1/2 the people earn more and 1/2 the people earn less.

Now, because of the housing bubble, mergers and other things going on, a small segment of the population saw enormous growth in their income; while everybody else tread water or lost ground. That, in and of itself will push the median income up, so I dropped it from my question.

I ended up asking about average hourly wages, more indicative of what is happening with working America. During the Clinton administration, they rose, on a regular basis in inflation adjusted $, from $14.97 - $15.95 (a 7% increase over 8 years). For Bush, he also saw a 7% increase during his term going from $15.95 to $17.05; but in the middle of that, wages fell dramatically to $15.92 in Sep 2005 from a high of $16.23 in May of that year. Obama had the misfortune of getting the brunt of the recession. He started out with wages at $17.05 and watched them fall to $16.71 by Sep 2012 after everybody lost their job and nobody was hiring them back. Now that unemployment has improved, wages have climbed back up to $17.05/hr.

Compare the 7% growth in wages with your 21% growth in median income you presented; which one do you think is closer to reality?

As to Federal revenues, when you use inflation adjusted dollars, which you have to do when comparing dollars from periods more than a couple of years a part, and with Clinton and Bush, you are talking about eight, the actual results are as follows: For Clinton, the difference in revenues from the year prior to assuming office and the last year in office is $842 b; for Bush, it is a negative $22 b; and for Obama, it is a negative $17 b. In other words, Clinton took in $22 billion more inflation adjusted dollars in his last year in office than Bush 43 did, and Bush 43 took in $17 billion more than Obama is estimated to have (the final numbers aren't in for 2013 yet).


CMerritt profile image

CMerritt 2 years ago from Pendleton, Indiana

http://alineofsight.com/IBD%201-27-14%20Income%20G...

Above is a graph that I found sourced by the Census Bureau, and the info I got is from the Investors Business Daily.

It shows that "income inequality" has increased faster during Obama's tenure that has under any of the three previous presidents.

The fact is that raising taxes on the rich may have seemed like a good way to close the income gap. But inequality rose faster under President Clinton, who raised taxes, than it did under President George W. Bush, who cut them.

In fact, the inequality measure was the same when Bush left the White House as when he entered it.

Plus, the rich now pay a greater share of total income taxes than at any time in decades, yet inequality is also higher than ever.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Good chart, @CMerritt, it needs some explaining, but I have to head home. Here is a similar chart, but over a longer time period to ponder, while I do. Take a look at the 1960s.

http://politicalcalculations.blogspot.com/2013/12/...

/the-major-trends-in-us-income.html#.UugyltIo7Gg


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Putting the share of income taxes paid and income inequality in the same sentence must be done with great care as their relationship is very complex; but I will leave that for a different discussion.

You chart on the gini index is complicated enough all by itself. First let me say, after reviewing the web page I left you above is causing me to go back and revise other hubs where I have written about income inequality, once I have studied it some more; it brought new insights which will force me to reduce my critique of the Reagan administration.

In any case, let me first note from the longer view, in the 1960s, the Gini index actual fell; then in the 1970s and 1980s, it increased and average of 0.5 points a year. After a change in U.S. Census policy which made the Gini Index jump in 1993, it continued growing at 0.5 points a year until 2001. (That is what I need to look at again, my last analysis had the Clinton years growing slower.)

Now, let's consider your chart. The Gini Index measures the distribution of income among a population. If everybody earns exactly the same income, then the Gini Index is zero. If one person earns all of the income and nobody else earns any, then the Gini Index equals one; the curve in between is NOT linear.

In 1994, the GI fell and then began climbing again; this is probably due to the 1993 tax increase on the wealthy. Disproportionate tax increases on the wealthy will decrease the GI.

In late 1997 and early 1998, California raised its minimum wage from $5 to $5.75 and national unemployment hit all time lows while industry started experiencing problems capping top earners. This could explain the GI index in 1998. In 1998 however, major layoffs and mergers were announced which, when implemented later that year, drove up the GI for the following years (only regular workers normally get laid-off, not management and executives) Also, the tech boom started turning into a bubble.

As is true with all bubbles, they burst, so did this one. But, unlike others, this was mainly a "rich man's" bubble and, for the most part, the wealthy were mostly hurt and hence, down goes the GI. Same, same in 2006, when the housing bubble burst and the real estate and financial infrastructure began to collapse. Those that suffered at this point in time were the high flying real estate brokers and financial types, not Joe Sixpack, they had to wait until 2009.

Those highflyers were in the stratosphere, and when they crashed it was meteoric bringing the GI down with it in 2007. Even though real estate and the financial industry was still contracting in 2008 and 2009, Joe Sixpack now entered the picture and quickly overwhelmed it with 7 million job losses in less than 2 years; making the GI jump!

Lastly, in 2010 and on, Wall Street recovered, and then real estate and their associated high wages, but not Joe Sixpack. Consequently, you have that big slope for Obama.

