How is austerity doing in Europe

[Kimura]

OK, since now is later, let's talk about the crowding out effect. This is related to something called Ricardian equivalence and has been around classical economics for a long time. The problem is that it dates from the period economists ASSUMED full employment of resources.

however, it's pretty difficult to deny that there is a crowding out effect. Again, going back to the equation:

G − T = S − I​

Again, if we take the foreign sector out of the equation and just focus on the domestic side. If government spending increases (G) while tax revenue (T) remains the same, then the left side of the equation gets bigger. Basic accounting (calculus rather) tells us that the right side of the equation must increase as well. It means people must cut down on consumption and save more, but this can also cause private sector investment to decrease.

Remember that this is an accounting identity and not a function. It describes the equilibrium post facto equivalence after the market effects have worked themselves out, not what happens in getting to that equilibrium. So the argument is that if we start from a full-employment equilibrium of all factors of production and increase government spending in a two-sector model, savings must go up by an equal amount in the next equilibrium, by definition. This is true.

The usual was to explain the MECHANISM is that the government increases the supply of government securities to fund the deficit, which drives prices down in the bond market, effectively raising interest rates. Confronted with higher interest rates, the household sector will find savings relatively more attractive and consumption slightly less and adjust their behavior to a new equilibrium involving less consumption and more saving. The process only stops when an interest rate is reached at which the additional saving enticed from the household sector matches the increased government spending.

Have I stated this fairly?

No complaints so far.

This is where the sticky part is. When interest rates increase, households will adjust their "consumption ratio" downward. Most of this effect will probably be consumers who cannot afford to borrow as much and thus lower plans for consumption, which is why consumer durables are more volatile than food or clothing, the mechanism is not on the consumer wants side, it is on the consumer capacity side of household optimization. Households are to some extent income-constrained.

But all of this rests on the initial assumption of full employment of all factors of production. Suppose this is not true. In linear programming terms the "shadow cost" of the partially unused resource is zero. Economists would say the opportunity cost of that resource was zero. Both mean that we can utilize more of that resource because it is "free". But while the resource may have a marginal productivity of zero, it is still likely to be paid a traditional price for that resource. Where I work the woods are full of half empty commercial space whose asking rents have not fallen the last five years. Combine sticky resource prices and excess capacity and you set up a new possibility. The government spending immediately injects income into the household sector (labor is paid wages and property owners start receiving rent on formerly vacant space). They are no longer as income-constrained as they were before, and can increase both consumption and savings!

All you've done was explain what effects idle resources can do for other people. Not necessarily analysis the benefits relative to the cost. This is where I take the time to mention another component of classical economics called Bastiat's Fable. What? I thought we were just mentioning economist at random...

The problem with those who concur that there is no crowding out is largely due to the assumption that there are idle resources. This also has to do with the distinction between wealth and employment. Even if you do believe that government would spend in a way which would only involve unemployed resources, the measure would result in a harmful solution which would make a particular area poorer.

Shadow cost are 0 to someone else, which always come at a cost to another person. At zero prices, there is always greater demand than supply. Some people tend to assume that scarcity does not exist in some sectors of the economy. Goods are free by nature, but inappropriate institutional arrangements have led to scarcity. Free resources utilised in one sector can always be utilised in another sector which is more productive. There is really no such thing as a Free resource, not in the Government sector or Private Sector.

For example, the issue is what is the best outlet for all of these idle resources. Does the final mix output satisfy consumer desires? How can we be sure that channeling these resources into sector X won't actually do more harm than good? In practice, the market economy does a fanasitc job of doing this called a profit-and-loss calculation, which are conveyed in the form of market prices. Anyone can use an example of anyone who was currently laid-off as a result of the financial crisis. Me in particular, while we are still employing personal anecdotes.

This Wall Street Broker isn't doing anybody a service by cranking out models that give mortgage-backed securities a gold star for safety. What do I do with my degree? Should I go and teach other how to trade in the markets or was my education a complete was, in which given the economic opportunities, provide services at Wal-Mart. No one knows the answers to these questions, but what eventually happens in the recovery process as the unemployed initially looks for another job with the same salary as before. As the months pass, she realizes that this is unrealistic, and she begins lowering his minimum price. Eventually, he finds an employer with compatible desires, and the two agree to a mutually beneficial arrangement.

In this scenario, idle unemployment serves as a real function in the marketplace, but they're never truly idle. They're always assumed uses for resources which can be put to better uses. When government spends money and runs up deficits, all it means is that it is forcing taxpayers to spend money on projects that the market wouldn't normally fund, and for more often than not a very good reason.

For example, video game developer 38 studios going into bankruptcy, the state department purchasing 2,500 kindles, the bankruptcy of A123 Systems, and others. Now, I can give these examples all day, and I'm sure someone else would love that. But regardless at the extent at the government is using that money, whether for investment or for current government expenditures, it is not available for other people. The key thing to remember it's not whether or not investors are being crowded out. It's the fact that they could be investing into other economic activity, which could be more productive than government debt, given that the government activity is not very productive. The question of whether or not Government Spending is going to be less productive than Private Spending is ultimately an empirical one.

This is because in principle, we expect this to be the case. If you are spending your own money on yourself you are going to spend very carefully. If you are also spending someone else's money on yourself, you're still going to spend it with some reasonable amount of concern, but ultimately very carefully. However, if you are spending someone else's money on someone else (which is what is the case with government), then you have no real incentive to actually use that money effectively or efficiently. This is simply an economic reality. Ultimately, government spending frees up another income and produces savings at the expense of constraining anther's income and savings.

I leave it to you to explain how this gives rise to the multiplier effect. In summary, the closer we are to full utilization of resources (which is reflected in markets by price inflation), the more "crowding-out" we will observe. The more unused resources in an economy (high unemployment rates and commercial vacancy rates), the less "crowding-out" and the higher the multiplier. Both descriptions of an economy are correct given they are applied to the appropriate set of circumstances.

Again, all this has very much to do with scarcity, and the assumption that there is none. Depending on the economic sector your are referring to. If deficits are financed by the public, then it causes a diversion of savings into government projects. If deficits are financed by bank inflation, then the diversion is indirect and the crowding out takes place by the printing of new money for government, competing for resources with the old money saved by the public sector.

This is all very New Keynesian in my estimation. This is where I have a bone of contention. By the way, I think every econ and finance major should intern as a staffer at the FED – or BoE in the case of the UK - as to clear some of this up. Even interning at a bond desk for one the primary dealers would help in my opinion.

I know I’ve said governments don’t spend under a fiat system by “printing money”. This is still the truth; they spend by deposit creation in the banking system. Obviously, there’s dollars in circulation which were clearly printed but this is an entirely different process from flows of spending and/or taxation. I never mentioned where these credits and debits emanate from. They basically come from nowhere. I’m working on a Photoshop diagram to illustrate this. Any bond issuance by the government has nothing to do with “financing”. They function as a reserve drain to alleviate any competitive pressure on the target interest rate. Central banks cannot control the money supply. All they can control is the target interest rate by managing the liquidity in these reserves.

