Does that analogy really make sense in America though? We don't make pens, but we still want the pencils. So we import pencils and borrow the difference. Exchange debt for pencils. The problem is that we don't have any money to pay back the debts. Seriously, we owe 14 trillion dollars and have something like 50 or 60 trillion in unfunded liabilities (just in SS, Medicare and Medicaid) that we'll have to start paying soon. All the money that's been paid into those programs has been squandered away over the course of decades. And what do we have to show for it? Just a bunch of iPods, plasmas, laptops and Accords (stuff, often bought on borrowed money) but no capability of producing anything. America needs to produce, save and invest. Instead, we're consuming, borrowing and importing. And when the bill comes due and we can't pay it, the rest of the world will still be able to build stuff, and they'll finally be able to consume the shit they build while we start to learn how to do that again. That's my uneducated way of looking at it anyway.
A balanced budget? Who the fuck needs that? You're right, we need a trillion dollar stimulus package to artificially boost the economy, blow inflation sky high, and delay the inevitable.
I understand where you are heading with this, but I'd like to point out that having a solid background in economics, macro or otherwise, requires an education, so I wouldn't be so dismissive of suggestions to improve our current system. Furthermore, your definition of competitiveness seems narrow, and the example solutions you propose either re-define the measure of competitiveness, or are after-the fact adjustments to current measures. Lastly, while you may think, and I agree it appears, that the application of economic principles and tools is the solution to this perceived problem, be cautious in that assessment. There may be changes that can be made, at a more basic or societal level. After reading the self appointed experts on the old board drone on and on about how economics was the root of, and answer to, any and all ills of mankind, I can't help but be a little cynical in this regard.
A few misconceptions in your post. When we import something, the government is not involved. It is an exchange between individuals or companies. So while it may include taking on debt, it is personal debt, not government debt and so doesn't factor into budget calculations. While consumer debt is still rather high, this recession has seen Americans reduce their debt levels significantly. Another misconception is that America doesn't make anything anymore. This is not true. Total manufacturing levels in America have not declined in the past 80 years or so (aside from minor slowdowns during recessions). See this simple graph: I know that is only going back to 1980 but it's the best I could find on a quick google search. What has been happening is that output per worker has gone up significantly. Also, the service sector's growth has greatly outpaced manufacturing growth so manufacturing's share of contribution economic growth has been declining. The huge increase in output per worker has also contributed to a decrease in per capita employment in manufacturing as compared to the service sector. This has lead to the perception that America doesn't make anything anymore but this is actually completely false. The budget deficit issue is a much more muddy one. While right now is definitely not the best time to start focusing on balancing the budget, we are going to have to reduce our debt burden eventually....probably. The thing is America holds a huge advantage over other countries when it comes to borrowing and lending. Since the entire world values and wants to hold American dollars so much(since it is such a safe asset) and does a lot of its trading in American dollars, we have the unique advantage of being able to borrow at a lower rate than we lend. This essentially entails (to an extent) that we get free money from the world. It also means it makes some economic sense for us to consistently run deficits. That being said, our budget is starting to reach large proportion of GDP (and that doesn't take into account the possible huge problem our future obligations entail). There is a lot of debate as to just how big of a deficit to GDP ratio is sustainable, but clearly some level exists. The problem doesn't really rear its head in the way one would expect. As long as the rest of the world believes the US can service its debts eventually, there is no problem. As of now this is the case. However, if the world began to suspect the US might default, there could be huge consequences in the form of much higher lending rates. Our interest payments could rise immensely. If the US actually did default on its debt, the result would be an absolute disaster for the entire world. Everything that would happen is a long and uncertain list but suffice it to say it would definitely create a global depression and a complete economic meltdown of the entire global economy based on all the domino effects would be very much within the realm of possibilities. (Another quick falsehood I want to dispel real quick is what is the cause of our deficits. Yes, the Bush era tax cuts and rising spending contributed heavily, as well as Obama's stimulus, but the biggest cause is actually the automatic stabilizers built into our system such as unemployment benefits.) So what do we do? Well one option is to raise taxes. There has been talk of introducing the VAT tax to America. It leads to little economic distortion and economic deadweight that all taxes create. However, it is still money out of people's pockets into into the government's hands so I'll let your political leanings decide how you feel about that. There is also talk of allowing the Bush era tax cuts to expire and introducing higher taxes on the richest. But we all know the positives and negatives of that and it is generally political/ideological leanings that one holds that form our opinions on that matter. Another option is to cut back on spending. However, as I said, most of our rising deficit has been because of the automatic stabilizers and even cutting back on a lot of wasteful spending would be politically difficult to achieve(damn lobbyists) and wouldn't lead to all that much benefit since it is really not such a big part of the deficit. The other option is to try to inflate away the debt. In fact some additional inflation would be quite beneficial to the economy and would ease the debt burden, but based on budget projections, we would need a lot of inflation to inflate away the debt, and (I hope) we all know the negative effects high levels of inflation have. I don't know what the real solution is if it even exists. If it exists, it probably has to include all three of these options. The best of possible worlds would be a return of robust economic growth as this would be the simplest and most effective way to increase tax receipts. Another possibility that would help the situation would be immigration reform that includes the naturalization of people who are currently illegal. These people would begin to pay taxes. I know what you're thinking, we'd also have to start giving them benefits, but contrary to popular opinions, immigrants actually seem to work pretty hard(yes, even the Mexican ones) so on net it would be a big gain. Opening up our borders to more immigration, especially highly skilled labor would help even more. Still, it is definitely a tough situation though with no clear solution. Hope this helps the discussion and I hope I didn't ramble too much.