Whoever produced that chart you used, @CMerritt, either 1) didn't understand what they had other than something that seemed put a good light on Bush or 2) even worse, did understand it, and just didn't disclose it.

Now I have go find out what the difference is between "Family" and "Household" incomes. I hoped that helped explain the Gini Index.


stanfrommarietta profile image

stanfrommarietta 2 years ago

@My Esoteric: @stanfrmmarietta: "But the Fed, when it creates money and buys treasuries, it creates debt-free money out of thin air and uses it to buy securities." - this isn't actually the case; the Fed doesn't print new banknotes. Instead, it issues 1) uses cash-on-hand, 2) issues new short-term U.S. debt to buy the long-term bank debt, or 3) use the increased reserves resulting from the purchase of the banks debt. The Fed actually only "prints" inflationary money when Fed finances the National Debt on a somewhat permanent basis (http://www.federalreserve.gov/faqs/money_12853.htm"

It looks like the document at the url you gave has vanished. Do you know of the new url for it?

Until I see the document that you directed me to above, I will stand by what I said.

According to a research paper produced at the Chicago Federal Reserve Bank

http://www.federalreserve.gov/pubs/feds/2010/20104...

since 1994 there has been little or no correlation between reserves and loans,

and the interpretation is that since 1994 bank loans are not financed by reservable deposits.

Steve Keen also cites A. R. Holmes (1969), at the Federal Reseerve bank in Boston who said that "In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand."

Keen says of this: "The Central Bank has an obvious motivation to lend: it doesn't want to destroy capitalism." The Central Bank will accommodate the banks who lend before they have deposits to have sufficient reserves for the loans because if it doesn't, then the money generated by the loans will not go through when spent and that would intefere with capitalism. So, the direction of causality is reversed. First there must be loans to create deposits, and then the bank must find additional funds to acquire the required reserves. It borrows from other banks or even the Fed.

(see Keen's short paper summarizing his argument for popular consumption): http://australianpropertyforum.com/topic/9743928/1...

Keen is a post-Keynesian economist in Australia who has written critical book

titled "Debunking Economics". He says economists of the neo-Classical school, who dominate the universities do not use sophisticated mathematics like differential equations and stick to simple linear relationships while not testing their basic assumptions empirically. In developing a dynamic model of the economy that included data from the private sector he saw in the empirical data trends that had the same pattern as one he had modelled artificially that ended in a burst bubble. So in 2006 he was predicting a crash in the housing market. He also does not believe in the classical economics' 'equilibrium theory'. He says our economies are inherently unstable. Furthermore the neo-Classical school's faith in the equilibrium conditions of the market allowed them to ignore the bubble developing in the housing market: everything ultimately would work out for the best if government just let things be. He says the instability of the market requires regulation and attempts to counter dangerous trends. Keen sees the Great Recession as a development in the private sector (housing, derivatives, etc.) and the neo-classical school didn't look at data from them thinking the central bank was able to control the money supply. It does so but poorly. The private banking sector creates more new money, but it is debt. And close regulation is needed to counter practices that lead to instability.

@My Esoteric: "The last part of your statement is actually illegal; banks cannot make loans without adequate reserves, if they do, they are, hehe, by definition bankrupt. In today's world, you still need to replace the your word "good" with "stellar", in my opinion. Banks have always created money "out of nothing", that is why they are banks."

As I mentioned above the Fed has to allow some of this to go on because otherwise it would interfere with legitimate growth of capitalism by the lending process. Banks will get the funds to have reserves that are required, but they are not constrained by that in making the loans.

When I say the Fed creates money out of thin air, I do not mean specifically, it prints money. The Fed does not print money. The Mint does. Furthermore cash money is a minuscule fraction of the money supply that it creates. Digital creation is a more realistic description of what is done. The Fed buys securities from banks by simply increasing the entries in spreadsheets for the banks' reserves using the proper amount. Money is just quantitative representations in units of account (e.g. dollars) of debt obligations between parties in the economy. The physical representation of these quantities can be electrical, written, scratches and notches on sticks, coins, whatever. There is not enough gold to finance the global economy without making the units microscopically small amounts of gold.

As far as buying securities to counter deflation, the Fed will use money created out

of thin air. Otherwise it does not increase the money supply.


Shyron E Shenko profile image

Shyron E Shenko 2 years ago

Hello My Esoteric, I just heard yesterday that funds were already allotted for continuing the emergency unemployment benefits. So, it is hard for me to understand why benefits can't be extended. It is like some people saying: "you have been getting benefits long enough, time to stop and you go out and get a job." Like the people on unemployment are unemployed because they want to be.

Your article really explains a lot. Thank you!

Shyron


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Stan, no, the article is still there. The part about printing money I am referring to is the last sentence of the first paragraph; my last sentence is a paraphrase of their statement, I basically turned it around.