For example, let’s say the government spends $500 million dollars. The Treasury basically debits one of its cash accounts by $500 million and this means its reserve account at the FED declines by the same amount. The recipient then deposits the check for $500 million in their private bank accounts and its reserves increase by that amount.

Taxation works in the opposite fashion. Private bank accounts receive a debit (private reserves decrease) and the government accounts receive a credit and reserve increase. All this based on basic accounting entries. The taxation doesn’t really end up anywhere. It’s not stored in a vault, nor does it finance deficit spending in any capacity. The non-government sector can’t pay any of its tax obligations until the government has spent. We should ultimately view taxes as draining excess liquidity from the non-government sector. It demonstrates the government sector’s desire for that particular sector to have decreased spending capacity.

I’d like to reinforce my points. Let’s say the economy consists of two people on a tropical island. One person is the government sector and the other is the non-government sector. If the government runs a balanced budget (say spends $400 and taxes $400) then non-government sector accumulation of currency is zero (no net savings) in that time period and the budget is “balanced”.

If the government sector spends $500 and taxes remain at $400, then non-government sector (private) saving is $100 dollars which can accrue as financial assets. These $100 notes have issued by the government sector is pay for its added expenses. The government may even decide to issue bond to entice saving but operationally doesn’t have to do this to finance its deficits. The government deficit of $100 is private savings of $100 down to the last penny.

If the government continued to do this, all the accrued private savings would be equal to all the accumulated budget deficits. In the event the government ran a surplus (for example, it spends $400 and taxes $500) the private sector would be in debt – or would owe the government sector – a tax payment of $100 dollars. It would have to sell something to the government to obtain the required funds. The idea being that the government purchases back a portion of the bonds it sells. The net funding requirements of the non-government sector created this response from the government in the form of interest rate signaling so to speak.

These examples should help people realize that currency and the monetary base (reserves) and outstanding government financial securities comprise the total net financial assets of the non-government sector. It becomes a matter of basic accounting that the government provides the funds to the non-government sector for its desire to net save and for tax payments.

The classical claims about crowding are not based on any coherent mechanism. In point of fact, they repeatedly state that there’s a fixed pool of savings and that government spending is constrained from and financial standpoint. In other words, a currency issuer must source funding to carry out fiscal policy. The end result is competition for some finite pool of savings is interest rates increase and affect private spending. This is what we learned as financial crowding out.

An related theory is IS-LM theory from macro. It also erroneous assumes the FED – or BoE - or any central bank can exogenously control the supply of money. The increasing income from deficits increases the demand for money and increases interest rates to clear out the money market so to speak. This is retardo Keynesian theory of financial crowding out.

Both of these concepts aren’t even based in reality since it’s not connected to the fact that central banks increase interest rates because they should control inflation and these rate increases will decrease aggregate demand.

Real crowding out is very real, but financial crowding is largely an erroneous miscalculation.

 

[Rshermr]

Stealing gm to give to the union??? Not sure I have ever read about that. Maybe you can flesh that out for me, and others.

Still living under a rock? GM and the Truth About One of America's Biggest Bankruptcies

Jesus, RKM. I wondered who in the world was nuts enough to pay any attention to this guy. I mean, there are nut case right and left. But this guy is the nut case for nut cases only:
"Porter Stansberry, the financial publisher known as much for his viral, ominous 2010 video "The End of America" as he is for his run-ins with the Security Exchange Commission, is back with another foreboding video, titled "The End of Barack Obama?"

[READ: Stansberry Claims Obama Secretly Seeking Third Term]

In the video, which runs more than an hour in length, Stansberry warns listeners that a major crisis is coming that will "shake the very foundation" of the country and could "bring our country and way of life to a grinding halt."
Financial Publisher Who Defrauded Public Investors Is Back With Another Ominous Video - Washington Whispers (usnews.com).

So, is this it? Your "proof" that the gm rescue was a gift to the union??? Really.
I have seen this guy's adds for his drivel many times. Always wondered who was stupid enough to pay any attention. Sorry, but there is no other way to say it. You have to be in the nut case of nut cases category to actually pay any attention to this guy.

Maybe it was just a joke? Maybe you are just trying to kid us???

Here is another description:
"There’s a website you have to get on and watch a video. Well, after months and months of seeing the commercial, I finally clicked on NewAmerica5.com. No need to watch it, unless you have nothing better to do for the next hour. Seriously, this video is an hour long with rather primitive graphics and so scary that by the end, you’re ready to start dishing out money to the guy in charge, convicted felon, Porter Stansberry.

“What was he convicted of,” you ask? Stock fraud. Stansberry was ordered to pay restitution and a fine of 1.5 million dollars.

Five minutes into the video you know Stansberry is on the far right of the political spectrum when he condemns government and regulations—and slams President Obama, claiming he’s bringing on European-style Socialism.

He easily blends a few truths with his political ideology, coming up with a solution only he can solve for you for the right price. He says everyone in the financial services industry agrees with him, even George Soros, the notorious left wing financier who backs every socialist cause in the world!
The Wages of Boredom - Left Coast Logic
A far, far, far, far right wing nut case. And a felon to boot. Great.

 

[RKMBrown]

Stealing gm to give to the union??? Not sure I have ever read about that. Maybe you can flesh that out for me, and others.

Still living under a rock? GM and the Truth About One of America's Biggest Bankruptcies

Jesus, RKM. I wondered who in the world was nuts enough to pay any attention to this guy. I mean, there are nut case right and left. But this guy is the nut case for nut cases only:
"Porter Stansberry, the financial publisher known as much for his viral, ominous 2010 video "The End of America" as he is for his run-ins with the Security Exchange Commission, is back with another foreboding video, titled "The End of Barack Obama?"

[READ: Stansberry Claims Obama Secretly Seeking Third Term]

In the video, which runs more than an hour in length, Stansberry warns listeners that a major crisis is coming that will "shake the very foundation" of the country and could "bring our country and way of life to a grinding halt."
Financial Publisher Who Defrauded Public Investors Is Back With Another Ominous Video - Washington Whispers (usnews.com).

So, is this it? Your "proof" that the gm rescue was a gift to the union??? Really.
I have seen this guy's adds for his drivel many times. Always wondered who was stupid enough to pay any attention. Sorry, but there is no other way to say it. You have to be in the nut case of nut cases category to actually pay any attention to this guy.

Maybe it was just a joke? Maybe you are just trying to kid us???

Here is another description:
"There’s a website you have to get on and watch a video. Well, after months and months of seeing the commercial, I finally clicked on NewAmerica5.com. No need to watch it, unless you have nothing better to do for the next hour. Seriously, this video is an hour long with rather primitive graphics and so scary that by the end, you’re ready to start dishing out money to the guy in charge, convicted felon, Porter Stansberry.

