Want to see the US end up like Europe? Follow conservative economics.

One of the right's favorite claims is that the US is on the verge of an enormous economic collapse, similar to Europe's. They claim that the struggles of Europe, specifically the GIPSI countries is a result of a bloated welfare state or enormous deficits. Both of those claims, like a lot of conservative economics, don't stand up to the facts.








What you see is that there is no real trend between spending or deficit numbers with the GIPSI countries. The problems are not ones of overspending. There is a much more honest answer. It's the idea of one currency with many governments. One currency spread across a wide variety of economies. If you look at the current account balances, you see the struggling countries have a large inflow of capital immediately after the Euro came into use and their economies inflated.



And you might say to me, "Dr. N00B, doesn't the US have an economic union across a large variety of (state) governments and economies and varying strength? Why aren't we facing the same problems?"

And I say to you, Virginia, excellent question!

While the Germany's of the Eurozone have to prop up the weaker economies of places like Portugal and Ireland, states with stronger economies, like New Jersey and Connecticut, have to prop up the economic version of the retarded cousin who wears a helmet. The helmet wearing states are places like Alabama and Mississippi.



That's a list comparing a state's contributions to what the state gets out.

Here is a fun tool

So the main reason that Mississippi isn't turning into Greece is because tax dollars are flooding in there to balance the economy.

But let's take a look at how this works in a situation like today. Spain and Florida have somewhat similar economies. Both had huge housing bubbles. Both are part of economic unions. But, Florida has help from the federal government.

Between 2007 and 2010, federal taxes from Florida declines by $25 billion. Spending on SNAP and UI went up by $3 billion each. Now, I don't have figures on Medicaid spending, but I'm sure that would increase substantially as well. So what we're talking about is a $31 billion automatic transfer simply as a result of the economic climate. That's around 4% of Florida's GDP. On the other hand, Spain is completely without that kind of aid. And that's just automatic transfers. That's not including stimulus spending, housing relief, or whatever else comes in response.

So that's why we're not like Europe. Because we live in an economic union with shared success and shared sacrifice. And the conservatives want to take that away. Ask yourselves where we would be if those automatic transfers were gutted. If decreased revenues were met with decreased spending. If you can't come up with an answer, just look at our friends across the pond.

I agree, we should remove Alabama and Mississippi from the union. Well it would have the same positive effect. Funny how every red state but Texas leeches from the fed. I thought they were for smaller government. The US economy could further collapse though, given problems in Europe and elsewhere now (which were in large part exacerbated by the US 08 crisis). Something like 23% of US exports go to Europe and bank holdings in places like Greece will be damaged immediately by their switching currency.

You're right in that austerity measures have only harmed Europe's economies, so you would think the US should not follow the same path, but do you put faith in this government? They gut education and services greatly while not cutting a dime from the insane defense budget. We could have done a lot to turn things around the past few years, but I feel like things may be out of our collective hands now.

wolv67 said:

I agree, we should remove Alabama and Mississippi from the union.

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We, Texas included, tried to seperate from the union but the north wouldn't let us. We can try again if you promise not to make a war out of it.

to the OP: Money changing hands from one person to another, or one state to another, doesn't generate wealth. Do you really think its bad if "decreased revenues were met with decreased spending?" Apply that same logic outside of the government. Lets say I make 30k a year and spend 28k. Suddenly I have decreased revenue. Now I make 25k a year. By your logic I can still spend 28k a year and be fine.

NAKED N00B said:

...GIPSI...

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Lol, hadn't thought about that! But I guess the fitly PC stopped it from being public and put the inaccurate P(I)IGS instead.
I like this GIPSI abreviation.

As to the economics, it's a tricky stuff.

bonfire said:

We, Texas included, tried to seperate from the union but the north wouldn't let us. We can try again if you promise not to make a war out of it.

to the OP: Money changing hands from one person to another, or one state to another, doesn't generate wealth. Do you really think its bad if "decreased revenues were met with decreased spending?" Apply that same logic outside of the government. Lets say I make 30k a year and spend 28k. Suddenly I have decreased revenue. Now I make 25k a year. By your logic I can still spend 28k a year and be fine.

Click to expand...

