Fiscal Cliff Explained
- Thread starter DaveP
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Brilliant.
Anyway, don't be too hard on George Osborne. It is his first job after leaving school, so we can't really expect him to be any good at it!
Of course you can't run a county like a household - households can't print more money!
The thing I really can't get my head round is why there isn't enough money. The UK HM revenue and customs takes 20% of (nearly) all sales, and with 20% base rate for income tax, they must be recycling about 40% of all the money that changes hands? Or is my ballpark maths way off?
Anyway, don't be too hard on George Osborne. It is his first job after leaving school, so we can't really expect him to be any good at it!
Of course you can't run a county like a household - households can't print more money!
The thing I really can't get my head round is why there isn't enough money. The UK HM revenue and customs takes 20% of (nearly) all sales, and with 20% base rate for income tax, they must be recycling about 40% of all the money that changes hands? Or is my ballpark maths way off?
MagnetoSound
Well-known member
There's a simple enough coefficient that explains this weird phenomenon: the more money you earn, the more tax you are able to evade sorry, avoid.
The basic, fundamental flaw in Marxism. Unfortunately.
(But of course you knew that. ;D)
The basic, fundamental flaw in Marxism. Unfortunately.
(But of course you knew that. ;D)
The way I see it is this,
Maynard Keynes worked out the maths behind a country's economics back in the thirties (It was actually fairly simple multiplication, division, addition and subtration etc).
It basically said that governments had to put money into the system to counter the spiral of depression (race to the bottom scenario). Then some politicians decided that if they carried on doing that it would give them a boost over more responsible countries and make them more likely to get re-elected, the rest is history.
The UK spent the wealth of an empire and then some, buying arms in the US to fight WW2, this must have helped the US out of the recession in the 40's. The cold war must have increased the national debt a lot too, but we and our parents generation have been living beyond our means for decades I guess.
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DaveP
Maynard Keynes worked out the maths behind a country's economics back in the thirties (It was actually fairly simple multiplication, division, addition and subtration etc).
It basically said that governments had to put money into the system to counter the spiral of depression (race to the bottom scenario). Then some politicians decided that if they carried on doing that it would give them a boost over more responsible countries and make them more likely to get re-elected, the rest is history.
The UK spent the wealth of an empire and then some, buying arms in the US to fight WW2, this must have helped the US out of the recession in the 40's. The cold war must have increased the national debt a lot too, but we and our parents generation have been living beyond our means for decades I guess.
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DaveP
adeptusmajor
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MagnetoSound said:
And if you evade enough taxes for long enough then you might get put in charge of collecting them and explaining why everyone else needs to pay more.
living sounds
Well-known member
Debt in the US was continually declining until the neo-liberal ideologues and corporate special interests got their hands on the wheel in the 1980s (although several changes in that direction were already made in the 70s). Low taxes and outsourcing then increased the debt despite favorable demographics (largest percentage of population able to work):
Ah, but the 'family income' was reduced during a time of surplus, AND the various surpluses were diverted elsewhere. The surpluses really should have stayed put, given that 'income' was being reduced, but they took it and bought cocaine and beer instead. Now everyone is complaining after the party that they don't want 'income' raised again to adjust for reality. It's not really that spending is any different than it ever was, including during the time of surplus.
It's kinda ironic that the greedy on top crashed the system for everyone while robbing us all, yet we generally want to defend their right to keep their lower tax rates. It's our money they are sitting on.
It's kinda ironic that the greedy on top crashed the system for everyone while robbing us all, yet we generally want to defend their right to keep their lower tax rates. It's our money they are sitting on.
MagnetoSound said:
The flaw in Marxism is you eventually run out of other peoples money (Thatcher).. the golden goose (capitalism) stops laying eggs when not treated well.
It is instructive to watch China, as they attempt to get the benefits of capitalism without all that awkward freedom and rule of law. A few modern Chinese leaders are multi-Billionares ($10B+)... That's wealthy in any country. Whether the population will tolerate that extreme cronyism with government stands to be seen (it will depend on how much of the wealth they share). They are OK for now coming from such a low individual income level, but this will get progressively harder to accomplish as wealth level rise.
The recent government transition there appears to have been accomplished without major problems, while at least one leading candidate got spit out at the last minute.
JR
It is human nature to pursue simple answers for complex problems. Life is not very accommodating.emrr said:
I saw a recent talk by a greek(?) economist about "recycling" surpluses and this has been going on more so since we left the gold standard (I ASSume... higher growth from marginal reserve banking, and unpegged fiat currency created massive virtual wealth). The Bretton Wood agreement wanted an international clearing/distribution of trade surpluses, but the US argued for individual country control since they anticipated domination of that for the foreseeable future, and got it. We have abused that (not that the UN would have done any better. They would have pursued their own agendas).
