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Eric Stoner
08-18-2011, 11:03 AM
Eric,

Here are the basic facts:

Government greatly increased spending in 1940.

Unemployment fell dramatically in 1940.

The economy grew dramatically in 1940.


It's obvious to anyone in the reality based world that the increase in government spending benefited the economy. Instead of acknowledging this you're going to nitpick everything to try to find a way to invalidate these facts because it's against your ideology. As I said before, for conservative ideologues, ideology takes precedence over facts and evidence. The results would have been exactly the same if government spent the same amount of money on something else, such as roads and bridges. You just do not want to acknowledge government spending can be good for the economy because it goes against your ideology.

Spending increased in 1940 because of two things : FDR and the Dems were running for re-election and W.W.II was underway. Spending increased relative to 1937 and 1938 when it had declined while at the same time FDR increased taxes and the Fed reduced the money supply. FDR's alphabet soup of agencies and programs did little to heal the economy in his first term. Even FDR's own Treasury Secretary, Henry Morgenthau admitted in 1939 that FDR's policies had FAILED. FDR himself whined in 1937 that "Capital has gone on strike." He was correct and it was HIS policies that caused it.

We have gone over this so many times that I have lost count. I don't know if you just lack the ability to retain anything or it is your ideology that blinds you to clear historical evidence. If, IF, FDR had focused on just infrastructure via the WPA and TVA we arguably would have emerged from the Depression sooner. If , IF, Obama's porkulus package was focused on infrastructure instead of saving the jobs of reliable Democrat voting government workers, we might be doing much better today. As opposed to transfer payments and inflated salaries and benefits for government employees, at least infrastructure spending has tangible corollary benefits and something resembling a genuine multiplier effect. One of several reasons for the Reagan recovery was vastly increased infrastructure spending financed by a nickel a gallon increase in the Federal gas tax.

The problem with increased government spending is that the money has to come from somewhere. Either Uncle Sam has to steal it ( excuse me, I mean tax somebody ) or it has to be borrowed. Money that is taxed can't be spent on anything else. Borrowed money has to be paid back. Preferably by money collected , in part, from taxes levied on people that are now employed after formerly being unemployed.

Government spending is like giving continual transfusions to a hemorrhaging patient rather than operate and repair the damaged artery. It keeps the patient alive but does nothing to solve the underlying problem and at some point the blood bank runs dry.

Even Austin Goolsbee has gottne religion and agrees with me. On Kudlow's program last night, he agreed that we ought to broaden the tax base by cutting rates and eliminate deductions and loopholes. He also agreed that the corporate rate ought to be reduced to encourage repatriation of overseas profits. The problem is that Obama will not let the employment crisis interfere with his Martha's Vineyard vacation and insists on making us wait three weeks for his job creation plan.

Melonie
08-18-2011, 12:25 PM
As opposed to transfer payments and inflated salaries and benefits for government employees, at least infrastructure spending has tangible corollary benefits and something resembling a genuine multiplier effect. One of several reasons for the Reagan recovery was vastly increased infrastructure spending financed by a nickel a gallon increase in the Federal gas tax.

While this is skirting the main issue of this thread i.e. increasing taxes on 'rich' American individuals and businesses, it is relevant in some sense. It also speaks to the present day validity ( or lack thereof ) of the old adage that gov't spending on infrastructure has a positive 'multiplier effect'.

Where gov't spending on infrastructure is concerned, said spending is only 'effective' if it can be successfully utilized to enhance private sector productivity and/or actually stimulate private sector business growth thus permanent jobs creation. There have been some well publicized cases where gov't spending on infrastructure has done nothing along these lines ... most notably the recently slammed 'Bridge to Nowhere' ... and has instead merely provided 'temporary' employment for union construction workers !

I'll offer up my former residence in upstate New York as a more 'mainstream' example. Over the course of the last 20 years, the federal gov't and the state of NY have spent billions to construct 4-6 lane superhighways, public water projects, waste treatment projects, electricity projects etc. that were all basically geared towards supporting some major manufacturing operations and their large number of ( union ) employees. However, over the course of the last few years, a major HVAC manufacturer has moved production and jobs to southern states, a major automotive components manufacturer has been purchased by a foreign owner and is gradually outsourcing jobs / production, dozens of local businesses have closed down etc. As such, all of that wonderful infrastructure is utilized less and less with each subsequent business closure / relocation.

