The simple facts that everyone should know about economics

[XZeroII]

I posted this in another thread, but since not everyone will look in that thread, I thought it would be wise to make a new one.

Here are some general facts about economics. The first set are things everyone should know. I tried to make them as simple and non-political as possible. The second set get a bit more into politics, but I tried to remain neutral and only give facts, but I know that I didn't succeed at times. Please be forgiving and look at the general point I'm trying to get across. I tried to not assign any blame or ponit the finger at anyone. If you object to anything, please quote the specific problem and give me a specific reason why you think I'm wrong. This is intended to straighten out some things that I think most people don't know (or I would assume they don't know based on their comments). Please review this carefully so we can have better discussions on subjects that deal with our economy.

I should also mention that these are not actually facts. They are the most commonly viewed theories. Economics is not an exact science and changes all the time. It is also impossible to prove or disprove any of this.



1. The economy moves in cycles. The 1990's were not typical. 10 years w/o a recession was unheard of. Typically, you have approx 4 years of good economy, then a short recessions, then things start to pick up again for another 4 years. It's called the Business Cycle. The number of years of good/bad economy doesn't matter, just that recession is normal and occurs on a regular basis.
2. During periods of economic growth, our gov't typically gets more $$$ and with proper spending controls, we should be able to have some surpluses.
3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so technically, we should be making up the debt during our growths (which we do not because of deficit spending during growth).
4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down (recession) when the GDP goes down.

(These next two are theoretical. That means this is what SHOULD happen according to economists)
5. If people have more money, they will spend more money. When people spend more money, GDP goes up.
6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.

This is all stuff you would learn about in your first couple WEEKS of introductory economics. I don't think anyone could argue with what I just said. Learn this stuff before you say another word on anything having to do with our economy.

Here is the more controversial stuff, but it's all simply fact...

7. The economy started going downhill in 1999, during Clinton's term.
8. We fell into a recession approx one month after Bush took office. This means that there is no way that Bush could be in any way responsible for the recession. First because recession is normal and can't be stopped anyway. Second, he also can't possibly be directly or indirectly responsible for it because nothing he could have done would have such a quick impact on the economy.
9. Cutting taxes is one major way to fight recessions. Usually, one of the first things to do when faced with a recessions is to cut taxes. This will leave more money in individual's pockets, thus they will be willing to spend more. Bush implemented round the board tax cuts which means that everyone got a tax break, not just the rich. Please don't bring up that old rhetoric about the rich getting an unfair share of the cuts. That is another issue that I will not discuss because it's too lengthy. Suffice to say, it is not a good arguement.
10. Another way to fight a recession (which I do not personally agree with) is to increase gov't spending. This will send more money to business' as the gov't buys stuff from them. Once the business' have more money, they will hire more people which means that people will have more money to spend, and yadda yadda yadda (if you don't get it, take an economics class). I don't like this method because our gov't is spend happy and I feel like they are just bypassing the system when the do this. Limited increases in gov't spending is ok, but it shouldn't be major.
11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...
12. Bush has used all 3 of these tools to fight this recession. Technically, the recession ended long ago, but no one can figure out why unemployment has not risen. Normally, when business' get more money, they will hire more workers, but they have not. One oppinion is that our jobs are going overseas or that immigrants are coming in and taking all our jobs. There is no concrete evidence one way or the other. (my oppinoin: Since no one knows why unemployment has not risen, it is unfair to blame Bush for this.)

I'm sure there is more, but hopefully after reading this you will be more informed and we can stop all this nonsensical bickering.

 

[XZeroII]

I also plan to add more sections later to cover a few more topics dealing with economics. Maybe get into some deficit/debt stuff. Maybe get into some economic planning issues or war.

 

[lozina]

Good post XZero, some useful information there which I appreciate. I would like to dispute one item for now, which is simply false if not misleading:

3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so we make up the debt during our growths.

The history shows that debt is only growing year after year. There are times when the growth is slowed, which you may be alluding to by saying "debt is made up" during growth, but then that would be misleading.