Of course they (we) didn't foresee what can happen when fiscal discipline breaks down and economic power shifts. We have devolved (we are devo) to the point where trade surpluses are now being recycled by China. They have little choice but to buy western debt, because the west needs this capital to buy Chinese goods. A vicious cycle, that will persist until, some other economic power emerges to shift the trade flows.
I would love to see the US re-emerge as that power but they are not remotely working in a constructive direction to ever get there. A gold standard would reduce the ability to abuse this system, but at the cost of significantly lower economic growth. Right now that lower growth doesn't look so bad because we are still trying to pay back wealth from unnaturally easy/high past growth, that we frittered away, thinking the music would never stop. It did stop pretty violently in 2007/8.
=======
I love the discussion of federal debt and spending divided by number of individuals or households (household =2.x individuals). While the $140k credit card balance (per household) should get our attention, that does not even tell the full story. I heard a number today that suggested something like $3M in unfunded "future" liability per household!!! While all those other numbers are real time spending and current debt so hard to dispute, the future unfunded liabilities are huge and an even larger threat to our children's standard of living. We can quibble over whether it is $3m or some larger or smaller amount, but right now most public debate pretends it isn't even out there. For example the free pass given to Fannie and Freddie, while increased regulation is imposed on the private banking system. A cynic (me?) might suggest the F & F is already under government control so their work there is finished.
Sorry this is not simple, so there are no simple answers. Going straight to severe government cutbacks will be painful but I see this like a person who has pigged out so much that they now weigh 600# (or say 270 kG). promising to eat less ten years from now is all good, but at some point you have to stop eating (spending) more right now than you can burn off (fund with tax revenue) in real time.
Again I apologize for this overly simplistic example, but in some ways it really is that simple to know "what" we need to do. Figuring out exactly "how" to accomplish that is the hard part. Good luck to us all.. I don't see much adult behavior from those in power in DC. Look for more arm waving and back room deals, and pork laden bills to "fix" our problems. :-[
JR
To follow-up the congress is working on Part deux of the Hurricane Sandy relief bill for NY/NJ (roughly $50B at the moment)
An amendment to pay for this by reducing government spending elsewhere was voted down so we are in effect borrowing this money for NY and NJ. Coincidentally this just about equals the recent tax increase, but that increase is cumulative over ten years, and the the Sandy relief spending is current year. it is good that at least somebody in congress is questioning where the money is coming from, but he got voted down so not good that nobody cares..
The next act in the ongoing DC Kabuki theater is an attempt by republicans to use the imminent debt ceiling that we are bumping up against as leverage to negotiate spending cuts. This is clearly wrong but it is also wrong that nobody in power is willing to cut spending. So it seems a rather desperate move in response to a leadership that ignores anything but power politics.
Just like they settled the tax bill on Jan 1 pretty much as I predicted, so they could claim however disingenuously that they didn't raise taxes before the old Bush cuts sun-setted, this too will most likely get resolved short of shutting down the govt. This is not unlike the wife who can't handle credit cards so you cut them up with a pair of scissors, but we are not even arguing about stopping all borrowing, just the rate of increase in expansion of debt. Some interesting clips of then Senator Obama railing against Bush as being "unpatriotic" for increasing the debt limit years ago... and that was several $T of dollars ago.
The old joke about socialism eventually running out of all the rich people's money, does not consider us being able to borrow so much so easily. We can continue to borrow and spend our children's money, until the point where the lending community stops and we find ourselves in deep sierra. The debt service on even the current debt is difficult to support, and they are not responsive to even slowing down the increase of spending.
I sure hope I'm wrong.
JR
PS: next kabucki act after this one is when the continuing budget resolution expires soon and they have to kick the budget can down the road for anther few more months. arghhhh The gun control clamp down (wait for that in the state of the union speech with a new amnesty proposal for illegal immigrants) as just a diversion from the main act, our out of control spending.
PPS: Interesting unintended consequence of tolerating so many illegal aliens among us. The percentage of automobile accidents in LA where a driver leaves the scene, technically a hit and run crime, is much higher than national average (4x?) because illegals involved don't stick around and file a police report for obvious reasons.
An amendment to pay for this by reducing government spending elsewhere was voted down so we are in effect borrowing this money for NY and NJ. Coincidentally this just about equals the recent tax increase, but that increase is cumulative over ten years, and the the Sandy relief spending is current year. it is good that at least somebody in congress is questioning where the money is coming from, but he got voted down so not good that nobody cares..
