Well, you know I would like it to be less. :-) From a philosophical standpoint.

Excessive in philosophy or excessive practically (increased government debt, etc)?

Jr,
"hehe.. quoting Sean Hannity almost word for word and you threw in some Rush Limbaugh.

when you post Torone, you should put it in quotes."

That's doing pretty good, considering I get no time to listen to either one. We must all be doing the research (and doing it properly, i.e. somewhere bedised CNN, Reuters, et al).

BTW, your avatar is very true-to-life... :biglaugh:

I think we've come a long way towards knowing how to minimize the damaging effects of economic cycles. Ever since Keynes, depressions have been much less frequent and much less damaging than the ones of the late 19th and early 20th centuries.

[/b][/quote]
Economic cycles have become more pronounced because we took away the stabalizing mechanism when we switched to a fiat currency.

What used to be small ripples of overgrowth and recession are now swings to the extremes.

During prosperity this is great, but it is equally devastating during the downturn.

The ebb and flow is still there, it is just with more amplitude and perhaps elongated cycles.

In the end, the markets natural tendencies are to distribute, which is all I really care about anyway.

Wig,
"Economic cycles have become more pronounced because we took away the stabalizing mechanism when we switched to a fiat currency."

On that we can agree...I have always said that Watergate was unimportant; and that the worst thing Nixon did was taking us off the gold standard w/o substituting something else. Our dollar is now subject to world opinion, making it vulnerable to forces from within and from outside.

And, I will go out on a limb and predict that the equity markets and economy will visit the extreme opposite to what we witnessed the last two decades BEFORE we experience another round of prosperity like that again.

As the saying goes... It's not if, but when. :ph34r:

I see the opposite. We've had nothing like the bust of the 1930s or those of the late 1800s and nowhere near the frequency of the pre-depression recessions. A post WW II recession is a 2-4% drop in GDP and a 10% unemployment rate. Not bad at all compared to the recessions of old.

Of course, the gold standard itself is arbitrary (yellow metal) and had it's own problems.

And gold?

I see the opposite. We've had nothing like the bust of the 1930s or those of the late 1800s and nowhere near the frequency of the pre-depression recessions. A post WW II recession is a 2-4% drop in GDP and a 10% unemployment rate. Not bad at all compared to the recessions of old.

Of course, the gold standard itself is arbitrary (yellow metal) and had it's own problems.[/b][/quote]
The bust in the 30's was due to the fiat currency scenario which started with the creation of the Federal Reserve in 1914 and the easy money that followed.

This was then followed by the confiscation of gold in 1933.

I agree that the frequency has declined, which is what I meant by elongated cycles.

I do not think we have had the amplitude in expansions and contractions prior to the fiat system.

There is also a big difference between the limits of gold (or any other commodity) that can be derived versus the addition of one more integer to a illusory monetary system.

And of course there are many more theories than that out there. I rather suspect a combination of factors.

I just read John Kenneth Galbraith's "The Great Crash" a few weeks ago in which he contradicts that. There is a chapter at the end titled "Cause and Consequence" in which he points out that credit has been easy many times before and after without causing a similar boom and bust. Furthermore, he says, "money, by the ordinary tests, was tight in the late 1920s".

I would argue that the system of fractional reserve banking and fiat money has been quite successful. Life is good. If the creation of the federal reserve was the cause of the depression, how have we done so well since then?

I think one would find the amplitudes of the booms and busts in GNP pre-depression to be about twice that of the post-recession booms and busts. Maybe for other good reasons but difficult to know.

Okay, so in the early part of the expansion money was real easy and then they tightened it at the end (to try and cool it down) and the inevitable happened??

The Fed was created on the heels of the 1907 banking crisis. The idea was to always have enough liquidity to fend off recession (and worse, a run on deposits). Some say this crisis was "helped along" to support a central bank creation. Central banking certainly was not invented here and it was something the founding fathers tried to avoid.

The fed did not cause the depression in and of itself. It did create an environment where the normal balances could get further out of wack because it gave HUMANS more ability to try and manipulate economies.

IMO, the creation of the Fed and paper money elongates expansion and contraction and increases the amplitude.

You simply cannot create greater prosperity (expansion) through paper money and deficit spending without being subject to the same degree of amplitude on the contraction.

Maybe the jury is still out.



Last edited by wig at Jun 9 2003, 11:18 AM

Is that the goal?

Can't deficit spending be (and isn't it) used during slower than average economies to lessen the effect of recessions at the cost of reducing the strength of the booms?