 

[xxxxxJohnGaltxxxxx]

Originally posted by: XZeroII

4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down when the GDP goes down.

Are you baiting me, knowing that I would have to respond to a thread like this? ...you are close, sir, but I just want to point something out...


[*] GDP is the measurement of goods and service produced by labor and property located in the United States; it is not solely a 'measurement of money', or how much people spend, per say. I think you are referring to personal consumption expenditures (PCE), which is a major contributing factor to GDP, but is more of a measure of what you stated above?.consumption at the personal level (usually in the form of durable goods et al.)

[*] 'Real GDP' controls for inflation, as opposed to nominal GDP, which measures the value of all the goods and services produced expressed in current prices (the difference between nominal and real GDP is the 'GDP Deflator', used to measure inflation). If you inadvertently look at 'nominal GDP' figures, then you have to be careful when making assertions about GDP growth, as you have now captured the value of an output, but at inflated prices...

5. If people have more money, they will spend more money. When people spend more money, GDP goes up.

Ea-sy on making this assertion Future expectations drive this train. It is a safe assertion at present, given that we reached a (-) savings rate a few years ago (buying on credit facilitates this phenomena), but this is not necessarily 'Ceteris Paribus'

6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.

...which is not always a good thing, as cynical as this sounds. Though the theory of 'Natural Unemployment' is fundamentally and structurally weak, economists, though their numbers will vary, believe ~5% unemployment is the natural rate than can be maintained in the long-run (many argue that this should be adjusted downward to reflect rapid gains in productivity resulting from technological advances...somewhere around 4 -to- 4.3%). When more people have jobs, more people have money, as you correctly stated. But what happens when too many people have both jobs and money? We were hovering around 3% unemployment during the tech boom, which an economy cannot maintain in the long-run without inflation gutting all gains and most hurting those with the least disposable income..and then some. You get into the basic problem of 'too many dollars chasing too few goods.' What good is a 25% increase in pay when inflation has exacerbated prices upward threefold? Inflation is a nasty thing

7. The economy started going downhill in 1999, during Clinton's term.

Agreed. Look at the level of inflation for 2000:

Jan: 2.74%
3.22%
3.76%
3.07%
3.19%
3.73%
3.66%
3.41%
3.45%
3.45%
3.45%
3.39%
Dec: 3.38%

9. Cutting taxes is one major way to fight recessions.

Agreed, along with increased government spending, as you pointed out in #10...the Keynesian economic camp is a fan of these two approaches.

11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...

Agreed


Are you an econ. major, or just a casual observer? You earned my respect tossing around the jargon in a logical, coherent fashion...nice job, sir.

 

[MonkeyK]

So basically you are saying that spending drives the economy. To move things along, spending can be encouraged for people, business, or the Govt can spend. Things go bad when less is spent.

What you do not say is why it takes a long time for busineses, people, and the Govt. to change rates spending.

 

[daclayman]

You forgot 9 1/2. Increasing taxes during periods of prosperity and reducing government services. But since that doesn't benefit Bush, it is forgotten here.

Also, nummer 6 = trickledown economics = voodoo economics.

I took macroeconomics also.

 

[amok]

JohnGalt, I have a few questions for you. Though we don't see eye to eye on several issues, I respect your economic views. My question relates to this comment you made:

Ea-sy on making this assertion Future expectations drive this train. It is a safe assertion at present, given that we reached a (-) savings rate a few years ago (buying on credit facilitates this phenomena), but this is not necessarily 'Ceteris Paribus'

What kind of effect does the negative savings rate have on the economy? From what I have seen/heard/speculated on, a lot of people are focusing on cutting down their debt right now (otherwise those debt-relief companies wouldn't be so proliferate, and I wouldn't have to see a commercial from them every 15 minutes on the tube). This would seem to me to be a big dampening force on our economic growth, but a vital one. Afterall, I don't think it would be a good thing for the middle class to spend itself into oblivion . Do you think this is one of the factors behind the slow economic recovery? If so, how big of a factor?

