Help me Understand - Keynesian Reaction to Recession???

[roflpublican]

It's Kenyan misspelled.

they see you trollin

they hatin

 

[sookster]

It is in my view, that people in this culture are programmed to only think for themselves. The ability to put yourself in another person's shoes, is called empathy. Concisely, we have an empathy epedemic so to speak in this country, in my view. And well, it is the values of our society that creates this, in my view once again. Unfortunately, people turn this way simply because those are the values that our society potrays. A part of what I am trying to say, is if we don't examine what really matters (ie material mastery, economic growth) there will always be instances of the few screwing the majority.

Simply put, more empathy would have prevented the events that lead to this recession.

 

[roflpublican]

It is in my view, that people in this culture are programmed to only think for themselves. The ability to put yourself in another person's shoes, is called empathy. Concisely, we have an empathy epedemic so to speak in this country, in my view. And well, it is the values of our society that creates this, in my view once again. Unfortunately, people turn this way simply because those are the values that our society potrays. A part of what I am trying to say, is if we don't examine what really matters (ie material mastery, economic growth) there will always be instances of the few screwing the majority.

Simply put, more empathy would have prevented the events that lead to this recession.

more empathy and less Super Rich Hide $21 Trillion Offshore, Study Says - Forbes hoarding of capital which would otherwise drive the economy.

 

[gavinfielder]

Mortgages have been sold into the secondary markets for decades. It's how original lenders recoup funds so that they can lend again. They used to be sold one loan at a time. Very inefficient. Lots of admin costs. Then came securitization. You could turn say a hundred mortgages into a single package, hold back a small share as reserves, then sell shares in the remaining payment stream to investors. Worked great for everybody. But there was a gatekeeper on the front end in that the GSE's (Fannie and Freddie) only bought conforming loans from original lenders. The game in 2002 shifted to private brokers and securitization without any sort of gatekeeper through the private-label shops that Wall Street had built up. Here's a graph of the share of secondary market securitizations by source...

View attachment 67137438

That big fat uptick in the red line was full of dead fish. That's what led us into the credit crisis, and ultimately the Great Bush Recession.

So you're saying that the problem isn't that they're sold, it's that they were being sold to the private sector which didn't have the regulations that that Fannie/Freddie did.

That makes sense with what I understood about it. Either way, it seems the logical solution is regulation.

 

[roflpublican]

So you're saying that the problem isn't that they're sold, it's that they were being sold to the private sector which didn't have the regulations that that Fannie/Freddie did.

That makes sense with what I understood about it. Either way, it seems the logical solution is regulation.

indeed, regulation was the logical solution after the 1929 crash as well. this current recession was created by removing many of the regulations that had been put into place following the great depression to ensure it never occured again. and behold, it occured again .

 

[wolfman24]

Keynesianism is the school of economic thought that is based on the works of John Maynard Keynes. As the field of economics continues to advance, more distinct sub-schools have emerged such as Post-Keynesians, New-Keynesians, Neo-Keynesians, etc.... The current state of economics is dominated by Neo-Keynesianism with the movement of the Neo-Classical synthesis (Keynesian compact).

Sorry but the bird just flew about a mile over my head.

 

[wolfman24]

At its core, it's basically the realization that the primary driver of economy is demand.

Ok thats better. Wasn't there a guy in England who proposed the concept of supply and demand? was this him?>

 

[wolfman24]

If you want to start to become a money guy, listening to these people is a great way to start.

https://itunes.apple.com/us/podcast/npr-planet-money-podcast/id290783428

No thanks I have enough trouble balancing the family budget.

 

[Kushinator]

Sorry but the bird just flew about a mile over my head.

Essentially, Keynes said the government should run deficits during bad economic times and raise taxes/cut spending during good economic times to pay for accumulated debt.

 

[wolfman24]

Essentially, Keynes said the government should run deficits during bad economic times and raise taxes/cut spending during good economic times to pay for accumulated debt.

Like I said I am no money guy but this to me makes no sense.

 

[Kushinator]

Like I said I am no money guy but this to me makes no sense.

Right now we are running about a $1 trillion deficit, give or take. If we were to take that away, the countries entire income would fall by (at least) $1 trillion. Does this make sense?

 

[samsmart]

Like I said I am no money guy but this to me makes no sense.

I messed up before, but I think I may be able to explain.

An unregulated capitalist economy is, on the long term, full of boom and bust cycles, for whatever reason.

In boom cycles, lots if people make lots if money. In bust cycles, people lose their money and don't have the ability to produce goods and services.

What Keynes seeks to do is transform these volatile boom and bust cycles into a constant average to promote economic stability.

So by having high taxes during a boom cycle reserves of money can be set aside as reserves for bust cycles, when they are spent by the government and taxes are decreased so it may stimulate the economy until a boom cycle picks the private sector economy back up again.

 

[wolfman24]

I messed up before, but I think I may be able to explain.