“What was he convicted of,” you ask? Stock fraud. Stansberry was ordered to pay restitution and a fine of 1.5 million dollars.

Five minutes into the video you know Stansberry is on the far right of the political spectrum when he condemns government and regulations—and slams President Obama, claiming he’s bringing on European-style Socialism. We wish, Porter.

He easily blends a few truths with his political ideology, coming up with a solution only he can solve for you for the right price. He says everyone in the financial services industry agrees with him, even George Soros, the notorious left wing financier who backs every socialist cause in the world!
The Wages of Boredom - Left Coast Logic
A far, far, far, far right wing nut case. And a felon to boot. Great.

You asked for a link. So I googled and pasted you the first link. Yeah I thought it was funny. Though what Obama did was not funny. The facts are still there ... Obama skipped the bankrupcy process and "provided" the union with the lion share of the company, thus "stealing" the company away from the shareholders and "redistributing" it to his democrat buddies in the union. I'm to lazy to find the appropriate data. I'm going by memory of the "recent" event.

 

[Rshermr]

Still living under a rock? GM and the Truth About One of America's Biggest Bankruptcies

Jesus, RKM. I wondered who in the world was nuts enough to pay any attention to this guy. I mean, there are nut case right and left. But this guy is the nut case for nut cases only:
"Porter Stansberry, the financial publisher known as much for his viral, ominous 2010 video "The End of America" as he is for his run-ins with the Security Exchange Commission, is back with another foreboding video, titled "The End of Barack Obama?"

[READ: Stansberry Claims Obama Secretly Seeking Third Term]

In the video, which runs more than an hour in length, Stansberry warns listeners that a major crisis is coming that will "shake the very foundation" of the country and could "bring our country and way of life to a grinding halt."
Financial Publisher Who Defrauded Public Investors Is Back With Another Ominous Video - Washington Whispers (usnews.com).

So, is this it? Your "proof" that the gm rescue was a gift to the union??? Really.
I have seen this guy's adds for his drivel many times. Always wondered who was stupid enough to pay any attention. Sorry, but there is no other way to say it. You have to be in the nut case of nut cases category to actually pay any attention to this guy.

Maybe it was just a joke? Maybe you are just trying to kid us???

Here is another description:
"There’s a website you have to get on and watch a video. Well, after months and months of seeing the commercial, I finally clicked on NewAmerica5.com. No need to watch it, unless you have nothing better to do for the next hour. Seriously, this video is an hour long with rather primitive graphics and so scary that by the end, you’re ready to start dishing out money to the guy in charge, convicted felon, Porter Stansberry.

“What was he convicted of,” you ask? Stock fraud. Stansberry was ordered to pay restitution and a fine of 1.5 million dollars.

Five minutes into the video you know Stansberry is on the far right of the political spectrum when he condemns government and regulations—and slams President Obama, claiming he’s bringing on European-style Socialism. We wish, Porter.

He easily blends a few truths with his political ideology, coming up with a solution only he can solve for you for the right price. He says everyone in the financial services industry agrees with him, even George Soros, the notorious left wing financier who backs every socialist cause in the world!
The Wages of Boredom - Left Coast Logic
A far, far, far, far right wing nut case. And a felon to boot. Great.

You asked for a link. So I googled and pasted you the first link. Yeah I thought it was funny. Though what Obama did was not funny. The facts are still there ... Obama skipped the bankrupcy process and "provided" the union with the lion share of the company, thus "stealing" the company away from the shareholders and "redistributing" it to his democrat buddies in the union. I'm to lazy to find the appropriate data. I'm going by memory of the "recent" event.

So you don't have a rational, impartial source. Thought so.

 

[oldfart]

First, thanks for a thoughtful post! I think we are getting into some of the good stuff here.

All you've done was explain what effects idle resources can do for other people. Not necessarily analysis the benefits relative to the cost. This is where I take the time to mention another component of classical economics called Bastiat's Fable. What? I thought we were just mentioning economist at random...

Sorry for the inside joke about Pareto and Walras. You had to be forced to sit through welfare economics to appreciate the irony.

The problem with those who concur that there is no crowding out is largely due to the assumption that there are idle resources. This also has to do with the distinction between wealth and employment. Even if you do believe that government would spend in a way which would only involve unemployed resources, the measure would result in a harmful solution which would make a particular area poorer.

I try to be careful here. I do not deny that there is a "crowding-out effect", but I contend that it is mostly a property of economies near full employment, just as Keynesian multiplier effects are more pronounced when there are lots of underutilitzed resources. Which one is dominant depends on the state of the economy at the moment. Suppose we look at warehouse space. In a major downturn the warehouse is often less than half full. If the company gears up production and needs more warehouse space, it's already there sitting unused. Warehouse space in this situation is not a constraint on production and to the firm it is essentially free. At the same time if the company next door offers to sell the firm another warehouse, the firm will probably pass. Why pay for space that only increases the amount of unused warehouse? The marginal productivity of the added space is zero.

Now most production processes involve multiple inputs, not all of which are underutilized. Things get complicated pretty fast and in practice two or three sector models become basically worthless and input-output models become the shining stars. This is the kind of stuff I worked on the first year of graduate school studying the Soviet economy. Bringing an unused resource into production normally requires also increasing use of resources that are not in surplus. Using more warehouse space, for example will often increase utility consumption for climate control, increase labor for additional workers, and repairs and depreciation for loading equipment. So even though a given resource is free, that doesn't mean that there is no marginal cost in utilizing more of it.

My point is that this is all on a continuum. Near full employment most other factors of production are in short supply, and increasing output has significant inflationary potential. Conversely surplus resources in one area caused by decreased demand usually are coupled with surplus resources of other kinds. As we move from one position to another issues such as bottlenecks have to be dealt with and the additional output balanced against the inflationary pressures.

I think that there is very little the government can do that only utilizes surplus resources, so that spending has to matched to what resources we are targeting to increase utilization. I'm not understanding what "harmful solution" you are concerned with here. Perhaps an example would help?

Shadow cost are 0 to someone else, which always come at a cost to another person. At zero prices, there is always greater demand than supply. Some people tend to assume that scarcity does not exist in some sectors of the economy. Goods are free by nature, but inappropriate institutional arrangements have led to scarcity. Free resources utilized in one sector can always be utilized in another sector which is more productive. There is really no such thing as a Free resource, not in the Government sector or Private Sector.

I believe that externalities give rise to markets with negative goods with negative prices. Think of waste disposal. When a process has multiple outputs, one or more of which must be disposed of, the firm will pay for that disposal. Profit maximization rewards the most cost effective method of disposal and wonderfully market mechanisms handle the problem just fine.

For example, the issue is what is the best outlet for all of these idle resources. Does the final mix output satisfy consumer desires?