 

[alchemize]

Originally posted by: lozina
Good post XZero, some useful information there which I appreciate. I would like to dispute one item for now, which is simply false if not misleading:

3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so we make up the debt during our growths.

The history shows that debt is only growing year after year. There are times when the growth is slowed, which you may be alluding to by saying "debt is made up" during growth, but then that would be misleading.

I attribute this to factor #27b

During recessions, politicians are under pressure to get the economy going. They spend more and run a debt.

During boom times, politicians like to spend money to stay in office and make happy voters. Even though there is more $$$ coming in, more $$$ goes out.

Also, #11 is THE KEY FACTOR in spurring economic growth. Lots of studies out there verify this. Bush cannot use this tool, the Federal Reserve does. The Federal Reserve is often called "the fourth branch" of goverment because of the power wielded. The last great thing to happen was Volker being replaced with Greenspan. Everything changed after that.

 

[xxxxxJohnGaltxxxxx]

Originally posted by: amok
JohnGalt, I have a few questions for you. Though we don't see eye to eye on several issues, I respect your economic views. My question relates to this comment you made:

Ea-sy on making this assertion Future expectations drive this train. It is a safe assertion at present, given that we reached a (-) savings rate a few years ago (buying on credit facilitates this phenomena), but this is not necessarily 'Ceteris Paribus'

What kind of effect does the negative savings rate have on the economy?

You touched on it, sir. A negative savings rate implies that people, simply put, are living outside their economic means. In the near-term, this might not seem disastrous, but in periods of economic downturn, the propensity to repay this accumulated debt decreases...the great depressions is a text-box example...if you were to overlay the level of market activity and the level of debt financing, you would see a perfectly linear relationship...this, more often than not, exacerbates the economic downturn and takes us further away from the proverbial equilibrium point...


edit: Debt, not date

 

[xxxxxJohnGaltxxxxx]

Here's an Excel worksheet with historical savings rates...look for the negative rates.

 

[naddicott]

I object to your assertion of fact on almost every point. Economics is a science of theories, and not a very rigorous science compared to hard sciences and given Economics' poor track record at accurately predicting future economic behaviour. While I do gather from your post that you have studied the discipline, realize that there are economists with much stronger credentials than yours who would disagree with your assertions, and even more who at the very least disagree with the certainty of your assertions.

Originally posted by: XZeroII
1. The economy moves in cycles. The 1990's were not typical. 10 years w/o a recession was unheard of. Typically, you have approx 4 years of good economy, then a short recessions, then things start to pick up again for another 4 years. It's called the Business Cycle. The number of years of good/bad economy doesn't matter, just that recession is normal and occurs on a regular basis.[/b]

The business cycle is not a law onto itself, but rather an observation of past data trends. The theory of why the past data is cyclical and what the conditions are for its amplitude, period, and overall trend is clearly a work in progress, otherwise there would be far more consensus as to why the 1990's did not behave similar to previous data. I'm got the impression that you think that over the long run for the future, an overall upward trend is a fact. Except for the theory of an expanding universe, can you come up with one other credible theory in physics or nature (or any hard science) where constant growth is possible?

2. During periods of economic growth, our gov't typically gets more $$$ and with proper spending controls, we should be able to have some surpluses.
3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so we make up the debt during our growths.

I don't see how this is an accurate fact at all, at least with the U.S. government since Reagan. For the most part, the U.S. hasn't been paying down its debt during periods of economic growth. Deficit/surplus is a two sided equation, and it doesn't work too well if one side gets left out.

4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down (recession) when the GDP goes down.

Hard to object to a basic definition of terms. GDP is a horrible measure of economic health, however, as evidenced by recent growth due to military spending which in no way reflects the still very lethargic state of the U.S. economy.