I'd rather live in a country that always grew at 3% EVERY year rather than a range of between -7% and 13% (for example) that averaged 3%. The booms are nice but the busts are too painful for too many people. Large magnitude busts leave too many people without work.

ok now that Wig and Colin (as well as many other fine minds) are here please give me a little help (maybe you can figure out the formula if there is one)

Is the current tax cut (actually a rebate as checks are going to be sent out) going to stimulate the economy enough to offset the reduction in the actual tax base ($ the gov have to spend) ?
Will the tax cut add more revenues to the tax base due to growth the rebate will provide?

I'm under stand supply side and trickle down (and am a fan of both)

But I'm also a firm believer in tax cuts/rebates should be equal to reductions in spending - then we don't have the situation we had in the late 70's- early 80's where the USA ran at a huge deficit (which caused the USA to use up available funds which gave us some inflation and higher interest rates - to some degree)

Vick,

The government is spending more money AND cutting taxes so there's not truly an offset. Now, THAT'S stimulus. ;-)

No one knows the answer to that question though. Big debate even among the nobel prize winning laureates as to what kind of tax cuts and spending increases best increase the GDP and hopefully the employment numbers and other economic numbers. I've noticed that some of the debate is academic (How would this best increase GDP overall? How would this decrease unemployment overall?) and some of it is philosophical (what kind of world do we wish to live in? What distribution of income would we like to result from this tax cut, etc?).

Many of the economists that signed the statement against Bush's stimulus plan are on record elswhere as having said they do agree that a tax cut is a good idea but disagree as to the size of the tax cut, the distribution of the tax cut, and the permanence of the tax cut. Some of these questions are academic and some philosophical.

Some of the economists that signed the statement in favor of Bush's stimulus plan said so for philosophical reasons (Nobel prize-winner Milton Friedman said that reduced taxes in turn force lesser expenditures and hence a smaller government). Others thought that tax cuts are always a good idea regardless of where they occured.

The big unknown in a formula is the multiplier on spending. Every dollar you spend gets spent again and again. How many times? Where would one best input money into the economy to get the fastest GDP growth? My gut feeling is to get into the hands of lower class people as they have lower savings rate. This of course ignores the philosophical debate (who deserves the tax break more?).

Wasn't a non-permanent tax-cut decided on anyway which is what a majority of Democratics wanted in the first place?

Is that the goal?

Can't deficit spending be (and isn't it) used during slower than average economies to lessen the effect of recessions at the cost of reducing the strength of the booms?

I'd rather live in a country that always grew at 3% EVERY year rather than a range of between -7% and 13% (for example) that averaged 3%. The booms are nice but the busts are too painful for too many people. Large magnitude busts leave too many people without work.[/b][/quote]
Sorry Colin, the day got away from me.

I don't know if that is the goal, but I know the goal of every politician is to hold on to power, even if it means short term gains for longer term risk.

I see your point in terms of GDP growth and I am guilty of using financial and commodity markets for measurement rather than growth. I have not charted GDP back to before the fed, so I really don't know if the volatility of GDP has expanded or not.

I know the markets have become more volatile, not less volatile since the fed. If deficit spending was used as you described, it theoretically would have a balancing affect. But, I don't think I have witnessed it in its beauty yet. It sure didn't help the ppl who lost 6 trillion in the stock market while GDP grew or shrunk at "x" pace.

I think deficit spending is used for many purposes and it is not restricted to balancing out the recessions and expansions. Herein lies the dilema.

In the end, I don't see how anyone can look at the national debt, all the off the books debts, the guaranty of FNMA, FHA/VA, GNMA, FHLB, FDIC and all the other gov't obligations, the GOA and the characters in charge of all this free money -- all available through deficit spending and/or taxation -- and actually expect it to be a balancing act that goes on forever.

History is full of countries that deficit spent and either hyper inflated or defaulted.

btw, how come Japan hasn't been able to restart their economy with negative real interest rates and an easy money supply? they have not been able to use these tools to lessen their recession that began in 1989 with an equity peak similar to the Nazdaq.

Vick,

I don't really know.

I am for tax cuts because I believe that the Federal Gov't wastes money on things that do not impact me and/or that I do not agree with.

I don't mind paying taxes, but I feel if the gov't was fiscally responsible, my tax rate would be lower so I am for lower taxes (actually would prefer consumption tax). I am against many of the areas that the federal gov't has its hands in and i do not think in many regards it serves the better good of the ppl like it's all cracked up to be.

It's all the principle of it to me.

However, being the calculating bastard that i am, I really don't care what happens. I just watch the motion and try and buy low and sell high. LOL