The fact is that the availability of infrastructure is just one of many factors which affect the efficiency / profitability of private sector industries / businesses. In New York's case, to counterbalance all of that wonderful infrastructure on the positive side, on the negative side you have things like the highest state personal tax rates in the country ( creating an incentive for skilled workers to relocate ), tremendously expensive state unemployment insurance / disability insurance premiums for employers, expensive electricity due to 'green energy' mandates shutting down coal fired power plants, high motor fuel ( shipping ) costs due to the highest fuel tax rates in the country, plus a ton of smaller factors such as product liability litigation possibilities, employee claims against employer possibilities, state environmental compliance cost possibilities etc.

The over-arching point of course is that supposedly stimulative gov't spending on infrastructure improvements is only truly stimulative if the balance of the business climate is also supportive of current and additional businesses actually making use of that infrastructure !!! Arguably in the case of upstate NY, gov't has already 'overspent' on infrastructure improvements ... and would have probably been wiser to have not made those large expenditures and instead left state tax rates on ( then ) existing businesses and workers at rates that were less uncompetitive versus other states !!!

Eric Stoner
08-18-2011, 12:33 PM
^^^ As usual Melonie gets down to the nitty gritty and says it better than I can.

Everything she posted is true. It is also true that you cannot have a growing economy without a modern, functional infrastructure.

While there are a few boondoggles ( "bridges to nowhere", make-work projects ) most of the infrastructure spending is both necessary and long overdue.

Melonie
08-18-2011, 01:24 PM
It is also true that you cannot have a growing economy without a modern, functional infrastructure

^^^ with China as the 'poster child' example. That country is investing heavily in infrastructure, but at the same time ( and despite official hype for international consumption ) they are making their economic / regulatory climate as 'business friendly' as it gets !!! Thus their gov't's infrastructure investment indeed has a POSITIVE and above 1:1 multiplier effect. However, reflecting on my most recent post, another country that does not have an equally 'business friendly' economic / regulatory climate could spend equally on infrastructure with a sub-unity or even NEGATIVE multiplier effect. If you're looking for a real world example to prove this point, you can start with the 'Big Dig' !!!

And again trying to circle back to the basic point of this thread, imposing higher taxes on 'rich' American individuals and businesses WILL cause those 'rich' American individuals and businesses to react. Spending those additional tax revenue dollars on infrastructure improvements is arguably a better situation than spending those additional tax revenue dollars on expanded medicaid benefits or extended unemployment benefits or expanded food stamp benefits in regard to overall effect on the economy, but not taxing away as many tax revenue dollars in the first place may have been even less damaging / even more economically stimulating.

mikef
08-19-2011, 08:51 AM
^^^ with China as the 'poster child' example. That country is investing heavily in infrastructure, but at the same time ( and despite official hype for international consumption ) they are making their economic / regulatory climate as 'business friendly' as it gets !!! Thus their gov't's infrastructure investment indeed has a POSITIVE and above 1:1 multiplier effect. However, reflecting on my most recent post, another country that does not have an equally 'business friendly' economic / regulatory climate could spend equally on infrastructure with a sub-unity or even NEGATIVE multiplier effect. If you're looking for a real world example to prove this point, you can start with the 'Big Dig' !!!

And again trying to circle back to the basic point of this thread, imposing higher taxes on 'rich' American individuals and businesses WILL cause those 'rich' American individuals and businesses to react. Spending those additional tax revenue dollars on infrastructure improvements is arguably a better situation than spending those additional tax revenue dollars on expanded medicaid benefits or extended unemployment benefits or expanded food stamp benefits in regard to overall effect on the economy, but not taxing away as many tax revenue dollars in the first place may have been even less damaging / even more economically stimulating.


China as an example is terrible.... In addition to the rampant corruption, and safety issues..... There is the fact that they are building whole cities where nobody lives.

When that bubble blows..... It will make America's bubbles look tame.

Eric Stoner
08-19-2011, 10:32 AM
^^^^ China certainly has major problems. Their environment is a mess and decades of female infanticide have left them with a serious shortage of women. Nonetheless their transportation infrastructure ,especially for planes and trains is second to none.

mikef
08-19-2011, 11:35 AM
Those trains aint safe. ;D

There will be more accidents where that one came from...... Cheap cheap cheap...... I'm not wild about the safety of anything they produce..... From baby formula.... pet food..... sheetrock..... That country is an accident waiting to happen.

Imagine a magnitude 9 earthquake, followed by a tsunami hitting a chinese nuclear reactor...... The Japanese weren't perfect...... But I bet a chinese outcome would have been a whole lot worse.