The idea of a stimulus is to pick off some low-hanging fruit that require large overhead as well as simply spending money to plant the roots of an economic recovery. So is it an artifical boost to the economy? In some ways yes, in other ways no. Simply spending money to close the output gap (as in say hiring people dig holes and then filling them up again) can be beneficial if it plants the seeds of growth. Unfortunately, the jury is still out on whether or not this helps. As I said, a large portion of the Obama stimulus was undercut by cuts at the local and state level.* Building things like infrastructure can be very beneficial since private businesses will not, on their own, build something that enables free riders. The new infrastructure benefits everyone and can certainly lead to wealth creation that would have otherwise been outside the realm of possibilities. The link between budget deficits and inflation is not quite as tightly bound as economists used to think. The empirical evidence is proving that position wrong as we speak. Holding all other things equal, yes deficits will likely lead to inflation, but it doesn't apply in our scenario because aggregate demand and NGDP expectations are so weak. Not sure what you mean by delaying the inevitable. Not sure I agree. Most of the things I am saying right now, I didn't learn in class. As far as I got in class was intermediate macro which basically meant learning the mathematical underpinnings of the IS-LM framework and AD-AS. The rest was from books, blogs, and academic papers I read on my own time. Granted it is unlikely I would have understood what was going on in those papers without the background I have, but I think, with some effort, the books and blogs that I read that contributed to my knowledge could be read and understood by anyone of even moderate intelligence. Plus, I did all this with the current education system as flawed as it is. (Sort of an esoteric point, I know...) My point is that the things being said were highly speculative, and quite irrelevant to economic growth in the short-run. Even in the long run there are many well-argued competing theories which assert that reducing overall levels of college educations would be beneficial. Others assert the opposite. The path from education to economic growth is a much muddier connection than intuition tells us. This makes education reform a low quality solution to future economic growth. The tools whose worth are most well established, most likely to work, the most testable and falsifiable, and most likely to lead to the greatest amount of impact for the lowest cost are the the boring macroeconomics stuff that isn't nearly as interesting to talk about but are by far the most applicable to this kind of discussion. They're the only ones which will get us anywhere in the discussion. *edited for clarity
Hey, it's better than communism where I take your pen and pencil, give it to the family next to you and tell you you should be grateful that you have contributed to the greatness of society. Then make you eat rotten potatoes until you go blind.
Wealth creation? By increasing the deficit? You're not creating any wealth or commerce, you're propping the economy up temporarily with an influx of cash that has to be paid back. You're borrowing against the future and the real shitfest is that you're growing the government in the process while hoping inflation doesn't go through the roof. The only way we're going to get get through this is innovation and growth of small business. Hell, Cuba finally decided to cut government jobs and we're doing the opposite! Whether it happens now or 20 years down the line, this country has lived off borrowed cash for decades. Best case, we're the next Greece. Worst case, China cashes out and World War 3 is upon us.
Agreed, and unfortunately as I'm sure you're aware there are a bunch of laws and tax codes in place that deter successful businesses from growing. To be fair, a lot of towns, schools and municipalities are cutting back, but not nearly enough, and often not in the truly material places.
So what if I wrestle you to the ground, hog-tie you, and run away with a giraffe, two hippos and a Barry Manilow CD? Now that's Surrealism.