(These next two are theoretical. That means this is what SHOULD happen according to economists)
5. If people have more money, they will spend more money. When people spend more money, GDP goes up.
6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.

Economics makes tons of broad assumptions about consumers and businesses to get nice clean formulas. Availability of perfect information and rational decisions based on that information for one. As for available money driving spending driving GDP, the real question is how efficient of a economy driving mechanism is additional money in a consumer/business' hands? If the money is put into savings, how much power does it have in terms of what the bank is able to do with the money with loans etc.... What percentage of the money goes into offshore investments or moving labor overseas? Recently, some percentage has certainly gone to the campaign funds of the polititians responsible for giving the individual/business that marginal extra money. The power of that money won't be fully flexed until the 2004 elections...

This is all stuff you would learn about in your first couple WEEKS of introductory economics. I don't think anyone could argue with what I just said. Learn this stuff before you say another word on anything having to do with our economy.

Could you be more rude and condescending? Introductory classes in any subject rarely give you an accurate picture of reality - introductory economics is just a stepping stone towards understanding advanced economics, all of which is still a third rate science, IMO.

Here is the more controversial stuff, but it's all simply fact...

7. The economy started going downhill in 1999, during Clinton's term.
8. We fell into a recession approx one month after Bush took office. This means that there is no way that Bush could be in any way responsible for the recession. First because recession is normal and can't be stopped anyway. Second, he also can't possibly be directly or indirectly responsible for it because nothing he could have done would have such a quick impact on the economy.

I suppose it's also a fact that anything good about the economy during Clinton's term is due to Reagan's tax cuts? The only fact is we don't know for sure the full cause and effect relationships behind growth/decline cycles, and one theory (based on some indicator data) is that recent decline may have been started before Bush came into office. That still doesn't get Bush off the hook for matters of amplitude and duration during his tenure, assuming that any administration's economic policy has any significant causal effect on the economy at all.

9. Cutting taxes is one major way to fight recessions. Usually, one of the first things to do when faced with a recessions is to cut taxes. This will leave more money in individual's pockets, thus they will be willing to spend more. Bush implemented round the board tax cuts which means that everyone got a tax break, not just the rich. Please don't bring up that old rhetoric about the rich getting an unfair share of the cuts. That is another issue that I will not discuss because it's too lengthy. Suffice to say, it is not a good arguement.

Your supposition regarding the distribution of cuts and the wonders of "voo doo economics" is wrong, but that is a large argument. Read the article here for starters. The question isn't whether tax cuts are an option to boost spending, but whether they are the right option among many (including government spending). The track record of tax cuts to help the economy to date is very poor. As for Bush's tax cuts, they are structured in such a way that their immediate impact is relatively small, but will become much larger later on (in some unknown stage of the economic cycle) unless repealed.

10. Another way to fight a recession (which I do not personally agree with) is to increase gov't spending. This will send more money to business' as the gov't buys stuff from them. Once the business' have more money, they will hire more people which means that people will have more money to spend, and yadda yadda yadda (if you don't get it, take an economics class). I don't like this method because our gov't is spend happy and I feel like they are just bypassing the system when the do this. Limited increases in gov't spending is ok, but it shouldn't be major.

Too big of a topic to get into. Just because you don't like it, doesn't mean it is factually a bad option all the time. Employment could have risen if Bush had allocated similar resources to government jobs (infrastructure, whatever).

11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...

A very powerful tool that isn't nearly as simple as you imply here. Once you reach 0 interest, you're out of options. If investors lose faith in America's government being able to repay its debt, long term interest rates on government bonds will be forced to rise to raise necessary funds.

12. Bush has used all 3 of these tools to fight this recession. Technically, the recession ended long ago, but no one can figure out why unemployment has not risen. Normally, when business' get more money, they will hire more workers, but they have not. One oppinion is that our jobs are going overseas or that immigrants are coming in and taking all our jobs. There is no concrete evidence one way or the other. (my oppinoin: Since no one knows why unemployment has not risen, it is unfair to blame Bush for this.)