How many times does it have to be pointed out that a national economy is not a family's budget?

NAKED N00B said:

How many times does it have to be pointed out that a national economy is not a family's budget?

Click to expand...

Until it's true.

Centinel said:

Until it's true.

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If you have a hard time understanding the difference between microeconomics and macroeconomics after multiple explanations, maybe you should stay out of economic discussions.

NAKED N00B said:

If you have a hard time understanding the difference between microeconomics and macroeconomics after multiple explanations, maybe you should stay out of economic discussions.

Click to expand...

Are you claiming the debt in Europe isn't a problem?

Can you elaborate on what you believe "Conservative Economics" to be please

Thank you

NAKED N00B said:

How many times does it have to be pointed out that a national economy is not a family's budget?

Click to expand...

how does this refute my argument?

NAKED N00B said:

How many times does it have to be pointed out that a national economy is not a family's budget?

Click to expand...

We can see Obama's spend, spend, spend philosophy is working so very well. 18% Underemployment......really?

bonfire said:

how does this refute my argument?

Click to expand...

Bronson said:

Are you claiming the debt in Europe isn't a problem?

Can you elaborate on what you believe "Conservative Economics" to be please

Thank you

Click to expand...

Debt is only the problem in the sense in the sense that borrowing is expensive for those countries. The real problem is a lack of control of the printing press, an overvalued currency, contractionary growth, etc.

I define conservative economics as any economic philosophy which uses ends of conservativism (small government) as a means to solve economic issues. Especially when it flies in the face of fact. Much like what most conservative politicians are practicing today.

bonfire said:

how does this refute my argument?

Click to expand...

Multiple ways.

1. When a family loses income, it is primarily through a job loss. The family goes out and tries to find another job to get back to their previous economic level. Government shortfalls aren't a result of job losses. In some cases, they're a result of overspending. In some cases they're a result of lower revenues. But this isn't a structural deficit like it was under the Bush years or the later Reagan years. This is a cyclical deficit built entirely on the economic downturn. So solving the problem isn't about getting a new job. It's about resuming a path of growth by boosting demand.

2. People are not paying money to the family in order to hold a piece of their debt. That's exactly what is happening with the US government.



3. Most importantly, a family's actions are not big enough to effect an entire economy. Spending equals income. My spending is your income. Your income is my spending. When a family cuts back on their spending by $3,000, it is too small to have a noticeable effect on the economy. In the current situation, where spending is already depressed and the private sector will not pick up any slack caused by government cut backs, hundred of billions of dollars in cuts has a huge effect.

So we have a situation where we need to borrow in order to restore growth. Where we need growth to reduce the need to borrow. And where people are paying us to borrow. Those are three huge differences between a government and a family, and it makes the choice pretty obvious.

Prof. Peabody said:

We can see Obama's spend, spend, spend philosophy is working so very well. 18% Underemployment......really?

Click to expand...

Can we?

Firstly, when you base your statement off a right wing lie, you don't seem very credible. There was no Obama growth of spending.



Real federal spending is about where it was when Obama took office.



State and local spending is lower.

Government employment is 600,000 lower than it was at the state of the economic crisis. If public sector job growth kept up with previous trends, we'd see an unemployment rate in the low 7s.

So what we should be asking is why this cut, cut, cut philosophy is still supported by right wing masses.

N00b, there is so much wrong with your charts and philosophy that NO amount of logic and facts will cause you to reverse your opinion. Pardon me for saying it, but you appear to be a really young guy, and your facts and figures are being fed to you from some website, and it is very CLEAR that you yourself don't even know how to interpret the data outside of the forcefed rhetoric associated with their design.

You use a term like "conservative economics" and yet you display zero understanding of what conservative means, or economics. I think you need a few more years in college before you can come to a board where adults are playing and kick sand in their faces.

Tim-

Hicup said:

N00b, there is so much wrong with your charts and philosophy that NO amount of logic and facts will cause you to reverse your opinion. Pardon me for saying it, but you appear to be a really young guy, and your facts and figures are being fed to you from some website, and it is very CLEAR that you yourself don't even know how to interpret the data outside of the forcefed rhetoric associated with their design.