The next act in the ongoing DC Kabuki theater is an attempt by republicans to use the imminent debt ceiling that we are bumping up against as leverage to negotiate spending cuts. This is clearly wrong but it is also wrong that nobody in power is willing to cut spending. So it seems a rather desperate move in response to a leadership that ignores anything but power politics.
Just like they settled the tax bill on Jan 1 pretty much as I predicted, so they could claim however disingenuously that they didn't raise taxes before the old Bush cuts sun-setted, this too will most likely get resolved short of shutting down the govt. This is not unlike the wife who can't handle credit cards so you cut them up with a pair of scissors, but we are not even arguing about stopping all borrowing, just the rate of increase in expansion of debt. Some interesting clips of then Senator Obama railing against Bush as being "unpatriotic" for increasing the debt limit years ago... and that was several $T of dollars ago.
The old joke about socialism eventually running out of all the rich people's money, does not consider us being able to borrow so much so easily. We can continue to borrow and spend our children's money, until the point where the lending community stops and we find ourselves in deep sierra. The debt service on even the current debt is difficult to support, and they are not responsive to even slowing down the increase of spending.
I sure hope I'm wrong.
JR
PS: next kabucki act after this one is when the continuing budget resolution expires soon and they have to kick the budget can down the road for anther few more months. arghhhh The gun control clamp down (wait for that in the state of the union speech with a new amnesty proposal for illegal immigrants) as just a diversion from the main act, our out of control spending.
PPS: Interesting unintended consequence of tolerating so many illegal aliens among us. The percentage of automobile accidents in LA where a driver leaves the scene, technically a hit and run crime, is much higher than national average (4x?) because illegals involved don't stick around and file a police report for obvious reasons.
living sounds
Well-known member
Remember when the Bush administration borrowed billions for their wars, Cheney said "deficits don't matter" and Republicans didn't see this as a problem? Totally disingenuous.
dmp
Well-known member
This apparent mindset in some conservatives that government can only do bad, taxes are bad, and cutting government is the answer seems to have continued to escalate for the past 20 yrs.
Now with the fiscal cliff it seems like there is deliberate action to cripple the government and start the endgame. It seems like a conservative pathology. Psycopathic.
Looking back, the Bush administration seemed to be deliberately debilitating various agencies and departments, while radically unbalancing the budget.
Hopefully this country can marginalize the anti-government wingnuts from positions of authority while developing a reasonable party with fiscally conservative principles.
Now with the fiscal cliff it seems like there is deliberate action to cripple the government and start the endgame. It seems like a conservative pathology. Psycopathic.
Looking back, the Bush administration seemed to be deliberately debilitating various agencies and departments, while radically unbalancing the budget.
Hopefully this country can marginalize the anti-government wingnuts from positions of authority while developing a reasonable party with fiscally conservative principles.
living sounds said:
Well which is it? Do deficits matter? Are you now agreeing with me, using Bush as an example for why they are bad?
Deficits don't matter, until they do. The problem is not this year or next as capital markets are happy to keep lending to the US as the best house in a bad neighborhood, for now. The problem occurs later when the dynamic changes and we have to pay more than low single digit interest on our debt. I have spelled this out before but just imagine what the service costs are on $15-20T accumulated debt when interest rates increase above the current low single digit rates.
I have written about this many times, but one more time in case you missed the last time, it is routine for national governments to run operating deficits for several reasons. First the budget is a strictly a cash flow analysis so spending on goods that have persistent value (like buying a tank or fighter aircraft) have future value. Infrastructure spending has persistent value. Many things government do have future value but are intangible so hard to quantify. A second reason governments can tolerate modest deficits is they anticipate (depend on) economic growth, so the future tax receipts will grow to cover current spending. Unfortunately our spending has increased dramatically while economic growth remains anemic (2%? while some countries would like even 2%).
To repeat in case you missed this too, I said we need to approve increasing the upcoming debt ceiling again, because it represents spending and liabilities we have already incurred. We pay our bills. We will always pay our bills unless we allow ourselves to get into a situation (like parts of Europe did recently where we can't).
This is just mostly public posturing from desperate politicians grabbing for any lever they can get their hands on to try to slow the runaway spending. The president seems to enjoy this fight and is very good at it, since he has ignored opportunities in the past to reduce the conflict over runaway spending, and I see multiple similar fights on the horizon for the near future.