It is unfair to blame Bush for the economy, but that's the reality of American politics. It is, however, innacurate to say he did the best anyone could to help America have a healthy economy. Trickle down economics is bunk, and nothing so far has given any evidence otherwise.

I'm sure there is more, but hopefully after reading this you will be more informed and we can stop all this nonsensical bickering.

Thank you O wise one, save us all from our ignorance.

 

[xxxxxJohnGaltxxxxx]

Originally posted by: naddicott



I object to your assertion of fact on almost every point. Economics is a science of theories, and not a very rigorous science compared to hard sciences and given Economics' poor track record at accurately predicting future economic behaviour. While I do gather from your post that you have studied the discipline, realize that there are economists with much stronger credentials than yours who would disagree with your assertions, and even more who at the very least disagree with the certainty of your assertions.

As Deniro would say, "You talkin' to me? You talkin' to me?"

 

[xxxxxJohnGaltxxxxx]

...disregard, I read your post.

 

[ReiAyanami]

all lower tier IT jobs are going overseas, (china, india, russia, even romania). see CNet for reference.

why hire one job here, when you can hire literally half a dozen elsewhere for the same pay. they may not be "as skilled" but they work just as hard if not harder then americans. don't mind that its ford's "$5 dollar day" in reverse...

the tech lead we have may decline, but all that signals is that we must replace it with feasibly a different industry such as med, biotech, energy technology ect...

oh, and if any country should threaten US's tech dominance, Microsoft will just crush them...

 

[xxxxxJohnGaltxxxxx]

Did you take a wrong turn, sir? The "Losing jobs to India" thread is over there (points that way).

 

[XZeroII]

Originally posted by: lozina
Good post XZero, some useful information there which I appreciate. I would like to dispute one item for now, which is simply false if not misleading:

3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so we make up the debt during our growths.

The history shows that debt is only growing year after year. There are times when the growth is slowed, which you may be alluding to by saying "debt is made up" during growth, but then that would be misleading.

I'm sorry, the second part of that was an 'in theory'. You are correct.

 

[XZeroII]

Originally posted by: MonkeyK
So basically you are saying that spending drives the economy. To move things along, spending can be encouraged for people, business, or the Govt can spend. Things go bad when less is spent.

What you do not say is why it takes a long time for busineses, people, and the Govt. to change rates spending.

Agreed. You are correct.

 

[XZeroII]

Originally posted by: daclayman
You forgot 9 1/2. Increasing taxes during periods of prosperity and reducing government services. But since that doesn't benefit Bush, it is forgotten here.

Also, nummer 6 = trickledown economics = voodoo economics.

I took macroeconomics also.

I am dealing with facts. I am trying to avoid stuff like, 'we should do this' and the like. That is why I did not mention anything about reducing gov't services because that is gov't policy. That would belong in a debt/deficit section, but you are correct. That is what we should do.

#6 describes part of 'voodoo economics', but you can't argue that what I said is what is supposed to happen. Voodoo economics is when you decide to cut taxes for business' in order to encourage more of #6. #6 does occur though.

 

[XZeroII]

Originally posted by: xxxxxJohnGaltxxxxx

Originally posted by: XZeroII

4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down when the GDP goes down.

Are you baiting me, knowing that I would have to respond to a thread like this? ...you are close, sir, but I just want to point something out...


[*] GDP is the measurement of goods and service produced by labor and property located in the United States; it is not solely a 'measurement of money', or how much people spend, per say. I think you are referring to personal consumption expenditures (PCE), which is a major contributing factor to GDP, but is more of a measure of what you stated above?.consumption at the personal level (usually in the form of durable goods et al.)

[*] 'Real GDP' controls for inflation, as opposed to nominal GDP, which measures the value of all the goods and services produced expressed in current prices (the difference between nominal and real GDP is the 'GDP Deflator', used to measure inflation). If you inadvertently look at 'nominal GDP' figures, then you have to be careful when making assertions about GDP growth, as you have now captured the value of an output, but at inflated prices...