You use a term like "conservative economics" and yet you display zero understanding of what conservative means, or economics. I think you need a few more years in college before you can come to a board where adults are playing and kick sand in their faces.

Tim-

Click to expand...

I'm force information by FRED? It's an economic data base. Check it out. It's like being force fed information from the BLS. Doesn't work. It's a numbers site. Considering I designed the graphs to best highlight the facts revolving around this discussion, I would hope that I would understand how to interpret the information. If you want to make technical arguments like using the CPI as a deflator, I'd be sympathetic. If you'd like to make arguments of content, like saying Obama really is presiding over an enormous spending binge, I would listen, but it would be hard to overturn the facts laid down in those graphs.

Real government spending is not a tough economic concept, and it seems to be pretty constant.

bonfire said:

how does this refute my argument?

Click to expand...

It's obvious it doesn't

NAKED N00B said:

Multiple ways.

1. When a family loses income, it is primarily through a job loss. The family goes out and tries to find another job to get back to their previous economic level. Government shortfalls aren't a result of job losses. In some cases, they're a result of overspending. In some cases they're a result of lower revenues. But this isn't a structural deficit like it was under the Bush years or the later Reagan years. This is a cyclical deficit built entirely on the economic downturn. So solving the problem isn't about getting a new job. It's about resuming a path of growth by boosting demand.

2. People are not paying money to the family in order to hold a piece of their debt. That's exactly what is happening with the US government.



3. Most importantly, a family's actions are not big enough to effect an entire economy. Spending equals income. My spending is your income. Your income is my spending. When a family cuts back on their spending by $3,000, it is too small to have a noticeable effect on the economy. In the current situation, where spending is already depressed and the private sector will not pick up any slack caused by government cut backs, hundred of billions of dollars in cuts has a huge effect.

So we have a situation where we need to borrow in order to restore growth. Where we need growth to reduce the need to borrow. And where people are paying us to borrow. Those are three huge differences between a government and a family, and it makes the choice pretty obvious.

Click to expand...

But all of this seems to assume that the government can generate growth in one sector of the economy without hurting another. When the government keeps borrowing and borrowing, debt is amassed. That tab has to be paid eventually and with interest. The government doesn't generate money on its own. It has to get money from 3 possible sources, printing it, taxing people, or borrowing. In all 3 cases it is the people who bear the cost of government spending. Now, government spending is great for people hired by the government or recieving benefits from them. But what about everybody else?

I'm not a government employee and many of the things I pay taxes on I don't use. Your saying that government spending can produce growth but you fail to see the unseen. Think about what I would spend my money on if the government didn't steal it through taxation. If I had an extra 2,000 dollars, for example, that would be 2000 dollars I would spend on my local businesses, growing the economy. The government would spend that 2000 dollars much less effectively than the private sector. Why? Because of lack of competition, price controls, and the beurocracy of it all.

If the private sector mismanages its money, it goes out of business. If the government mismanages its money, it can simply print more of it, tax more, or borrow which ultimately shifts the burden to the taxpayers.

bonfire said:

But all of this seems to assume that the government can generate growth in one sector of the economy without hurting another. When the government keeps borrowing and borrowing, debt is amassed. That tab has to be paid eventually and with interest. The government doesn't generate money on its own. It has to get money from 3 possible sources, printing it, taxing people, or borrowing. In all 3 cases it is the people who bear the cost of government spending. Now, government spending is great for people hired by the government or recieving benefits from them. But what about everybody else?

I'm not a government employee and many of the things I pay taxes on I don't use. Your saying that government spending can produce growth but you fail to see the unseen. Think about what I would spend my money on if the government didn't steal it through taxation. If I had an extra 2,000 dollars, for example, that would be 2000 dollars I would spend on my local businesses, growing the economy. The government would spend that 2000 dollars much less effectively than the private sector. Why? Because of lack of competition, price controls, and the beurocracy of it all.

If the private sector mismanages its money, it goes out of business. If the government mismanages its money, it can simply print more of it, tax more, or borrow which ultimately shifts the burden to the taxpayers.

Click to expand...

You seem like a nice, down to Earth guy. That's why it's painful to see such a wild and convoluted argument.

