Can you balance the federal budget?

It is far too simplistic, short-sighted and even possibly dangerous to say as many do who come here that it’s just a matter of spending more than you earn.

A capitalist system runs on debt, for example virtually everyone with a mortgage has spent more than they earn, businesses do the same to finance expansions or modernisations and governments are the same (and just like individual or business borrowing that by governments can be good or bad).

The question that needs to be examined is what attitudes, mind set and policies led to the present situation.

Because if we don’t know what they are we might not change them and that means whatever measures are used it’s unlikely to work.

For example people point out that when the Bush Admin took over from the Clinton one there was a budget surplus of I believe 800 billion or so, but to me that was mainly the result of an unsustainable bubble, and if you look beyond that you find that the US had at times larger deficits (as percentage of GDP) even than the current one.

Now many mistakes have been made along the way some obvious others more subtle but to me I don’t think it’s a coincidence that a lot of the past and present economic problems coincide with the rise of neo-liberal thinking.

*


As I’ve said borrowing is normal be it personal, business or government - but that it can also involve good or bad investment.

Most ‘good’ investments are mundane and are usually about long term investment - for example someone taking out a loan to insulate their house, or a business upgrading their equipment, it is not spectacular and the returns are not immediate. In governmental terms it is the equivalent of upgrading roads, bridges, levees etc.

‘Bad’ investment is mostly characterised by its similarity to risky gambling for short-term gain.

To me in economic terms one is prudent neo-Keynesianism that benefits the majority the other unsustainable and reckless neo-liberalism that only ever seems to benefit the few.

Two policies undertaken by the Bush Admin that exemplify that neo-liberal mentality and which did so much to deplete the public coffers were tax cuts and war.

Tax cuts are good at stimulating an economy when it needs stimulating to give a short term boost they are not as good in an up period as they can cause an economy to overheat and they have the effect of transferring money that could be used for the public good when needed into the pockets of the few from which the supposed trickle down never seemed to materialise.

The Iraq War was a gamble, a speculative venture very similar to the speculation been undertaken at the time by much of the US financial sector. It was supposed to have been a quick and easy deal that would reap huge rewards, just like the deals been undertaken on Wall Street, but it was based on greed fuelled hope rather than rational analysis and so ended up costing Americans dearly just as financial meltdown has done.

 

The Keynesian mentality and approach vs that of the neo-liberals

In an up period the government pays off its debts incurred in the low period and possibly its stakes in some industries and business it nationalised or bought in the low period.

This means that in a low period the government is then in a position to put money into the system and nationalise or buy up viable businesses that have got into trouble.

In low periods the interest rate would be set low to simulate growth and in the up periods set higher to curtail the possibility of a runaway market.

Same with taxes in low periods it would be set low for most people and businesses to stimulate growth and in up periods set higher to pay off state debt and help to get such things as businesses to pay for those infrastructural requirements they might need to conduct their business (e.g. roads, public transport, education etc). In low periods infrastructural needs might be paid for directly and fully by government to increase employment (keeping wages in the system) and to have such the structures in place for recovery.

Also taxes in the up period on wealth can be used to curtail excessive risk, if people at the top are so well cushioned against any fall, they are likely to take risk if they know that if things go wrong they will not really suffer but if they go right they get even greater wealth.

It is also a means of distributing the gains of an up period more equitably.

At the same time regulation is used to try and keep any crisis contained, such as putting up firewalls between various parts of the financial sector, so that a failure in one can bring down another (look at the Glass-Steagall Act in the US)

**

Now those that advocate neoliberal don’t like Keynesianism.

They’re against government involvement in the invisible hand of the markets.

They believe regulation holds back new and innovative financial methods.

And many argue that taxes should be low at all times both personal and business.

That huge payouts to those at the top were only what was due and not that the gains of the up were mainly going to a few.

These ideas also led to the belief that huge annual bonuses didn’t led to people taking risks especial among people that could survive and live in luxury even if the risk blow up or sank, no it was meritocracy in action.

And there was even the idea that there was little to worry about because the ‘new’ economic model they were pushing was able to take on any ‘shock’ and survive.

This led to the idea among some that having a huge national debt during an up period was ok because there wouldn’t be a ‘down’.

And some encouraged the idea that if things went wrong the market would sort it out, companies or banks would just go to the wall and the taxpayers wouldn’t need to bail them out. But as many people pointed out (and were ridiculed or dismissed at the time) if a crisis did happen at some point a government might have to step in or watch the whole financial system go down the tubes.

Of course the logical conclusion of neoliberal ideas would seem to say let it go, although it’s a bit hard to pick up the pieces again if their theories turn out to be wrong and people are fighting to death over a tin of beans in a burnt out Wal-mart.

__________________

Basically what we are getting with the bail outs in the US and Europe is Keynesian solutions because neo-liberalism has no mechanism for dealing with a crash but within a virtually totally neoliberal financial system.

So what many governments have discovered around the world is that because of the neo-liberal thinking and economics of the past few years they are in the worst of all situations.