I see what you're saying. In a stimulus(during a time where there is no surplus available) we borrow money to spend it now with a promise to pay back the amount borrowed and a little extra later. So by basic arithmetic that's a net loss right? Not if the amount borrowed today is more valuable then the amount borrowed+interest is later. The value of money is not constant, it is only worth what people are willing to give up to get it. During recessions we have an output gap, which is the difference between potential GDP and real GDP. Output gaps create deflationary pressure. We are currently probably confronting deflation right now. Deflation is quite possibly the most wicked force in all of economics because it creates incentive for every consumer to hold onto their cash waiting for prices to drop further. This causes prices to drop further due to reduced aggregate demand, which causes people to hold onto cash some more and so on. Deflation must be prevented. Further, if the output gap is not at least partially filled it lowers NGDP expectations which is a self-fullfilling prophecy because it discourages investment and leads to more hoarding of cash and low-yield investments(t-bills etc.) The government is the only entity with the muscle to tackle output gaps. Further again, if the government were not to provide stimulus, it would lead to even more aggressively lower NGDP expectations. Even an unproductive stimulus(like the example before of paying people to dig holes and filling them back up again) helps the situation because it closes the output gap. However, stimulus, as I said before can be productive if it leads to things that facilitate economic growth such as spending on infrastructure. No private company would take on the job of building highways for public use. But highways nonetheless facilitate economic creation. As of now, inflation is not even on the radar of our concerns because of the huge output gap and lack of aggregate demand. And, as I said before, the correlation between budget deficits and inflation is muddier than we thought. Innovation and new businesses would certainly help. It would be great if the government would change some laws that discourage new businesses. Unfortunately, lending (a basic requirement for new businesses) is still very much in the toilet. Expanded quantitative easing would definitely help this situation. Also, there is no policy that can put good ideas into the minds of ambitious people. Ideas seem to come about on their own though so this isn't much of a concern. However, the real meltdown of the economy was not caused by the collapse in the housing market. It was caused by the massive shortfall in NGDP expectations, which led to a decline of about 6-8% of NGDP in fall 2008. When the Fed allowed Lehmann Brothers to collapse, the entire world saw a global financial meltdown coming and so NGDP expectations plummeted along with investment and consumer spending as people started saving. The business environment of just about everything outside of the housing market is just fine. Even the big banking sector has recovered quite spectacularly. They are only suffering because of the fall in aggregate demand. If we were to prop up aggregate demand, the majority of the economy would be just fine and the recession would be quite mild. The precipitous fall in consumer housing is largely behind us and what is fueling continued small bank failure is the collapse of commercial real estate, which itself was only caused by the massive shortfall in aggregate demand. Fixing aggregate demand and raising NGDP expectation would likely solve the majority of our problems(though not all). All of the above is what conventional economics tells us. Like I said before, there are competing theories so don't take any of this as definitive. But it remains the most likely to be correct view of things.
A common thread I'm noticing is people suggesting good ideas but not realizing how small of an impact they have had/would have. Encouraging small businesses would help. Cutting government waste would help(I know it doesn't seem like it from my posts but I'm pretty far on the right-wing of the spectrum when it comes to government size). Innovation would help. But the biggest source of the problem is lack of aggregate demand and low NGDP expectations. These problems dwarf all the other ones by a mile and so provide the most opportunity in terms of bang for our buck.
I'm going to boil down everything wrong with America into one sentence, so prepare your mind-vagina for a truth-fucking: We punish failure more than we reward success.
Care to elaborate on that? Because what I see is unemployment benefits, welfare and other programs telling people who have failed at life that we'll take care of them no matter how little they want to work or how much they want to overextend themselves financially. If anything we don't punish failure nearly enough. I will agree that we don't reward success enough though. The guy who spends responsibly and actually contributes to society has to give up a good chunk of his money to subsidize the dipshit that bought a house he couldn't afford or had too many kids.
Think about how we elect politicians. We vote for the person who has made the fewest gaffes, put forth the fewest policies we disagree with, been successfully vilified in our minds the least. We're so afraid of voting for this mythical "America-ruiner" that we don't actually vote for someone. You can run an entire campaign these days without putting forth anything resembling policy and just harping on stupid petty bullshit (Is Obama palling around with racist reverends? Did McCain have an illegitimate black child? Will John Kerry bore your grandchildren to death?) Think about how education works. We give a narrow band of standardized tests that's more about not making a mistake than about possessing any real breadth or depth of knowledge. I've taken the SAT, there isn't a single remotely challenging thing on there, it's just a matter of executing the day of and not making a mistake or overlooking something. Think about how customer service works. They're more concerned about doing something wrong (going off script or procedure in any way whatsoever) than actually solving your problem. Hell, just think about any "polite," "professional" social situation. It's all about expected behavior over making any sort of real human connection. Think about how medical liability works. Think about how any liability works. Think about how corporate structures work. Think about how helicopter parenting works. We believe that there is some prescribed path, some status-quo default that we are entitled to, or will achieve, simply by not messing it up. And we're completely oblivious to the fact that risking taking, ingenuity, honest effort and repeated failures and rededications are what built that status quo in the first place, and that it must be actively maintained just to keep it in existence.