5. If people have more money, they will spend more money. When people spend more money, GDP goes up.

Ea-sy on making this assertion Future expectations drive this train. It is a safe assertion at present, given that we reached a (-) savings rate a few years ago (buying on credit facilitates this phenomena), but this is not necessarily 'Ceteris Paribus'

6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.

...which is not always a good thing, as cynical as this sounds. Though the theory of 'Natural Unemployment' is fundamentally and structurally weak, economists, though their numbers will vary, believe ~5% unemployment is the natural rate than can be maintained in the long-run (many argue that this should be adjusted downward to reflect rapid gains in productivity resulting from technological advances...somewhere around 4 -to- 4.3%). When more people have jobs, more people have money, as you correctly stated. But what happens when too many people have both jobs and money? We were hovering around 3% unemployment during the tech boom, which an economy cannot maintain in the long-run without inflation gutting all gains and most hurting those with the least disposable income..and then some. You get into the basic problem of 'too many dollars chasing too few goods.' What good is a 25% increase in pay when inflation has exacerbated prices upward threefold? Inflation is a nasty thing

7. The economy started going downhill in 1999, during Clinton's term.

Agreed. Look at the level of inflation for 2000:

Jan: 2.74%
3.22%
3.76%
3.07%
3.19%
3.73%
3.66%
3.41%
3.45%
3.45%
3.45%
3.39%
Dec: 3.38%

9. Cutting taxes is one major way to fight recessions.

Agreed, along with increased government spending, as you pointed out in #10...the Keynesian economic camp is a fan of these two approaches.

11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...

Agreed


Are you an econ. major, or just a casual observer? You earned my respect tossing around the jargon in a logical, coherent fashion...nice job, sir.

I am not an econ major, but I took a few courses because it was so interesting (not many jobs for econ majors ).
Things are more complex than I said, but I wanted to get everything out there in a simple way which is why I didn't mention real/nominal GDP. It would have added lots of confusion and I wanted to keep this relatively short.
Thanks for the respect. It makes it all worth while

 

[XZeroII]

I object to your assertion of fact on almost every point. Economics is a science of theories, and not a very rigorous science compared to hard sciences and given Economics' poor track record at accurately predicting future economic behaviour. While I do gather from your post that you have studied the discipline, realize that there are economists with much stronger credentials than yours who would disagree with your assertions, and even more who at the very least disagree with the certainty of your assertions.

I agree that this is not fact, but it's close enough. Just like evolution is not a fact, or any kind of science for that matter. However, this is the most widely accepted.

Originally posted by: XZeroII
1. The economy moves in cycles. The 1990's were not typical. 10 years w/o a recession was unheard of. Typically, you have approx 4 years of good economy, then a short recessions, then things start to pick up again for another 4 years. It's called the Business Cycle. The number of years of good/bad economy doesn't matter, just that recession is normal and occurs on a regular basis.[/b]

The business cycle is not a law onto itself, but rather an observation of past data trends. The theory of why the past data is cyclical and what the conditions are for its amplitude, period, and overall trend is clearly a work in progress, otherwise there would be far more consensus as to why the 1990's did not behave similar to previous data. I'm got the impression that you think that over the long run for the future, an overall upward trend is a fact. Except for the theory of an expanding universe, can you come up with one other credible theory in physics or nature (or any hard science) where constant growth is possible?

The way I was taught economics is that it's like a balance. You are always trying to keep it perfectly balanced in the middle, but there are always external influences causing it to tilt one way or the other (growth, contraction). Policy is basically what we use to try to steady it (other than letting it stablize itself). Of course sustained economic growth is possible, it is unlikely because that scale will always be swaying back and forth because things will always be changing. There is no guarentee that there will be an upward trend, but the past has shown that this is what is likely under normal circumstances. The balance may suddenly sway in the recession direction for an extended period of time (japan) and things may be bad for quite awhile. There is not guarentee.