Because they know that what the situation requires is a Keynesianesque economic stimulation - for money to be pumped into the system, for government spending to go up and for taxes to go down.

But because the Keynesian system and mentality wasn’t there in the up governments have found they already have such debts that just to stay afloat they might be forced to do the worst thing for their economies and cut government spending and raise taxes because imposing fiscal restraint to early could stop any recovery and bring about a a deeper and long recession or even a depression.

And what is driving this?

The same global financial system that is still dominated by the same short-termist neo-liberal mentality that caused the problem in the first place.

 

Debt is created by spending more than you have available to spend.
Debt is relieved by repayment of what is owed.
I wonder if we could agree on that to be factual?

A capitalist system runs on capital, and need not run on debt. Debt is possible under any system and is not a major problem when properly attended. Proper budgeting allows one to spend more than is earned, which is good, but irrational spending creating debt which is not repayable is bad.

No argument with that.

I agree, problems are best solved at their source.

Are we now going to digress to a political discussion of Democrat versus Republican, Conservative versus Liberal, or other political means of viewing the problem, or might it be better to just look at the problem at hand in order to make progress?

Rather than concentrating on placing blame, which tends to lead any discussion into a politically philosophical one, would it not be more productive to try and identify the mistakes and how they might be resolved?

Should it not be the responsibility of the lender as an investor to determine if
a good or bad investment is being made, and suffer the consequences of the bad investments or reap the gains of the good investments?

I've made some nice gains from what you've described as 'Bad' investment, but at the same time I assumed full responsibility for the risk I was taking. Should I have been prohibited from taking those risks?

Not having been a Bush supporter, nor being an Obama supporter, I have no desire to concentrate on them individually, but would prefer to remain concentrated on the actual problems, and not argue over who created them, or who was in office at the time they became apparent.

Are you proposing that tax rates should rise and fall with the economy? Rising economy, increased tax rates, falling economy, decreased tax rates?

It remains something that has to be dealt with. Actions, once taken can not be undone.

 

Indie
It is far too simplistic, short-sighted and even possibly dangerous to say as many do who come here that it’s just a matter of spending more than you earn.

Again you’re looking at it in far too simplistic terms.
All debt is about owing money but the point is that virtually everyone at some time or other has incurred debts, personal, business or government, why, because that is how modern capitalism (and a lot of old capitalism) works.
*

Once again maybe you should think things through.
If a modern capitalist system is to function, debt is needed.
You’re saying nobody without the whole amount of money should be allowed to buy a house that mortgages shouldn’t exist?
A business’ major capital is its equipment that it wishes to update to stay competitive how does it raise the money?
How does a government deal with a financial sector crash?
*
I said that the question that needed to be examined is what attitudes, mind set and policies led to the present situation. Because if we don’t know what they are we might not change them and that means whatever measures are used it’s unlikely to work

You agree but then seem to spend the rest of your replies backtracking on that agreement.

Because as soon as I try to examine the attitudes, mind set and policies that I see as leading to the present situation you start crying fowl.

You call it digression, you call it blame, and you suggest that responsibility lays elsewhere although you never say what (except for you simplistic views on debt).

Basically we get nothing but evasion.

*

Two policies undertaken by the Bush Admin that exemplify that neo-liberal mentality and which did so much to deplete the public coffers were tax cuts and war

This is another sign of you not taking enough attention or thinking things through – I’m not concentrating on Bush or Obama as individuals I was specifically saying ‘the Bush Admin’ the collective administration of the Bush Presidency.
And as pointed out to me the neo-liberal mentality was the problem and could remain the problem if not addressed.
*

Only if the risk from your gambling threatened to incur a cost on others. There are many examples throughout history of gamblers who made ‘nice gains’ from their ‘investments’ but ending up putting there families into destitution.
I mean the thing is that the speculators that ended up putting the whole financial system in jeopardy, incurring great cost to the American tax payer probably made some ‘nice gains’ along the way.

 

As I’ve said borrowing is normal be it personal, business or government - but that it can also involve good or bad investment.

Again this is a very simplistic view of the situation.

I mean it depends on whose money is being used and if the risk is being monitored and understood by those whose money it is and who will burden the cost of the risk if it fails.

Most people have not the time or knowledge to check every detail of very transaction taken by their bank, pension fund or government etc. That is why regulation and oversight is so important.

Speculators made a lot of money gambling on risky ventures but in the end the tax payers have ended up paying for that risk, because if the government hadn’t ended up paying up the financial system would have collapsed. Thing is that the majority of people didn’t understand that such risks were being taken and many actually supported the attitudes, mind set and policies which in the end led to that collapse, because they were misled or misinformed.

Same with the Iraq War the Bush Admin entered into a risky venture which has cost the American tax payer dear (not to mention the families that have lost someone). It is they who have ended up paying for that risk. But because many were misled they actually supported the invasion.

But most of the speculators and politicians that helped take those risks were cushioned from the risk.

 

What I’m arguing for is a move away from neo-liberal short-termism and risk taking and the building of long-term and stable systems and institutions that protect the wellbeing of the majority of the people.