An unregulated capitalist economy is, on the long term, full of boom and bust cycles, for whatever reason.

In boom cycles, lots if people make lots if money. In bust cycles, people lose their money and don't have the ability to produce goods and services.

What Keynes seeks to do is transform these volatile boom and bust cycles into a constant average to promote economic stability.

So by having high taxes during a boom cycle reserves of money can be set aside as reserves for bust cycles, when they are spent by the government and taxes are decreased so it may stimulate the economy until a boom cycle picks the private sector economy back up again.

Ok thats better.

 

[head of joaquin]

On the margin, they will likely consume less, but not in the same proportion as those with lower savings rates.

Depends what income level we are talking about. Bill Gates is not going to forego buying that new DVD player because of an income tax increase.

We need a new top bracket, starting at $1M or $2M, with a marginal rate of 50-70%

This an instance where correlation does not imply causation. Yes, wealth tends to increase for the wealthiest during a boom period, as this particular demographic holds the majority of financial assets. But for the sake of being accurate, recessions are caused by the desire to maximize short term profitability! When revenue is trending downward, the mechanism in which companies can stabilize profits is to cut costs in the form of both labor and capital. Yet when you stop purchasing a machine, only the machine manufactures and the industries representative of their inputs see a decline in revenue. Cutting labor does in fact create an acceleration in revenue shortfall in excess of cutting capital expenditure because the majority of economic activity is consumption!

Maximizing short term profitability, at least on a level that has macroeconomic effects, is something limited to the wealthy, who tend to invest heavily in bubbles (like the housing market) because they can afford the risk. Most working people, who scrape together enough borrowed cash to start a mom and pop operation, do not engage in behaviors that cause recession.

I will state categorically there are no bottom quintile wage earners invested in hedge funds.

 

[Cardinal Fang]

An unregulated capitalist economy is, on the long term, full of boom and bust cycles, for whatever reason.

Well, one can start with an appreciation that there are only three states that an economy can actually occupy. It can be growing, it can be contracting, or it can be staying pretty much the same. The natural state of an economy is a slow, steady expansion through population and productivity growth. When things deviate from that norm, it is because something has been done or has gone wrong. The object of economic policy is to avoid such things or to mute their effects, keeping an economy within that healthy band of slow and steady growth.

There is otherwise no such thing as cycles. People have been looking for them for a long time and haven't found any. No long-term cycles. No short-term cycles. No detectable cycles of any sort at all. Just an irrational sequence of various times during which economies have been in one or another of their three possible states.

Meanwhile, it is the gap between government receipts and outlays that contributes something to the economy. That gap can serve as a Keynesian regulator. Net outlays add to the economy and are expansionary, providing an economic stimulus. Net receipts take away from the economy and are contractionary, providing an economic drag. Keynesian policy would be to add to the economy during a downturn and take away from the economy during an upturn. In practice, very few people see an actual need to take away from an economy during an upturn, at least not from one that is proceeding at a moderate pace.

 

[Kushinator]

Depends what income level we are talking about. Bill Gates is not going to forego buying that new DVD player because of an income tax increase.

Bill Gates is giving the majority of his wealth away when he dies.

We need a new top bracket, starting at $1M or $2M, with a marginal rate of 50-70%

To restrictive in my opinion. It makes little sense for a person making $500,000.00 per year should not be forced to pay the same proportion of their income as a person earning $20,000,000.00 per year. Lower brackets that max out at say $50 million would be optimal IMO.

Maximizing short term profitability, at least on a level that has macroeconomic effects, is something limited to the wealthy

No it is limited to businesses large and small.

 

[Cardinal Fang]

Depends what income level we are talking about. Bill Gates is not going to forego buying that new DVD player because of an income tax increase.

Bill Gates isn't going to make any changes at all in his personal economic life because of an income tax increase, just as he didn't make any changes at all as the result of the tax cuts for the rich a decade ago. These effects occur at levels of income far, far beyond those at which anything so mundane as personal needs or wants might be involved. Very, very few of those who would be in the actual impact range of returning the top two brackets to Cinton-level tax rates would see any impact at all in their lifestyles or financial planning paradigms.

We need a new top bracket, starting at $1M or $2M, with a marginal rate of 50-70%

I could get behind some form of that, and I would suggest also that the AMT be revised and updated, then indexed as to income levels.

Maximizing short term profitability, at least on a level that has macroeconomic effects, is something limited to the wealthy, who tend to invest heavily in bubbles (like the housing market) because they can afford the risk.

True enough in that when rich people receive a large increase in income over a short period of time (as with Bush's tax cuts for the rich), the "house money" effect comes into play, and long-shot plays for extraordinary returns become more common.