Frankly this is a weak point of economic theory in general. That applies to both market mechanisms and to directive measures. I'll defer discussing theory of consumer demand until I can spend some more time on it.

How can we be sure that channeling these resources into sector X won't actually do more harm than good?

Again, what kind of harm are you concerned with here?

In practice, the market economy does a fantastic job of doing this called a profit-and-loss calculation, which are conveyed in the form of market prices.

I would agree with two caveats. First the market does not do a good job of handling externalities unless they are factored in by either subsidies or fines. Second, there are some perverse price effects in consumer behavior that are problematical.

This Wall Street Broker isn't doing anybody a service by cranking out models that give mortgage-backed securities a gold star for safety.

Agreed.

What do I do with my degree? Should I go and teach other how to trade in the markets or was my education a complete was, in which given the economic opportunities, provide services at Wal-Mart. No one knows the answers to these questions, but what eventually happens in the recovery process as the unemployed initially looks for another job with the same salary as before. As the months pass, she realizes that this is unrealistic, and she begins lowering his minimum price. Eventually, he finds an employer with compatible desires, and the two agree to a mutually beneficial arrangement.

This is a very simplified view of how labor markets work. Generally labor markets work better when there is more geographical mobility, occupational mobility, as well as compensation mobility. Highly specialized professionals are a particular problem (think medical research today, aerospace engineering in the past, PhD level scientists in just about anything), because when industry demand slackens there are usually no good places those people can find employment that keeps their specialized skills current. I think this is a good case for targeted government spending to maintain the research and technological infrastructure the economy will eventually need again.

In this scenario, idle unemployment serves as a real function in the marketplace, but they're never truly idle. They're always assumed uses for resources which can be put to better uses. When government spends money and runs up deficits, all it means is that it is forcing taxpayers to spend money on projects that the market wouldn't normally fund, and for more often than not a very good reason.

A think this is a good example of where absolute arguments break down on both sides. Markets are not very good at producing certain goods and services, like basic research or infrastructure. You can argue these issues intelligently project by project. For example, I would oppose a government plan to subsidize agricultural lime production (yes, some states run this industry directly), but I would support a project to upgrade prisons so they are safer for inmates and staff and more effective in reducing recidivism. I guess that a good project is a good project regardless of how tight the budget is (i.e. if the projected internal ROI is big, do it anyway) and a bad project is a waste of taxpayer money even when the government runs a surplus.

The key thing to remember it's not whether or not investors are being crowded out. It's the fact that they could be investing into other economic activity, which could be more productive than government debt, given that the government activity is not very productive. The question of whether or not Government Spending is going to be less productive than Private Spending is ultimately an empirical one.

I would agree that the question in a lot of cases is an empirical one. But right now the financial system is sitting on a couple trillion dollars of excess reserves earning 0.25% interest from the Fed, while not generating any economic activity through increased business lending. It seems to me that bank hoarding is crowding out business investment! And we are terminating hundreds of NIH research grants for the purpose of.....where again is this demand for medical research being replaced? Where are the resources being allocated to?

However, if you are spending someone else's money on someone else (which is what is the case with government), then you have no real incentive to actually use that money effectively or efficiently.

The same argument could be used to pillory the financial services industry! Most people paid to do a job try to do it well, and this is as true in the government sector as in the private sector.

 

[Toro]

Sorry for the inside joke about Pareto and Walras. You had to be forced to sit through welfare economics to appreciate the irony.

.

That reminds me of another joke.

What's the definition of an economist?


An accountant without the personality!

lol

Carry on.


Long silver for a trade, Amazonia.

 

[Kimura]

First, thanks for a thoughtful post! I think we are getting into some of the good stuff here.

All you've done was explain what effects idle resources can do for other people. Not necessarily analysis the benefits relative to the cost. This is where I take the time to mention another component of classical economics called Bastiat's Fable. What? I thought we were just mentioning economist at random...

Sorry for the inside joke about Pareto and Walras. You had to be forced to sit through welfare economics to appreciate the irony.

The problem with those who concur that there is no crowding out is largely due to the assumption that there are idle resources. This also has to do with the distinction between wealth and employment. Even if you do believe that government would spend in a way which would only involve unemployed resources, the measure would result in a harmful solution which would make a particular area poorer.

I try to be careful here. I do not deny that there is a "crowding-out effect", but I contend that it is mostly a property of economies near full employment, just as Keynesian multiplier effects are more pronounced when there are lots of underutilitzed resources. Which one is dominant depends on the state of the economy at the moment. Suppose we look at warehouse space. In a major downturn the warehouse is often less than half full. If the company gears up production and needs more warehouse space, it's already there sitting unused. Warehouse space in this situation is not a constraint on production and to the firm it is essentially free. At the same time if the company next door offers to sell the firm another warehouse, the firm will probably pass. Why pay for space that only increases the amount of unused warehouse? The marginal productivity of the added space is zero.

Now most production processes involve multiple inputs, not all of which are underutilized. Things get complicated pretty fast and in practice two or three sector models become basically worthless and input-output models become the shining stars. This is the kind of stuff I worked on the first year of graduate school studying the Soviet economy. Bringing an unused resource into production normally requires also increasing use of resources that are not in surplus. Using more warehouse space, for example will often increase utility consumption for climate control, increase labor for additional workers, and repairs and depreciation for loading equipment. So even though a given resource is free, that doesn't mean that there is no marginal cost in utilizing more of it.

My point is that this is all on a continuum. Near full employment most other factors of production are in short supply, and increasing output has significant inflationary potential. Conversely surplus resources in one area caused by decreased demand usually are coupled with surplus resources of other kinds. As we move from one position to another issues such as bottlenecks have to be dealt with and the additional output balanced against the inflationary pressures.

I think that there is very little the government can do that only utilizes surplus resources, so that spending has to matched to what resources we are targeting to increase utilization. I'm not understanding what "harmful solution" you are concerned with here. Perhaps an example would help?



I believe that externalities give rise to markets with negative goods with negative prices. Think of waste disposal. When a process has multiple outputs, one or more of which must be disposed of, the firm will pay for that disposal. Profit maximization rewards the most cost effective method of disposal and wonderfully market mechanisms handle the problem just fine.



Frankly this is a weak point of economic theory in general. That applies to both market mechanisms and to directive measures. I'll defer discussing theory of consumer demand until I can spend some more time on it.



Again, what kind of harm are you concerned with here?



I would agree with two caveats. First the market does not do a good job of handling externalities unless they are factored in by either subsidies or fines. Second, there are some perverse price effects in consumer behavior that are problematical.



Agreed.



This is a very simplified view of how labor markets work. Generally labor markets work better when there is more geographical mobility, occupational mobility, as well as compensation mobility. Highly specialized professionals are a particular problem (think medical research today, aerospace engineering in the past, PhD level scientists in just about anything), because when industry demand slackens there are usually no good places those people can find employment that keeps their specialized skills current. I think this is a good case for targeted government spending to maintain the research and technological infrastructure the economy will eventually need again.