Firstly, you completely shift the debate from the validity of the family/government comparison to government spending being cancelled out by taxation. But that's not a real big deal.

It seems like your argument is that boosts to the economy caused by short term government spending are cancelled out by future losses due to imposed taxes. Now this is an argument which you can look at individual behavior. And when you do, it's clear your argument holds no water. A stimulus of $3 trillion spread over two years is about 10% of GDP. That would immediately bring the economy roaring back to life. And if the goal is to pay for that over the following 10 years, you're taking $3 trillion over the course of 10 years. That's $300 billion a year or less than 2% GDP a year. You see this every day when people take out mortgages. A $300,000 mortgage does not decrease their consumption immediately by $300,000, but by a far smaller amount over the course of 30 years.

Now in normal economic times, your argument would hold some weight. Money invested in T-bills and collected through taxes is money not being spent in the usually more efficient private sector. But that's not the case right now. There is no competition for resources. Government spending right now is occupying the idle resources, whether those resources are unemployed workers, cash from investors seeking safe investments, or equipment. If the private sector could pull us out, they would have by now. Demand is so depressed that it will take an entity like the government to take the steps necessary to boost it.

And while there is no competition for these resources, the efficiency argument is irrelevant. Keynes was right in saying that if the government had to hire people to dig holes and others to fill them back in, it would be inefficient but it would do what was necessary to boost the economy.

NOOB, your analysis fails in that it assumes there should be a higher form of government to bail out lower forms of government. The problem is, who bails out the higher form of government? Sure, the US federal government can send money into a weaker state, but what happens when the US runs out of money that it can borrow or tax? What happens when the EU can't bail out their members because they need help? You can pass the buck (literally) all you want, but at some point, some one has to pay the debt. Your argument fails to account for the fact that someone must pay for every bail out.

The argument, made by the right, is that no government can spend more money than they take in, year to year, and not fail. There is a tipping point. Greece, Spain and Italy crossed that point. We aren't far behind.

Prof. Peabody said:

We can see Obama's spend, spend, spend philosophy is working so very well. 18% Underemployment......really?

Click to expand...

He is just following the republican spend spend spend policy established by Reagan and advanced by Bush. To bad he's not a real liberal.

NAKED N00B said:

It seems like your argument is that boosts to the economy caused by short term government spending are cancelled out by future losses due to imposed taxes. Now this is an argument which you can look at individual behavior. And when you do, it's clear your argument holds no water. A stimulus of $3 trillion spread over two years is about 10% of GDP. That would immediately bring the economy roaring back to life.

Click to expand...

How does switching money from one person to another boost the economy? The person getting the money would indeed help his local economy but that ignores the person losing money. The person losing money now won't invest in his local economy so that economy suffers. That is a net neutral effect as long as you ignore the money lost that the government will then keep for itself.

Now in normal economic times, your argument would hold some weight. Money invested in T-bills and collected through taxes is money not being spent in the usually more efficient private sector. But that's not the case right now. There is no competition for resources. Government spending right now is occupying the idle resources, whether those resources are unemployed workers, cash from investors seeking safe investments, or equipment. If the private sector could pull us out, they would have by now. Demand is so depressed that it will take an entity like the government to take the steps necessary to boost it.

Click to expand...

Why do you say there is no competition for resources? The private sector would be much stronger if we created an environment more conducive to business. When the government steps in they impose regulations. Every regulation is a cost a company has to bear. The less money a company has, the less able they will be to hire new workers, invest in new products, ect.

And while there is no competition for these resources, the efficiency argument is irrelevant. Keynes was right in saying that if the government had to hire people to dig holes and others to fill them back in, it would be inefficient but it would do what was necessary to boost the economy.

Click to expand...

Digging holes and filling them back in produces nothing of value to society. Its the broken window fallacy. The idea that I can break a window and that creates a job for a window-maker. Again, the argument ignores what I would have otherwise down with the money I had to spend to fix my window. Maybe I would have eaten at a cafe producing a job for a baker. Maybe I would buy a suit giving a tailor a job.

edit: When I made the family/government comparison I was talking about the fallacy of defecit spending which I did indeed address in my previous post.

imagep said:

He is just following the republican spend spend spend policy established by Reagan and advanced by Bush. To bad he's not a real liberal.