This is not what happened with houses however. Housing prices responded exactly as they should have to a drop in interest rates of some 335 basis points over three years. They declined. And as the result, people who had been saving up for a starter home could afford to buy one sooner that they thought. People who were already in starter homes could afford to sell tham and move up to a home with more room and a yard for two or three kids. New empty-nesters could sell the old place after all those years and move into something a little more cozy while socking away a nice chunk of retirement change. And everyone who was happy right where they were could do a refi or two that enhanced both their cash-flow and wealth situations. Keep in mind that a very large chunk of this market volume supposedly driven by flippers actually consisted of refi's. Same borrower both in and out. No flipping involved.

But between 2004 and 2006, interest rates rose signficantly again. What happened? Housing prices leveled off, exactly as they should have. What this paints a picture of is not a bubble, but rather rational market developments and behavior.

Most working people, who scrape together enough borrowed cash to start a mom and pop operation, do not engage in behaviors that cause recession.

Mom-and-pop's still serve as a pop-icon for small businesses but there are in fact very few of them. A more appropriate icon for the sort of small business that would actually be at risk of a tax increase under changes so far proposed would be the LLC set up by a successful doctor, dentist, veterinarian, lawyer, accountant, hedge fund manager or other high-income professional.

I will state categorically there are no bottom quintile wage earners invested in hedge funds.

LOL! I'm not even putting house money up against that one.

 

[imagep]

Unbiased economists :roll:
The notion that economics can have a bias is a core problem in and of itself. It's history, math, and science for crying out loud. It's an empirical study, plain and simple.

Most of the "economists" that we see on Fox or MSNBC aren't economists at all. To be considered economists one generally has to have a PhD in economics and to be employed in the field of economics. Few of the talking heads that we see on TV qualify. Most of them are political hacks.

 

[JP Hochbaum]

Most of the "economists" that we see on Fox or MSNBC aren't economists at all. To be considered economists one generally has to have a PhD in economics and to be employed in the field of economics. Few of the talking heads that we see on TV qualify. Most of them are political hacks.

I have ben studying econ for 4 years and wouldn't call myself an economist, and I have even been published now. I do however know that bias doesn't exist in the academic realm, what does persist is stubborness resulting from spending an entire career believing one thing and dedicating your life to it. Not really a bias but an overall problem in academia.

 

[imagep]

On the margin, they will likely consume less, but not in the same proportion as those with lower savings rates.

Overall, probably. But most superwealthy have wealth that is so far above their propensity to consume that any decreases in their consumption would be very insignificant.

I my hometown, we have one Forbs 400 individual (actually he died a year or two ago), he lived in a typical middle class home and drove a modest car. Bill Gates is not an estravagant spender either, even though he does have a couple of luxury cars. I believe I once read that Buffet drives an older model pickup truck and has lived in the same house for most of his life. Even our own turtledude, who claims that he is below the superwealthy class (but does also claim that he has an annual income exceeding a million bucks), says the he lives a modest lifestyle and drives an older model car.

If any of those people lost 10% of their income I doubt that it would make a dollars worth of consumption difference.

 

[imagep]

Keep them from selling the damn things. Debt should not be a marketable product.

I don't have too much issue with people selling debt, it's the creative packaging that is disturbing to me.

 

[imagep]

That's a nice thought, but the people who pulled off all this crap between 2002 and 2006 were some of the sharpest financial pieces of work ever produced. They just got turned on by the idea of padding their own wallets while ultimately screwing everybody else. Strip off the profit, sell off the risk. I'll be gone, you'll be gone. It'll all be somebody else's problem. What's the roadblock to be sure that sort of thinking gets derailed?

So would not highly progressive income tax rates be a disincentive to such?

 

[Boo Radley]

The thing is with Keynes that what we should do is tax the wealthiest !!! as well as spend using government credit !!! in order to support the middle and lower classes until the economy rebounds.

Once the economy has rebounded, tax rates on the wealthy can be reduced and tax rates on the middle class can be increased to even out the tax burden, and taxes can go to pay down the debt incurred by government spending on credit.

Unfortunately, politicians have been coerced by lobbyist to give tax cuts, tax exemptions, and bailouts by tax money rather than follow this formula.

So we are in no way a nation that follows Keynesian economics properly.

Rather, the U.S. economy is determined by lobbyists who pay campaign donations to Representatives and Senators.

Which is no way to run our economy at all.

Money in politics. The root of our troubles.

 

[imagep]

It is in my view, that people in this culture are programmed to only think for themselves. The ability to put yourself in another person's shoes, is called empathy. Concisely, we have an empathy epedemic so to speak in this country, in my view. And well, it is the values of our society that creates this, in my view once again. Unfortunately, people turn this way simply because those are the values that our society potrays. A part of what I am trying to say, is if we don't examine what really matters (ie material mastery, economic growth) there will always be instances of the few screwing the majority.

Simply put, more empathy would have prevented the events that lead to this recession.

Thats a big part of the reason why I am not rich today. I refuse to screw anyone else just to pad my wallet. Of course there are many people who would just call me stupid.

 

[roflpublican]

Money in politics. The root of our troubles.

citizens united disagrees. money is people .