A think this is a good example of where absolute arguments break down on both sides. Markets are not very good at producing certain goods and services, like basic research or infrastructure. You can argue these issues intelligently project by project. For example, I would oppose a government plan to subsidize agricultural lime production (yes, some states run this industry directly), but I would support a project to upgrade prisons so they are safer for inmates and staff and more effective in reducing recidivism. I guess that a good project is a good project regardless of how tight the budget is (i.e. if the projected internal ROI is big, do it anyway) and a bad project is a waste of taxpayer money even when the government runs a surplus.

The key thing to remember it's not whether or not investors are being crowded out. It's the fact that they could be investing into other economic activity, which could be more productive than government debt, given that the government activity is not very productive. The question of whether or not Government Spending is going to be less productive than Private Spending is ultimately an empirical one.

I would agree that the question in a lot of cases is an empirical one. But right now the financial system is sitting on a couple trillion dollars of excess reserves earning 0.25% interest from the Fed, while not generating any economic activity through increased business lending. It seems to me that bank hoarding is crowding out business investment! And we are terminating hundreds of NIH research grants for the purpose of.....where again is this demand for medical research being replaced? Where are the resources being allocated to?

However, if you are spending someone else's money on someone else (which is what is the case with government), then you have no real incentive to actually use that money effectively or efficiently.

The same argument could be used to pillory the financial services industry! Most people paid to do a job try to do it well, and this is as true in the government sector as in the private sector.

I'd like to add my take on this...

It’s clear that during any period of time we have real finite resources for production. New resources are located, produced, and the previous stock moved around through better productivity and education. The goal of production is to utilize resources to produce real goods and services people desire by public or private distribution.

By its very definition, any sectoral claim through spending on real resources decreases the availability for other individuals. We always have opportunity costs in real terms when one part of spending rises relative to another.

Of course, people can always support the radical side of mainstream econ that supports Ricardian equivalence, which tell us there’s such a thing as one hundred percent crowding out in the financial markets. If you don’t then you’ll agree that increasing deficits as a percentage of GDP will increase aggregate demand so long as the economy can handle the production of increased real goods and services. The increase in overall public demand will lead to more public access to real goods and services.

Some people may be wondering why this even matters if the economy is at full capacity. Under these circumstances an increasing public percentage of GDP must push real utilization by the non-government sector which may increase as the economy tries to bleed out the nominal demand through real output.

We could also say that deficits may increase as a percentage of GDP due to a direct consequence of decreases in private spending which should kick in automatic stabilizers. This would tell us we have too many idle resources. This is within the realm of possibility, but doesn't change the fact that public claims on resources have increased. We have a situation where opportunity costs are low due to all the excess capacity.

The questions remains if we can differentiate between real crowding out or the myth of financial crowding out that’s erroneously drilled into our skulls as undergraduates. The epicenter of this macro error is the loanable funds theory which is sort of like an aggregate simulation of how financial markets behave. This whole enchilada is pre-Keynesian and is still attached to the classical model so to speak.

 

[RKMBrown]

So you don't have a rational, impartial source. Thought so.

What "source" would you consider to be a "rational, impartial source?"

How about General Motors CEO, Dan Akerson?

Akerson Admits GM Bankruptcy Not Well Thought Out | National Legal and Policy Center

 

[RKMBrown]

How about the wiki? General Motors Chapter 11 reorganization - Wikipedia, the free encyclopedia

 

[Kimura]

So you don't have a rational, impartial source. Thought so.

What "source" would you consider to be a "rational, impartial source?"

How about General Motors CEO, Dan Akerson?

Akerson Admits GM Bankruptcy Not Well Thought Out | National Legal and Policy Center

It's almost funny that the Obama Administration didn't make Wall Street go through wage restructuring before they could get bailed out. This has been the story for the past thirty years while Labor takes it in the ass. I'm glad the UAW received some compensation. The past thirty years have been a smorgasbord of deregulation, free trade, and stagnant wages. Thank you Carter, Reagan, Bush, Clinton, Bush The Retard, and now Obama!

 

[TheGreatGatsby]

We should ultimately view taxes as draining excess liquidity from the non-government sector.

Except, that's not what the government does. They print excess money, depreciate the value of the dollar and then demand the lion's share back.

 

[AmazonTania]

This is all very New Keynesian in my estimation. This is where I have a bone of contention. By the way, I think every econ and finance major should intern as a staffer at the FED – or BoE in the case of the UK - as to clear some of this up. Even interning at a bond desk for one the primary dealers would help in my opinion.

I don't see how it's New Keynesian at all. The general premise of the Neo-Keynesian position on crowding out is that the effects are minimal with very high unemployment, as the government spending allocates freed up idle resources. The question Neo-Keynasians tend not to ask, 'why are these resources freed up in the first place.' Ignores that these freed up resources can have more efficient uses.

And I really don't see the point in a Finance or Econ major interning at the Fed. Not all Central Banks operate similarly.

I know I’ve said governments don’t spend under a fiat system by “printing money”. This is still the truth; they spend by deposit creation in the banking system. Obviously, there’s dollars in circulation which were clearly printed but this is an entirely different process from flows of spending and/or taxation. I never mentioned where these credits and debits emanate from. They basically come from nowhere. I’m working on a Photoshop diagram to illustrate this. Any bond issuance by the government has nothing to do with “financing”. They function as a reserve drain to alleviate any competitive pressure on the target interest rate. Central banks cannot control the money supply. All they can control is the target interest rate by managing the liquidity in these reserves.

Much of the money used for QE1, 3 & 4 has already financed a good portion of previous deficits. I'll look through the Flow of Funds statistics and see for myself. Other than that, I don't disagree that the Federal Government has to issue bonds or tax. It can spend what it needs to spend, but the Government does issue bonds to finance government deficit outlays. MMT just feels as if the Government doesn't need to orchestrate it that way.

The Government issues bonds creating a 'financial asset' in the private sector, the private sector flips the bond to the Federal Reserve and the Fed receives the principal + interest on Government IOUs. Most likely from other bonds it sells. The General Fund of the Treasury just receives remittances funds from the Federal Reserve through these treasures, and interest from depository loans, foreign securities, etc.

And I'm not sure about your last point. Are you saying that the Central Bank doesn't control the money supply, or rather, can't control the money supply. The Fed can influence the money supply by setting reserve requirements, OR by lowering/raising the discount rate, OR by conducting OMO. So, your last point is a bit of circular logic, and I just entertained a fallacy by talking about it... Bollocks...

For example, let’s say the government spends $500 million dollars. The Treasury basically debits one of its cash accounts by $500 million and this means its reserve account at the FED declines by the same amount. The recipient then deposits the check for $500 million in their private bank accounts and its reserves increase by that amount.