Click to expand...

What would a real liberal do?

Hicup said:

N00b, there is so much wrong with your charts and philosophy that NO amount of logic and facts will cause you to reverse your opinion. Pardon me for saying it, but you appear to be a really young guy, and your facts and figures are being fed to you from some website, and it is very CLEAR that you yourself don't even know how to interpret the data outside of the forcefed rhetoric associated with their design.

You use a term like "conservative economics" and yet you display zero understanding of what conservative means, or economics. I think you need a few more years in college before you can come to a board where adults are playing and kick sand in their faces.

Tim-

Click to expand...

No, I believe that he has done a lot of research on US economic history, and come to conclusions that typical conservative economc theories don't hold water, and he has presented us with compelling evidence. Thats a lot more than you have done.

Conservative economics is based upon some really good economic theory, but it has been throuoghly disproven my economic reality. I used to buy into all that crap, conservative economics worked for me because I thought that consrvative ideas sounded macho, and who doesn't hate taxes, big government, policitions, lawyers? We all LOVE to complain about the government. But when I started looking for evidence to prove that my concervative theories were correct, I discovered that pretty much without fail, the historical evidence runs contrary to conservative theory.

Now I still hold on to many conservative beliefs, like I believe that welfare is bad, but I have realized that most concervative economic theory is just just plain hogwash. It sounds macho, but doesn't work so well.

So where are your charts and figures and historical evidence proving N00B wrong?

imagep said:

No, I believe that he has done a lot of research on US economic history, and come to conclusions that typical conservative economc theories don't hold water, and he has presented us with compelling evidence. Thats a lot more than you have done.

Conservative economics is based upon some really good economic theory, but it has been throuoghly disproven my economic reality. I used to buy into all that crap, conservative economics worked for me because I thought that consrvative ideas sounded macho, and who doesn't hate taxes, big government, policitions, lawyers? We all LOVE to complain about the government. But when I started looking for evidence to prove that my concervative theories were correct, I discovered that pretty much without fail, the historical evidence runs contrary to conservative theory.

Now I still hold on to many conservative beliefs, like I believe that welfare is bad, but I have realized that most concervative economic theory is just just plain hogwash. It sounds macho, but doesn't work so well.

So where are your charts and figures and historical evidence proving N00B wrong?

Click to expand...

Not sure what you mean by conservative economic theory, unless you are simply calling lower taxes and smaller government an economic theory. Please explain.

As to the well researched analysis done, that one is a stretch. Actually it would get a lousy grade if it was the basis of a paper in high school economics.

ksu_aviator said:

NOOB, your analysis fails in that it assumes there should be a higher form of government to bail out lower forms of government. The problem is, who bails out the higher form of government? Sure, the US federal government can send money into a weaker state, but what happens when the US runs out of money that it can borrow or tax? What happens when the EU can't bail out their members because they need help? You can pass the buck (literally) all you want, but at some point, some one has to pay the debt. Your argument fails to account for the fact that someone must pay for every bail out.

The argument, made by the right, is that no government can spend more money than they take in, year to year, and not fail. There is a tipping point. Greece, Spain and Italy crossed that point. We aren't far behind.

Click to expand...

You missed the entire point. The problems with Europe are not about spending more than you take in. Spain and Ireland were doing everything right on the eve of the crisis. It's about an economic union without the political union necessary to maintain a single currency for diverse economies.

Strong economies have strong currencies. Weak economies have weak currencies. So to keep a single currency going throughout weak and strong economies (whether that's the US or the EU) there need to be steps taken.

So how you get to bailing out the federal government is beyond me.

bonfire said:

How does switching money from one person to another boost the economy? The person getting the money would indeed help his local economy but that ignores the person losing money. The person losing money now won't invest in his local economy so that economy suffers. That is a net neutral effect as long as you ignore the money lost that the government will then keep for itself.



Why do you say there is no competition for resources? The private sector would be much stronger if we created an environment more conducive to business. When the government steps in they impose regulations. Every regulation is a cost a company has to bear. The less money a company has, the less able they will be to hire new workers, invest in new products, ect.