2. During periods of economic growth, our gov't typically gets more $$$ and with proper spending controls, we should be able to have some surpluses.
3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so we make up the debt during our growths.

I don't see how this is an accurate fact at all, at least with the U.S. government since Reagan. For the most part, the U.S. hasn't been paying down its debt during periods of economic growth. Deficit/surplus is a two sided equation, and it doesn't work too well if one side gets left out.

I'm sorry, I wasn't clear. Someone else mentioned this and I applogize. The second part of what I said is what should happen. We should use that money to pay back our debt. My mistake.

4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down (recession) when the GDP goes down.

Hard to object to a basic definition of terms. GDP is a horrible measure of economic health, however, as evidenced by recent growth due to military spending which in no way reflects the still very lethargic state of the U.S. economy.

I agree. I always thought it was a bad way too, but that's what they use.

(These next two are theoretical. That means this is what SHOULD happen according to economists)
5. If people have more money, they will spend more money. When people spend more money, GDP goes up.
6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.

Economics makes tons of broad assumptions about consumers and businesses to get nice clean formulas. Availability of perfect information and rational decisions based on that information for one. As for available money driving spending driving GDP, the real question is how efficient of a economy driving mechanism is additional money in a consumer/business' hands? If the money is put into savings, how much power does it have in terms of what the bank is able to do with the money with loans etc.... What percentage of the money goes into offshore investments or moving labor overseas? Recently, some percentage has certainly gone to the campaign funds of the polititians responsible for giving the individual/business that marginal extra money. The power of that money won't be fully flexed until the 2004 elections...

As I said, this is what SHOULD happen...

This is all stuff you would learn about in your first couple WEEKS of introductory economics. I don't think anyone could argue with what I just said. Learn this stuff before you say another word on anything having to do with our economy.

Could you be more rude and condescending? Introductory classes in any subject rarely give you an accurate picture of reality - introductory economics is just a stepping stone towards understanding advanced economics, all of which is still a third rate science, IMO.

I'm just laying the groundwork here. I'm trying to give people a general idea as to what economics is and how it works, not bore them with a PHd thesis.

Here is the more controversial stuff, but it's all simply fact...

As I said, if you disagree, let me know.

7. The economy started going downhill in 1999, during Clinton's term.
8. We fell into a recession approx one month after Bush took office. This means that there is no way that Bush could be in any way responsible for the recession. First because recession is normal and can't be stopped anyway. Second, he also can't possibly be directly or indirectly responsible for it because nothing he could have done would have such a quick impact on the economy.

I suppose it's also a fact that anything good about the economy during Clinton's term is due to Reagan's tax cuts? The only fact is we don't know for sure the full cause and effect relationships behind growth/decline cycles, and one theory (based on some indicator data) is that recent decline may have been started before Bush came into office. That still doesn't get Bush off the hook for matters of amplitude and duration during his tenure, assuming that any administration's economic policy has any significant causal effect on the economy at all.

I'm providing the facts. If you want to interpret them, fine, but don't interpret what I said and act like I'm doing the interpreting (confusing sentence). If you don't agree with my facts, let me know.

9. Cutting taxes is one major way to fight recessions. Usually, one of the first things to do when faced with a recessions is to cut taxes. This will leave more money in individual's pockets, thus they will be willing to spend more. Bush implemented round the board tax cuts which means that everyone got a tax break, not just the rich. Please don't bring up that old rhetoric about the rich getting an unfair share of the cuts. That is another issue that I will not discuss because it's too lengthy. Suffice to say, it is not a good arguement.

Your supposition regarding the distribution of cuts and the wonders of "voo doo economics" is wrong, but that is a large argument. Read the article here for starters. The question isn't whether tax cuts are an option to boost spending, but whether they are the right option among many (including government spending). The track record of tax cuts to help the economy to date is very poor. As for Bush's tax cuts, they are structured in such a way that their immediate impact is relatively small, but will become much larger later on (in some unknown stage of the economic cycle) unless repealed.