Taxation works in the opposite fashion. Private bank accounts receive a debit (private reserves decrease) and the government accounts receive a credit and reserve increase. All this based on basic accounting entries. The taxation doesn’t really end up anywhere. It’s not stored in a vault, nor does it finance deficit spending in any capacity. The non-government sector can’t pay any of its tax obligations until the government has spent. We should ultimately view taxes as draining excess liquidity from the non-government sector. It demonstrates the government sector’s desire for that particular sector to have decreased spending capacity.

Taxes aren't meant to finance deficit spending. A deficit is what you have accumulated if your outlays exceed your revenues. An individual receives a debit and the government receives a credit. The money is then spent the way Congress wants to spend it. That's all that we can really think of taxes. They're not draining excess liquidity. All it's doing is shifting liquidity from one sector of the economy to another. Whether or not we can determine whether the new uses of the liquidity are more useful than what it was previously being used for is merely empirical. Either way, you are limiting spending capacity of one sector.

I’d like to reinforce my points. Let’s say the economy consists of two people on a tropical island. One person is the government sector and the other is the non-government sector. If the government runs a balanced budget (say spends $400 and taxes $400) then non-government sector accumulation of currency is zero (no net savings) in that time period and the budget is “balanced”.

If the government sector spends $500 and taxes remain at $400, then non-government sector (private) saving is $100 dollars which can accrue as financial assets. These $100 notes have issued by the government sector is pay for its added expenses. The government may even decide to issue bond to entice saving but operationally doesn’t have to do this to finance its deficits. The government deficit of $100 is private savings of $100 down to the last penny.

You are once again skipping the bond auctioning process in assuming that the Bond comes it after the fact. I can understand if the private sector has held on to private savings it has accrued from it's previously held financial asset.

Again, two people on an island: The Private Sector and the Government Sector. The government receives $400 dollars in receipts and has $400 in outlays. The Government is running a balanced budget. The following fiscal year, the government deceives to spend $500 dollars, although it receives the same $400 dollars in receipts as before. Where exactly is the government going to get the extra revenue for the $100 deficit? The private sector, as the private sector is the only other person on the island. The private sector invest $100 dollars into the a government security. The private sector has a financial asset, and the government sector has $100 dollars.

The following year, the security matures. The private sector has $100 + interest which is now consisted 'net private sector savings.' Meanwhile, the Government sector decides to spend the same budget outlays of $500 dollars and same tax receipts of $400.

I can understand how my previous explanations of how the Government funds without issuing securities makes sense, but this scenario is a tad bonkers. Even if you believe the Government's deficit is financed through government savings, it has to obtain these savings somehow. The laws of equivalent exchange command this.

If the government continued to do this, all the accrued private savings would be equal to all the accumulated budget deficits. In the event the government ran a surplus (for example, it spends $400 and taxes $500) the private sector would be in debt – or would owe the government sector – a tax payment of $100 dollars. It would have to sell something to the government to obtain the required funds. The idea being that the government purchases back a portion of the bonds it sells. The net funding requirements of the non-government sector created this response from the government in the form of interest rate signaling so to speak.

Not true at all. Again, let's say that the Government is tax receipts consist of $400 dollars, but let's also assume that the Government decides to spend only $300 this fiscal year. This means that the Government is running a budget surplus. How you assume the private sector would be in debt, I haven't the foggiest. But a budget surplus would allow the Government to invest in the actual economy. It can purchase equities from major corporations. It can invest in real estate. It can invest in money market instruments, or whatever investments it decides to take on. These investments net out the same way if the government sector were to run deficits. Most of all, it still free's up resources from the general economy.

These examples should help people realize that currency and the monetary base (reserves) and outstanding government financial securities comprise the total net financial assets of the non-government sector. It becomes a matter of basic accounting that the government provides the funds to the non-government sector for its desire to net save and for tax payments.

That's the general problem. National accounting is not a good indicator of how to utlise resources in the economy efficiently. The ignores the behavioral process entirely, which for the sake of the discussion I haven't really discuss why the only person in the private sector would choose to invest in the government sector, unless the government sector was offering a good interest rate. Economics is not accounting.

The classical claims about crowding are not based on any coherent mechanism. In point of fact, they repeatedly state that there’s a fixed pool of savings and that government spending is constrained from and financial standpoint. In other words, a currency issuer must source funding to carry out fiscal policy. The end result is competition for some finite pool of savings is interest rates increase and affect private spending. This is what we learned as financial crowding out.

An related theory is IS-LM theory from macro. It also erroneous assumes the FED – or BoE - or any central bank can exogenously control the supply of money. The increasing income from deficits increases the demand for money and increases interest rates to clear out the money market so to speak. This is retardo Keynesian theory of financial crowding out.

No one is really saying that there is a fixed pool of savings except for MMT. If the private sector can only save as much as the government sector, that is a fixed pool of savings. The classical claims about crowding out are that resources are not always directed efficiently. It's not suppose to be based on a mechanism. Bases everything on an accounting metric is simply bad economics. If anything, crowding out is more behavioral than anything.

The loanable funds of the marketplace are where the supply of savings are translated into 'investment.' Savings are mostly determined by the time preference of individuals.

Both of these concepts aren’t even based in reality since it’s not connected to the fact that central banks increase interest rates because they should control inflation and these rate increases will decrease aggregate demand.

Real crowding out is very real, but financial crowding is largely an erroneous miscalculation.

Maybe, but it does happen more often that you think.

 

[Kimura]

We should ultimately view taxes as draining excess liquidity from the non-government sector.

Except, that's not what the government does. They print excess money, depreciate the value of the dollar and then demand the lion's share back.

From an accounting standpoint, it’s correct that an increase in government spending will also include an increase in taxes, an increase in base money (reserves and cash), and/or an increase in public debt. But this doesn’t mean than bonds or taxes finance the deficit. As a matter of fact, they do no such thing.

The government of the United States isn’t financially constrained. However, the US still issues debt to control liquidity outcomes in the private sector. Deficit spending and the purchasing of bonds by the FED increases liquidity while taxes and the sales of bonds drain this private liquidity. These operations affects the cash position on a macro level daily. Deficits create surpluses (excess reserves) across the entire banking system.

The government must first spend by crediting private bank accounts before it can debit private bank accounts which we call taxation. Government spending is where the private sector acquires the funds it needs to save and pay its tax obligations.

 

[AmazonTania]

So you don't have a rational, impartial source. Thought so.

What "source" would you consider to be a "rational, impartial source?"

How about General Motors CEO, Dan Akerson?

Akerson Admits GM Bankruptcy Not Well Thought Out | National Legal and Policy Center

It's almost funny that the Obama Administration didn't make Wall Street go through wage restructuring before they could get bailed out. This has been the story for the past thirty years while Labor takes it in the ass. I'm glad the UAW received some compensation. The past thirty years have been a smorgasbord of deregulation, free trade, and stagnant wages. Thank you Carter, Reagan, Bush, Clinton, Bush The Retard, and now Obama!