Thanks for the reference, I saved it and will finish reading it; but I read enough to know it doesn't really apply to what we are discussing, although it does add to and change my opinion on the relative importance of the reserve requirement on a bank's "willingness" to lend. Reserves never did "finance" bank loans, but at one point in time, as it seems now, it controlled how much a bank could lend ... if it wanted to. Based on your article, that appears to be no longer true because of so many other sources of money a bank has of non-reserve required funds.

The bottom line is, banks create money out of thin air, not the Federal Reserve, unless they print it, which they haven't for a long time.

The Fed sells securities to raise money to pay the debts of the U.S. They use money held in Reserve to buy securities to put money into the economy; which your paper says does not have a multiplier effect in terms of making new loans, since it is the banks deposit money in the first place, (even though many academic economic models claims it does), it nevertheless is stimulative in nature because it does make more money available for loans that the bank didn't have before.

Hopefully Keen was predicting the bubble burst before 2006, since that is when it happened.

Based on the above, I am going to have to eat crow with my "@My Esoteric: "The last part of your statement is actually illegal; banks cannot make loans without adequate reserves, ..." commentary. Obviously they can, times, they keep a chang'in.

How does gold enter the picture in today's world?


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Thank you Shyron and you are welcome.


stanfrommarietta profile image

stanfrommarietta 2 years ago

@MY Esoteric: "The bottom line is, banks create money out of thin air, not the Federal Reserve, unless they print it, which they haven't for a long time."

Still, no! I once heard an interview on PBS with some young bankers at the Federal Reserve who were buying securities and other toxic assets from banks after the beginning of the Great Recession. The interviewer asked where the money came from, since they didn't seem to consult any source of money on hand. The reply was they were making the money out of thin air. They were just adding the money (as digital entries) in spreadsheets of the reserves of the banks at the Fed.

Modern Monetary Theory, which I follow, holds that there is a vertical and a horizontal banking system. The vertical system consists of the Federal Reserve Bank and its relations to the private banks. The horizontal banking system is between the private banks and the public. In the horizontal system, the private banks create debt out of thin air by lending money to members of the public. The Fed lends money it creates out of thin air to banks and it also buys securities from banks with debt-free money created out of thin air. The open market operations of the Fed require creating and spending new money into the private banks when it buys securities from them. This is designed to increase the money supply. (However, my own analysis does not require that the banks will actually lend the money they receive from the Fed for new money to enter circulation where it is subject to inflation depending on conditions. But ordinarily this buying with newly created money by the Fed is done in deflations (recessions and depressions) and not inflations. The Fed buys the securities and holds them until inflation arises. The Fed will swap (legal) mature securities it has for new securities with new interest and maturity date in the future. Then it sells these securities to the banks to drain money from their reserves and (in theory) constrain their lending and creating new money. So, the Fed buys and sells securities to influence money supply in circulation.

The reason I hold that the new money the banks get from the Fed for their securities does not need to lead to lending is because, by the fungibility of money, the money obtained and spent by the Treasury from the banks for the securities, being equal to the money the banks got for the securities sold to the Fed can be treated as the new money spent into circulation instead. The money from the Fed both redeems the government's debt to the banks (they give back the securities to the government) and makes the money received by Treasury from the banks for the securities debt-free. The banks' reserves are also restored to their state (other things being equal) they had before buying the securities. It's as if the Treasury issued the money without borrowing. Of course, the Fed never directly gives the Treasury this money, and this satisfies the law that Fed can never buy or donate money directly to the Treasury. So, it is a kind of "immaculate creation" of money by the Treasury (with the help in the background by the Fed), which ordinarily cannot create money other than coins and issuing securities.

I was simply recalling when Keen predicted the collapse of the housing bubble and the consequent economy from memory. I may have been wrong in picking 2006. But I know it was before the collapse because he was recognized by many other economists as being among the earliest to make the prediction correctly.

I didn't mention it earlier, but I think you would get a great deal out of Keen's book "Debunking economics". He evidently teaches history of economic theories in addition to his teaching post-Keynesian disequilibrium theory and is critical of most theories before and after Keynes that assume equilibrium. He thinks most neo-classical economics now dominant in universities is bunk. He uses differential equations and dynamic modelling as opposed to linear modelling with equilibrium used by neo-classical economists. He gives a more detailed analysis of why banks don't wait to have sufficient reserves in order to lend, but lend then look for money to increase their reserves accordingly.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

OK, I just read about MMT, now I have to digest it. Most of it makes absolute sense to me, but presents it in a way I haven't contemplated before, to wit: keeping the reserves in balance on a day-to-day basis and meeting the target interest rate and the overall effect that has.


alansampson86 20 months ago

OK this is a really great post keep it up many business man women or people learn a lot this post thank you to post this,


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

Thank you, I am happy you had the time to read it. I do need to update "loss clock"; it has been awhile. It won't be increasing anymore because we are back a full-employment so the effect of the denied benefits has faded away.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working