Digging holes and filling them back in produces nothing of value to society. Its the broken window fallacy. The idea that I can break a window and that creates a job for a window-maker. Again, the argument ignores what I would have otherwise down with the money I had to spend to fix my window. Maybe I would have eaten at a cafe producing a job for a baker. Maybe I would buy a suit giving a tailor a job.

edit: When I made the family/government comparison I was talking about the fallacy of defecit spending which I did indeed address in my previous post.

Click to expand...

Your idea that the thing holding back business is government regulation and whatever other right wing talking points there are couldn't be more off base. The problem with the economy, plain and simple, is a lack of demand. Consumers are not buying things. Why would any business in their right mind invest or hire in the face of severely depressed demand? If they didn't think the opportunity for profit is there, no store is going to expand. No restaurant is going to hire. No chain will open up a new store. No investor will put money up for a new business. It doesn't matter if we're living in a world without regulation or taxes, no one will invest without demand.

So when there is depressed demand, there are idle resources. The obvious one is unemployed workers. Capital is another prevalent idle resource. People and businesses are sitting on cash because they do not want to invest. During periods of economic prosperity, those resources are no idle. So if the government wants to borrow money then individuals must purchase treasuries rather than spend their money on investment/consumption. If the government wants to hire workers when there aren't idle workers, they are taking away from the private sector. This is not one of those times. In the current economic climate these resources are not being used by the private sector, so it should be the job of the public sector to use them.

Let's use the broken window story. I think the original was something about a guy spending eight francs to fix a window his son broke. Now if he intended to spend that money on a new suit or a bagel, that would be a competition for those eight francs. That's competition for resources. If he was just going to bury it in his backyard and now put it to use, it's a net benefit for the economy. The person fixing the window uses that resource of eight francs when it would otherwise be lost.

Now there's an obvious difference for the current situation. These individuals who fund the government through the purchase of treasuries were not just going to bury their money in the backyard. They have plans to eventually use that money. So they purchase treasuries which entitle them to some kind of return and, as treasuries are liquid assets, they can access their wealth at just about any time. In reality, the government is functioning almost exactly like a bank. People deposit funds they are not looking to spend immediately into a bank. The bank uses those idle funds by lending them out to others, and the original depositors have access to their wealth at any time. That's really what the government is doing. It's finding a place for idle resources in an economy.

What we haven't touched upon so far is the alternative. It would take some massive borrowing to fund a stimulus program necessary to jumpstart the economy. That's a pretty large immediate cost. But what are the long term costs of forgoing this? Our current deficit is nearly entirely a product of the recession. Between decreased revenues and increased spending on safety net programs, we could do away with just about all of the deficit. So by putting off the necessary investment, we're really just accruing additional debt. And at the same time we're doing long term damage to the economy. Human capital loses out because skills atrophy. It's been shown repeatedly that those who are unemployed for extended periods of time lose out in the long term. The longer we put this off, the greater the long term costs imposed on us are.

washunut said:

What would a real liberal do?

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Since I am not a "real liberal" maybe I shouldn't be trying to answer that question, but I would than that most likely they would be substantially increasing welfare freebes and increasing the taxes on the rich. So far Obama hasn't done either of those things, except for what ever spending increases were already existing in the works from the Bush era.

Obama has actually cut taxes and we have a smaller number of gov workers today (combined between all levels of gov) than we did when he took office, so I would suggest that with the exception of the spendulous bill and Obamacare, his policies are as conservative or maybe even more conservative than what happened when Bush or Reagan were president.

washunut said:

Not sure what you mean by conservative economic theory, unless you are simply calling lower taxes and smaller government an economic theory. Please explain.

As to the well researched analysis done, that one is a stretch. Actually it would get a lousy grade if it was the basis of a paper in high school economics.

Click to expand...

It's my understanding that the real conservative version of economics involves lower taxes for the rich and larger government (our government has grown under every republican president in the past 50 years much faster than every democrat president). Of course they claim something different, but are we supposed to go by what they say or by what they actually do?

And can you please point out his errors? Did he make up the numbers? Are his graphs plotted out upside down or something?