While I don't really see where the de-regulations are and the free trade America is supposedly having, but you must know that this the GM bailout and UAW compensation is an example of crowding out. In some ways, it's also financial. The purpose of bankruptcy is not to reward or repay creditors. Actually, bankruptcy prevents this from taking place. Bankruptcy is meant to free up resources and allocate them to more efficient uses. These resources may have been put in the hands of people who understand how to use it better. Employee would have been allocated to a much more efficient automobile maker. GM would have ultimately went in the hands of individuals who would have ran it better.

 

[Kimura]

I don't see how it's New Keynesian at all. The general premise of the Neo-Keynesian position on crowding out is that the effects are minimal with very high unemployment, as the government spending allocates freed up idle resources. The question Neo-Keynasians tend not to ask, 'why are these resources freed up in the first place.' Ignores that these freed up resources can have more efficient uses.

New Keynesians. I meant New Keynesians.

They erroneously believe the following:

A) The government has to borrow to fund its spending needs - False
B) Government borrowing from some fixed pool of savings drives up interest rates from completion - False
C) There's a fixed pool of savings at available at any point time - False

And I really don't see the point in a Finance or Econ major interning at the Fed. Not all Central Banks operate similarly.

It would clear up a ton of things, whether it's the FED, BoE, or RBA.

Much of the money used for QE1, 3 & 4 has already financed a good portion of previous deficits. I'll look through the Flow of Funds statistics and see for myself. Other than that, I don't disagree that the Federal Government has to issue bonds or tax. It can spend what it needs to spend, but the Government does issue bonds to finance government deficit outlays. MMT just feels as if the Government doesn't need to orchestrate it that way.

MMT is correctly pointing out that bond issuance, operationally, functions as a reserve drain, not a financing mechanism.

The Government issues bonds creating a 'financial asset' in the private sector, the private sector flips the bond to the Federal Reserve and the Fed receives the principal + interest on Government IOUs. Most likely from other bonds it sells. The General Fund of the Treasury just receives remittances funds from the Federal Reserve through these treasures, and interest from depository loans, foreign securities, etc.

And I'm not sure about your last point. Are you saying that the Central Bank doesn't control the money supply, or rather, can't control the money supply. The Fed can influence the money supply by setting reserve requirements, OR by lowering/raising the discount rate, OR by conducting OMO. So, your last point is a bit of circular logic, and I just entertained a fallacy by talking about it... Bollocks...

You’re still using that textbook explanation about how the government buys and sells bonds to control the demand for money relative to the overall supply.

Central banks cannot control the money supply. They haven’t tried in close to thirty years. Monetary targeting isn't given any serious consideration at this point. Central banks can only control the interest rate. This is done by maintaining liquidity in the overnight cash markets.

You are once again skipping the bond auctioning process in assuming that the Bond comes it after the fact. I can understand if the private sector has held on to private savings it has accrued from it's previously held financial asset.

I'm not skipping the bond auctioning process.

We always here how the FED can print money. The FED cannot “print”. If you read the FED Act, the only thing the FED can do is make a loan or discount something. It’ll take a something from the public, such as a bond, and exchange it for a reserve balance in the banking system. If I take $2million in Treasury bonds from you, and give you $2 million in cash, your net worth hasn’t changed. You really haven't increased your net financial assets.

Taxes aren't meant to finance deficit spending. A deficit is what you have accumulated if your outlays exceed your revenues. An individual receives a debit and the government receives a credit. The money is then spent the way Congress wants to spend it. That's all that we can really think of taxes. They're not draining excess liquidity. All it's doing is shifting liquidity from one sector of the economy to another. Whether or not we can determine whether the new uses of the liquidity are more useful than what it was previously being used for is merely empirical. Either way, you are limiting spending capacity of one sector.

Again, two people on an island: The Private Sector and the Government Sector. The government receives $400 dollars in receipts and has $400 in outlays. The Government is running a balanced budget. The following fiscal year, the government deceives to spend $500 dollars, although it receives the same $400 dollars in receipts as before. Where exactly is the government going to get the extra revenue for the $100 deficit? The private sector, as the private sector is the only other person on the island. The private sector invest $100 dollars into the a government security. The private sector has a financial asset, and the government sector has $100 dollars.

The following year, the security matures. The private sector has $100 + interest which is now consisted 'net private sector savings.' Meanwhile, the Government sector decides to spend the same budget outlays of $500 dollars and same tax receipts of $400.

I can understand how my previous explanations of how the Government funds without issuing securities makes sense, but this scenario is a tad bonkers. Even if you believe the Government's deficit is financed through government savings, it has to obtain these savings somehow. The laws of equivalent exchange command this.

This additional $100 is created through a deficit. Its liability is an asset on the other side of the ledger.

Not true at all. Again, let's say that the Government is tax receipts consist of $400 dollars, but let's also assume that the Government decides to spend only $300 this fiscal year. This means that the Government is running a budget surplus. How you assume the private sector would be in debt, I haven't the foggiest. But a budget surplus would allow the Government to invest in the actual economy. It can purchase equities from major corporations. It can invest in real estate. It can invest in money market instruments, or whatever investments it decides to take on. These investments net out the same way if the government sector were to run deficits. Most of all, it still free's up resources from the general economy.

Think in terms of stock variables. In order for one sector to accrue net financial wealth, another sector must increase its debt. A financial asset must have an equal and offsetting financial liability.

By the way, what’s a budget deficit? What happens when government deficit spends? Here’s what happens in the money markets: the government purchases something from the private sector. The manufacturer gets their payment and their employees are paid. A whole cascade of transactions occur from the government purchase. These transactions find their way into reserves of the banks on a daily basis. Mostly, reserves just sit there and collect zero interest for the banks. Banks will try to get rid of excess reserves which will decrease the interest rate in the interbank market. This is why budget deficits decrease interest rates, not increase them. This is the opposite of what many economists tell us, despite record low interest rates and extremely large deficits. Food for thought….

That's the general problem. National accounting is not a good indicator of how to utlise resources in the economy efficiently. The ignores the behavioral process entirely, which for the sake of the discussion I haven't really discuss why the only person in the private sector would choose to invest in the government sector, unless the government sector was offering a good interest rate. Economics is not accounting.

National accounting and macroeconomics go hand in hand.

No one is really saying that there is a fixed pool of savings except for MMT. If the private sector can only save as much as the government sector, that is a fixed pool of savings. The classical claims about crowding out are that resources are not always directed efficiently. It's not suppose to be based on a mechanism. Bases everything on an accounting metric is simply bad economics. If anything, crowding out is more behavioral than anything.

MMT doesn't day there is fixed pool is of savings. It's the New Keynesians that are selling us the Kool Aid.