In that vein, when I studied common law it was clearly obvious in US Common Law that bumbling officers and prosecutors get punished as severely as bumbling criminals. Easiest example: You can only charge a person ONCE on a set amount of evidence. If that case is concluded and the person is let free/jailed, any additional evidence would have to be presented independently and on other charges. It's mind boggling. Look up my favorite topic, felony murder, if you want the best example of what Aetius is talking about.
You're pretty much spot on about not fucking up being more important than actually resolving the issue, but the truly successful people can do both. From your other posts I'm under the impression that your still in school, so that would explain why you think the current setup is stupid. But trust me, you have one person in customer service taking an "educated risk" with your money on the line and they fuck up because they didn't see the whole picture you'll understand why things are the way they are. It's incredibly frustrating at times, especially in big businesses where things move at a crawl, but the checks and balances are there for a reason. Also, most people in call centers and front line customer service aren't smart or experienced enough to be making judgment calls. I love my old coworkers, but I wouldn't trust half of them to mow my lawn let alone make decisions regarding how my benefits should be calculated or how to properly reimburse me for medical premiums. Oh, sorry if this is off topic, but a piece of advice for everyone - take three seconds to look at each paystub you get from your employer, I can't tell you how many times I've heard of people not being deducted for the benefits or 401k they signed up for. It doesn't get caught till November and they have to lose 500 - 700 dollars (sometimes in the 1,000's if they have a flex account or HSA) on one of their paychecks so the company can remain in compliance with tax codes. We had a case where about 100 people hadn't had the proper amount deducted over the course of the year for their FSA's, it wasn't caught until December and (supposedly) by law we had to deduct the full amount they elected during open enrollment even if they gave us verbal or written consent to underfund their accounts. I had to call each of these people to inform them, one of the employees owed $3,500 and basically wasn't going to see any income until January, that went over REAL well. Point is this whole situation could have been avoided if they just looked at their stubs. -Edit: OK, I totally misread your post and went off on an unrelated rambling, sorry about that. I do agree with the call center script thing being super lame too. It annoys the callers and the reps and is usually put in place because one shitbag executive totally removed from the situation thinks it sounds nice.
That puts you ahead of Australia. What I see here is: We reward failure only just slightly less than we punish success. Anyone successful here is bitched and screamed at for being successful, while at the same time being economically raped to pay for the bitchers and screamers. From an outsiders perspective, and feel free to tell me I'm wrong, but I see one of the U.S.'s major strengths as also being one of its major problems. Everywhere I went there I saw people who were phenomenally good at their job, but their job was within a very narrow field. They were 'specialists'. This specialisation was countered by an often distinct lack of ability in other areas, which they compensated for by getting other people to cover them. In a large economy with a large population that's fine, until the other person is a fuck up or the specialist person is forced through circumstance to operate outside their "area". I contrast that with, say, here where we don't have a large population. We don't have the same degree of specialisation, but rather a more broad range of skills. To be over general, we can't do one thing as well, but we can do a lot of things better. How that may average out is debatable.
Not sure if anyone still gives a shit as we seem to be back to vague generalizations but here is a handy paper which surveyed small business environment: Link: <a class="postlink" href="http://www.nfib.com/Portals/0/PDF/sbet/sbet201009.pdf" onclick="window.open(this.href);return false;">http://www.nfib.com/Portals/0/PDF/sbet/sbet201009.pdf</a> It'll show you where I'm getting my info from. I know that is a bit lengthy but most of it is just charts and graphs. See page 6 for the "optimism index" and "small business outlook (which are good measures of NGDP expectations). As you can see, they are quite low. Page 10 is handy for getting a rough measure of inflation expectations (Notice the numbers go back to August, a time since the fears of a double dip have increased so further data will likely show declining numbers, which are low enough as they are). Page 12/13 shows credit conditions, which as you can see are still quite weak and show no expectation of improvement. The most important charts and graphs are on page 20. It shows what businesses think is their single biggest problem. Notice how low the number for inflation is. Also notice how immensely "poor sales" has increased and how high it remains. Cutting taxes on business would certainly help according to the business owners themselves, as would reducing red tape and other government requirements. But nothing compares to the impact the lack of demand has had. Also, notice how this is a survey of small businesses. So would encouraging new small businesses really help if the demand for the ones that already exist is so low? Seems all that would happen is people would take out a loan to start their business, likely go out of business due to lack of demand and then the person who tried would be left with a huge debt burden. Who in their right mind would want to take such a big risk in this environment? If you want to see the source for all the macro stuff do a JSTOR search on Bernanke's work on Japan from the 90's. For something a little more informal and math-less, I'd check out Scott Sumner's blog "The Money Illusion."