2012 Presidential Race

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Originally Posted by Alexamateo

I used to think this way, also, but now I think it is a mistake. A government is not a household. If it were a household though, why are we worried?

$16 trillion debt, on a $15 trillion income, my banker would say, go on and get that $45 trillion house you've always dreamed of :p . In real life, I have done just that. Essentially I have only mortgage debt, and I bought a house last month without selling my previous house. I went from my total debt being 1/2 of my annual income to being 2.7 times my annual income in one fell swoop, yet I easily qualify, not to mention my income increases next Sunday when I lease my old house to a renter.

Now, it behooves me as a household to get out of debt because I would eventually like to stop working someday and there is risk involved in debt, but those situations don't apply to government who also can devalue their currency and inflate their way out of crisis by just printing money when all else fails. So unless the US is planning on going out of business anytime soon, I have decided not to worry about the debt.

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The flaw in that reasoning is that the US government is buying a new house every year and not either selling the old one(s) or renting them either.

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Originally Posted by Rudy Tamasz

Sounds about right. I'm no expert on how national economies work, but with my family economy the story is simple. If expenses exceed revenues, we are in trouble and need to cut spending. Or else...

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The big difference is that if your household cuts its spending it will have no impact on your income. If a government cuts spending then because it is such a significant part of the economy, output falls and tax revenue drops too. If the economy shrinks because of government spending, then the government has to spend more on certain things like unemployment benefit. There is little saving to be made from sacking a government employee to pay them benefits the very next day.

The proponents of massive tax cuts seem in denial about that. Greece, Spain and the rest of Europe is finding out the hard way that this is the case.

Most of Europe including the UK is being taught that national finances are not at all like household finances!

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Originally Posted by Rudy Tamasz

Sounds about right. I'm no expert on how national economies work, but with my family economy the story is simple. If expenses exceed revenues, we are in trouble and need to cut spending. Or else...

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That's an entirely good and common sense way of looking at this issue. But as you cut expenses at home, wouldn't the problem be addressed even more quickly and effectively if you also were able to increase your income?

Successful business remain successful, even when they hit bumps in the road, by keeping an eye on expenses and revenues. It is seldom, if ever, just an either/or option.

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Originally Posted by Malbec

The big difference is that if your household cuts its spending it will have no impact on your income. If a government cuts spending then because it is such a significant part of the economy, output falls and tax revenue drops too. If the economy shrinks because of government spending, then the government has to spend more on certain things like unemployment benefit. There is little saving to be made from sacking a government employee to pay them benefits the very next day.

The proponents of massive tax cuts seem in denial about that. Greece, Spain and the rest of Europe is finding out the hard way that this is the case.

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This is why:
GDP = private Consumption + gross Investment + Government spending + (eXports − iMports).
GDP = C + I + G + (X-M)

If G falls, then GDP falls unless there is a corresponding increase in either C or I (unless you of course magically start exporting more or importing less, or both). Real wages peaked in 1979, meaning that net private consumption (C) has also, in real terms been falling. The two biggest drivers of I are growth in C (which is in the long term falling) and the cost of borrowing, which are changes in the interest rate; both of which represent the expected returns to firms.

If a nation wants to maintain GDP and C is falling, and I isn't occurring in that nation due to external factors, then the only option is a corresponding increase in G to make the shortfalls, otherwise you have a shrinking economy, which is what a lot of European nations are finding out; Britain especially.

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Originally Posted by Jag_Warrior

That's an entirely good and common sense way of looking at this issue. But as you cut expenses at home, wouldn't the problem be addressed even more quickly and effectively if you also were able to increase your income?

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219 Representatives and 39 Senators of the 113th Congress are committed to voting against any proposed increases through legislation:
http://s3.amazonaws.com/atrfiles/fil...ongress(1).pdf

One, oppose any and all efforts to increase the marginal income tax rates for
individuals and/or businesses; and
Two, oppose any net reduction or elimination of deductions and credits, unless
matched dollar for dollar by further reducing tax rates.

The "Taxpayer Protection Pledge" is in part why the 112th Congress was so unproductive and why the 113th Congress will also be one of more mind-numbing gridlock.

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Originally Posted by Jag_Warrior

Successful business remain successful, even when they hit bumps in the road, by keeping an eye on expenses and revenues. It is seldom, if ever, just an either/or option.

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Great chunks of both houses are committed to refusing to accept an either/or option. They demand an our way or screw everyone approach... which is precisely what they're doing and why the very notion of debt reduction remains unsuccessful.

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Originally Posted by Rollo

219 Representatives and 39 Senators of the 113th Congress are committed to voting against any proposed increases through legislation:
http://s3.amazonaws.com/atrfiles/fil...ongress(1).pdf

One, oppose any and all efforts to increase the marginal income tax rates for
individuals and/or businesses; and
Two, oppose any net reduction or elimination of deductions and credits, unless
matched dollar for dollar by further reducing tax rates.

The "Taxpayer Protection Pledge" is in part why the 112th Congress was so unproductive and why the 113th Congress will also be one of more mind-numbing gridlock.



Great chunks of both houses are committed to refusing to accept an either/or option. They demand an our way or screw everyone approach... which is precisely what they're doing and why the very notion of debt reduction remains unsuccessful.

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It is truly, truly a shame that elected members of U.S. Congress would sign a pledge to a man who has, AFAIK, never held an elected office in his life: shadowy, creepy Grover Norquist.

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Originally Posted by Jag_Warrior

That's an entirely good and common sense way of looking at this issue. But as you cut expenses at home, wouldn't the problem be addressed even more quickly and effectively if you also were able to increase your income?

Successful business remain successful, even when they hit bumps in the road, by keeping an eye on expenses and revenues. It is seldom, if ever, just an either/or option.

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The problem here is that every time there is increased revenue, Congress spends it to buy more votes. That's why so many of us are adamant that the spending reductions be put in place before any tax increases. Quite frankly, when it comes to politicians - they lie.

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Originally Posted by Jag_Warrior

wouldn't the problem be addressed even more quickly and effectively if you also were able to increase your income?

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It would. Except I have some limitations. Right now I get the max salary there is for a man of my experience and qualifications at our domestic labor market. I know I can instantly raise my value by moving to a better paying market if I resolve the issue of getting a work permit. But where do you move a whole country to raise its revenues?

Sorry if I sound simplistic, but this is my level of economic expertise. ;)

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Originally Posted by Jag_Warrior

That's an entirely good and common sense way of looking at this issue. But as you cut expenses at home, wouldn't the problem be addressed even more quickly and effectively if you also were able to increase your income?

Successful business remain successful, even when they hit bumps in the road, by keeping an eye on expenses and revenues. It is seldom, if ever, just an either/or option.

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Indeed in times of recession it can be a good time for businesses and governments to invest for the future. Labour is in plentiful supply and therefore relatively cheap, property prices are depressed, and a sensible investment plan could pay dividends in later years. Cutting spending on its own isn't a wise plan.