The loanable funds of the marketplace are where the supply of savings are translated into 'investment.' Savings are mostly determined by the time preference of individuals.

 

[TheGreatGatsby]

Kimura, your philosophies are based upon massive expansion of the money supply. The problem with that is that the dollar is constantly being devalued and the incentive to save is constantly being undermined. Reckless spending is the result instead of the magical equilibrium that you describe.

 

[TheGreatGatsby]

You're understanding of economic principles are based upon what you want to see and not reality. Social security and medicare are not effectively a ledger system like you pretend. It's basically a ponzi scheme that only artificially increases the cost of (retirement and) health care. If the govt. is taking mandatory money from everyone; they or health care providers have no motivation to decrease costs. Haven't you noticed that seniors are still required to pay for big health care plans even after all they've spent. And the costs are plenty high still. That is not how private life insurance and annuities work because private companies are accountable for every dollar. That's why Dems were throwing a shit fit when Bush was talking about privatizing just a bit of social security. It was going to allow for more accountability and that's the last thing the government mafia wants.

 

[Kimura]

Kimura, your philosophies are based upon massive expansion of the money supply. The problem with that is that the dollar is constantly being devalued and the incentive to save is constantly being undermined. Reckless spending is the result instead of the magical equilibrium that you describe.

Not at all, not in the least. I'm simply pointing out the fallacies in some of these inane arguments regarding the money supply, deficits, and inflation. The only real constraint is inflation when it comes to spending. I've NEVER said the government could endlessly spend. I'm saying that, given our current employment numbers and excess capacity, cutting spending shouldn't even be part of the conversation. It's an insane suggestion under the current climate. As long as the money supply increases in tandem with real goods and services, I wouldn't lose sleep over spending, the deficit, inflation, and these other nonsensical arguments being peddled by ideologues and economic illiterates. On a personal level, when I see these people on television, it makes me physically nauseous. We have a President that actually said we're running out of fiat! This is one the most retarded things I've heard a President say in my 36 years on this planet.

 

[Kimura]

You're understanding of economic principles are based upon what you want to see and not reality. Social security and medicare are not effectively a ledger system like you pretend. It's basically a ponzi scheme that only artificially increases the cost of (retirement and) health care.

SS isn't a ponzi scheme. Social security also isn't savings or an investment. We can fix the SS issue through legislation, just like Medicare, to fund these programs into perpetuity.

SS is a well-run program with exceeding low administrative costs that provides Americans with decent retirement income. Old age in this country used to mean relegating 50% or so of seniors to abject poverty.

If the govt. is taking mandatory money from everyone; they or health care providers have no motivation to decrease costs. Haven't you noticed that seniors are still required to pay for big health care plans even after all they've spent. And the costs are plenty high still. That is not how private life insurance and annuities work because private companies are accountable for every dollar. That's why Dems were throwing a shit fit when Bush was talking about privatizing just a bit of social security. It was going to allow for more accountability and that's the last thing the government mafia wants.

What? We can fix health care as well. Simply make Medicare available to everyone. I just solved the problem with a single payer system that has low administrative costs compared to private insurers. It also works, we can even expend services by increasing the pool to include all Americans.

At the end of the day, all we have to do is make sure we can produce the real goods and services needed for seniors need to retire, such as food, clothing, shelter, medicine, etc. There isn't a nominal crisis with SS or Medicare.

 

[Rshermr]

What "source" would you consider to be a "rational, impartial source?"

How about General Motors CEO, Dan Akerson?

Akerson Admits GM Bankruptcy Not Well Thought Out | National Legal and Policy Center

It's almost funny that the Obama Administration didn't make Wall Street go through wage restructuring before they could get bailed out. This has been the story for the past thirty years while Labor takes it in the ass. I'm glad the UAW received some compensation. The past thirty years have been a smorgasbord of deregulation, free trade, and stagnant wages. Thank you Carter, Reagan, Bush, Clinton, Bush The Retard, and now Obama!

While I don't really see where the de-regulations are and the free trade America is supposedly having, but you must know that this the GM bailout and UAW compensation is an example of crowding out. In some ways, it's also financial. The purpose of bankruptcy is not to reward or repay creditors. Actually, bankruptcy prevents this from taking place. Bankruptcy is meant to free up resources and allocate them to more efficient uses. These resources may have been put in the hands of people who understand how to use it better. Employee would have been allocated to a much more efficient automobile maker. GM would have ultimately went in the hands of individuals who would have ran it better.

Bankruptcy is meant to free up resources and allocate them to more efficient uses. These resources may have been put in the hands of people who understand how to use it better.

So, your saying with certainty that gm would have been put in the hands of someone, presumably another company, who could better run the company. Problem with this is,it was tried. And NO ONE wanted GM.

Employee would have been allocated to a much more efficient automobile maker.

Not sure what that sentense is trying to convey. Either you think another auto maker would have purchased gm. That was not in the cards. Or, you think that employees would have been allocated to other auto makers. But, of course, that makes no sense. Employees are not allocated. They would have been out of a job. They would have had to move. They would have had to be needed.

GM would have ultimately went in the hands of individuals who would have ran it better.

You are taking the stance that GM would have survived bankruptcy. The facts were obvious. They would not have. Though the other auto makers would have been quite happy. And those companies would have been foreign companies. Chrysler had no chance of surviving. And the ceo of Ford is on record as having said he did not believe ford would have survived had there been no auto bailout.

So, the issue was that we would have seen a major unemployment hit, estimated at being in the neighborhood of 1M employees. We would likely have lost one of our largest industries. And, based it would have happened at a time of very difficult economic times, with the possibliity that we may have seen the country slip into a true depression.

This is typical of the rational analysis of the auto bailout":
"But many auto industry experts, including the Obama administration's former car czar, Steven Rattner, a Democrat, and former GM Vice Chairman Bob Lutz, a Republican, say there was no private-sector financing available in 2009 and the bailout was the only way to keep the companies alive.
"He thinks we didn't try to borrow money from the banks?" Lutz told the Detroit Free Press in February. "The banks were even more broke than we were. Who had the money?"
Without financing during bankruptcy, GM and Chrysler would have had to go out of business, taking down many suppliers. That would have likely caused bankruptcies at the healthier automakers such Ford Motor (F, Fortune 500), who would not have been able to get the parts they needed to build cars. That is why Ford went to Capitol Hill in late 2008 pushing for the rescue of its rivals.
The Center for Automotive Research, a well-respected Michigan think tank estimates that the bailout therefore saved 1.5 million U.S. jobs by keeping GM, Chrysler and the companies that depended on them in business."
3 answers to the auto bailout debate - Sep. 6, 2012
Latest estimates for the total cost to taxpayers is likely to end up being under $15B. Wash this against not having lost and industry, not having gone into a depression, and not increasing the unemployment rate by over 1M persons.
Hell, we spent that in iraq in a couple months. Looks to me like a much better deal than blowing holes in the desert.