This too will pass but, I predict ugly budget/entitlement/etc battles for months and months. I guess the administration is making a calculation that he can weaken the right with this in-fighting and perhaps win the House back in 2014. If he goads the Republicans into shutting down the government (like Dole and Gingrich did under Clinton) that will cost them public opinion.
This is hardball politics and he is very good at it. (There I gave him a compliment). 8)
JR
PS: I have also argued for years that the current war spending should be part of the budget process. Historically American spending/borrowing for wars is considered off-budget, but this recent conflict has morphed from a simple surgical attack on Afghanistan into a world wide conflict with multiple fronts. (Note: Obama expanded our footprint in Afghanistan. While Bush gets the bill for Iraq.) At the moment France is ramping up fighting in Mali against another Al Queada linked group to prevent the entire country from falling into their hands. There are similar pockets of these anti-western groups searching out safe havens to gain strength and bases to attack from all around the world. My point is this is long term struggle, nowhere near over, despite the messaging from our fearless leader that his work is almost done in Afghanistan (negotiating the pullout with Karzai right now).
No not exactly, but I recall President Bush dramatically increasing both entitlement spending and our public debt. A few of my major criticisms of him.emrr said:
As a viet-nam era anti war protester and draftee, I am sympathetic to anti-war philosophy, but to conflate this spending with the rapidly increasing entitlement spending is missing the true economic picture.
The trajectory of entitlement spending is what concerns me. We need to raise the retirement age to reflect current life expectancy (I could be collecting Social Security already), use means testing to better allocate social program spending, and get our social program spending appetite on a sound actuarial basis.
I don't much care for it, but it is what is. If we are going to do it, we must be sensible about funding it. There isn't enough wealth to just take it from top few percent. If we want this, we must pay for it, since we can't we shouldn't spend it anyway, using borrowed money.
Of course opinions vary... I hope I'm wrong but I'm actually glad I'm getting old. If i was a young man, with young children, I'd be really angry.
JR
Perhaps your awareness has changed over last 20 years. Our founders a few hundred years ago were very critical of allowing too much federal government power to accumulate. Economists and students of government have long been critical of the shortcomings of central planning with expanding government control over major fractions of the private economy.dmp said:
Government is necessary and needed to provide national security and rule of law, that said they are not the answer to every single problem, even when they promise exactly that. "Trust us, we're from the government and here to help you."
I will not respond in kind with more ad hominum. Please focus more on issues and less on personal attacks.
There are actual facts involved that you seem to be ignoring.
There was a bi-partisan commission appointed a few years ago (Simpson-Bowles) that laid out a balanced practical road map to deal with this situation. Their suggestions have been ignored.
?? Bush was not the first president to have a budget deficit, but the federal deficit has grown faster and larger in the last several years since him. This never ending "blame it on bush" strategy seems to be yet another diversion from discussing current and future issues. I too have my criticisms about Bush, but it is a little late to change his history. We have current government business to attend to.
I am not sure how to interpret that last comment... but yes, I truly hope we can grow to be more fiscally conservative. If we don't slow the trajectory of our spending, our lenders will do it for us (like Southern Europe), at some later date where we don't have the luxury to do it under our own terms.
JR
PS I do see a resurgence of what I would call "constitutionalists". The Tea Party seem focused on returning government to the fundamental ideals and standards espoused by the founders. Not randomly attacking and tearing government down but returning to the clearly defined structure. While it isn't completely that simple, I see them as mostly a positive force. They look better to me than the vaguely anarchist (sorry about the name calling) Occupy movement that seems to be more interested in what they are entitled to or owed by others.
living sounds
Well-known member
JohnRoberts said:
It's pretty simple: Deficits matter only to the US right wing when they're not in power and where debt is incured for things that don't favour the plutocrat class around whose particular interests they have woven their economic ideology.
I already offered a honest discussion about deficits. Why heap on more inflammatory partisan attacks?living sounds said:
I find talking about political hypocrisy redundant and a waste of time.
But since you raise the subject of ideology and hypocrisy... It took me seconds to find this clip of then Sen Obama complaining about the debt celling he voted against raising in 2006 as irresponsible (unpatriotic?) when it was half the size it is today.
http://www.youtube.com/watch?v=DyLmru6no4U
Like the old saying goes, when you live in a glass house don't throw stones. 8)
I don't find this very constructive or productive, to promote thoughtful discussion. My apologies to the rest of the list..
JR
living sounds
Well-known member
JohnRoberts said:
Not an attack, just an analysis, it's all in the (voting) record, and the statistical data doesn't lie either. Are there people on the right who genuinly care about the deficit? Sure. But Republicans in power are a different matter.