I'm stating theory there. This is what should happen, theoretically. I'm just saying that lowering taxes is an option. Was it the right one? That's not what I made this thread to discuss.

10. Another way to fight a recession (which I do not personally agree with) is to increase gov't spending. This will send more money to business' as the gov't buys stuff from them. Once the business' have more money, they will hire more people which means that people will have more money to spend, and yadda yadda yadda (if you don't get it, take an economics class). I don't like this method because our gov't is spend happy and I feel like they are just bypassing the system when the do this. Limited increases in gov't spending is ok, but it shouldn't be major.

Too big of a topic to get into. Just because you don't like it, doesn't mean it is factually a bad option all the time. Employment could have risen if Bush had allocated similar resources to government jobs (infrastructure, whatever).

I didn't say it's a bad option. I said that I personally don't like this option. Perhaps if done properly, internal spending could be good, but history has shown that we just get more bloat. Again, I didn't make this thread to discuss that. Just to make people aware of the option. I should have kept my comments to myself.

11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...

A very powerful tool that isn't nearly as simple as you imply here. Once you reach 0 interest, you're out of options. If investors lose faith in America's government being able to repay its debt, long term interest rates on government bonds will be forced to rise to raise necessary funds.

I'm trying to simplify this so people understand the fundamentals. Your comments on the debt belong in another section that could be compiled, not here (but you do have valid points).

12. Bush has used all 3 of these tools to fight this recession. Technically, the recession ended long ago, but no one can figure out why unemployment has not risen. Normally, when business' get more money, they will hire more workers, but they have not. One oppinion is that our jobs are going overseas or that immigrants are coming in and taking all our jobs. There is no concrete evidence one way or the other. (my oppinoin: Since no one knows why unemployment has not risen, it is unfair to blame Bush for this.)

It is unfair to blame Bush for the economy, but that's the reality of American politics. It is, however, innacurate to say he did the best anyone could to help America have a healthy economy. Trickle down economics is bunk, and nothing so far has given any evidence otherwise.

I'm trying to set the record straight so people get more info than what they see on TV. They won't have all the info, but at least they will be able to deduce some things for themselves. Trickle down economics is a relatively new theory (it was used earlier, but in modern times, it's new) and the effects are not 100% known yet because not enough test of it have been made.

I'm sure there is more, but hopefully after reading this you will be more informed and we can stop all this nonsensical bickering.

Thank you O wise one, save us all from our ignorance.

I tried to provide facts (or theory). If you disagree, let me know.

 

[SuperTool]

The problem is that Republicans are first to deficit spend, but when the government is running a "surplus" they are the first to yell that people are overtaxed and surplus means "the govt is taking too much of our money"

 

[alchemize]

Originally posted by: SuperTool
The problem is that Republicans are first to deficit spend, but when the government is running a "surplus" they are the first to yell that people are overtaxed and surplus means "the govt is taking too much of our money"

Oh really?

 

[XZeroII]

Originally posted by: SuperTool
The problem is that Republicans are first to deficit spend, but when the government is running a "surplus" they are the first to yell that people are overtaxed and surplus means "the govt is taking too much of our money"

This is not the place for political mumbo-jumbo.

 

[SuperTool]

Originally posted by: alchemize

Originally posted by: SuperTool
The problem is that Republicans are first to deficit spend, but when the government is running a "surplus" they are the first to yell that people are overtaxed and surplus means "the govt is taking too much of our money"

Oh really?

Thanks, your chart made my point. Deficits go up up up until 1992, down down down until 2000, and up up up from 2001. I rest my case.

 

[SuperTool]

Originally posted by: XZeroII

Originally posted by: SuperTool
The problem is that Republicans are first to deficit spend, but when the government is running a "surplus" they are the first to yell that people are overtaxed and surplus means "the govt is taking too much of our money"

This is not the place for political mumbo-jumbo.

It's POLITICS and News forum