If people are truly to tackle the financial problems of the present system however they will have to go beyond the simplistic and enter into real debate.

 

Something interesting to check out, if you have the notion. It's quite long, but I think it's well worth the read. It really clarifies a lot about the functioning of money in our monetary system.

http://mosler2012.com/wp-content/uploads/2009/03/7deadly.pdf

 

Wow, Balbus and individual, that isn't a discussion, it's a trollwar. Babus, stop baiting him please? Individual...just stop.

The piece referred to by this was ridiculously biased and pretty broken. It left out huge numbers of viable options. Notably missing was any mention of estate taxes, any real decrease in military spending, increase in high end marginal tax rates, and many other real options. The fact that the only real option for increasing educational spending was the horrible Snafu that is 'No child left behind' gives clues as to what agenda was involved in the game's creation.

 

Its hard enough to get the upper end to pay any taxes at all let alone expecting them to pay a little more. It would be even harder to cut back on the lavish portions of pork handed out in the war budget. For many others its a journey to the bottom with relentless debt repayments.

Trollwars: welcome to Hipforums.

 

Thing is, we've managed it before. Re: The New Deal. Before Reagan, the top tax margin was 70%. Throughout the fifties it was 91%! This is -marginal- tax rates I speak of, not actual tax rates. It's the tax you pay on all income over a certain amount. All the money you make that is below that rate is taxed less. So you pay the same amount on your first 100k as someone who only makes 100k, for instance, but pay a higher amount for extra income earned over that amount. This is a progressive tax rate, which is what we have.

Anyway, Reagan dropped the top marginal tax rate down to 28%! The lowest it had been since before WWI. It's currently 35%. The manner we got out of the great depression was increasing the top marginal tax rate(without increasing the lower end), and spending government money on infrastructure and education. This created a plethora of jobs, and was a huge investment in the future of the country. Along with providing a great redistribution of wealth and helping to create a solid middle class in this country. Over the past 30 years though, this has been reversing.

Trickle down economics has been a proven failure. Deregulation has been a proven failure. As Balbus has mentioned 'Neoliberalism' has been a proven failure. Let's return to what has been proven to actually work!

 

Actually, I read more of the discussion, and Balbus: You're points are, across the board, sound IMO. I was mostly responding initially to you and Individual and the back and forth about his odd parable. And how it wasn't really going anywhere. Once you started talking real economics though, you pounded out some awesome points. Would rep you, but out of points just now. Will later.

 

Sorry for the mass of short posts but:

Btw, Individual, you say:

I wonder if you realize what Capitalism even -means-. Or how our economic system works. You should do some research.

Further, statements about 'not looking for someone to blame' and 'not worrying about mistakes made, but rather trying to fix the problems as they stand' are missing an important point. That is, regardless of how we get out of this, it is -vital- that we figure out in real terms what the main causative elements were so that it doesn't happen again. Not to mention that what methods we use to work our way out will be based in part on what we plan to have/do once we get out, on what our long term plans look like. And that should be based on how we plan for the problem to not happen again, hence looking at how it happened to begin with.

Balbus: It's true that Neoliberalism has gotten us into a bind. There is a solution though. Inflationary spending. Frankly, the deficit is meaningless. The US runs on fiat currency. It literally -cannot- run out of money. The worst that will happen is inflation. And this is a problem why? Yes, it will decrease the value of the US currency. Why do we care? It won't decrease US output, it won't decrease US productivity. In fact, since it could be used to decrease unemployment, and money could be spent on infrastructure and education it would in notably increase these. It will only decrease the wealth of those who currently hold US capital, and own debt in US
currency. I don't personally see this as a problem.

One important element would be to put into place a reform of the minimum wage so it actually increases at the same rate as inflation. This would be handy, considering the minimum wage in real dollars has been slowly decreasing over the years.

'Public Options' on basic services could be useful too, to enforce competition in certain areas. This creates a system of the best of both capitalism and communism. It would create a situation where private concerns would be forced to compete against a public service. This would deal with the worries that publically/governmentally run system would be inefficient, as they would have private companies competing with them, and yet have not-for-profit systems set up to fight against monopoly economics. One area this would be most vital would be -banking-. We already have small versions of this in the form of credit unions, but they are so restricted as to be non-viable as real competition.

Interesting note on that: One state in the US is currently operating without a deficit, and only one. North Dakota. It is also the only state with a publicly owned state bank.

 

Thing is we are managing it now with a less progressive tax system. Only a lot of the funds are underwriting losses, flowing into profits and bonuses in certain sectors. State sponsored Trickle up works for a number of interested parties actually.

The debate over the public option with health care reform was interesting was it not.

 

Prime example of this problem being limited liability companies borrowing money from other people, then investing that money in risky ventures. When those ventures pay off, the companies take a cut and pay off bonuses to the top employees. When they go sour, the companies declare bankruptcy, the initial investors get screwed over, those top employees get new jobs at the next shell company and lose nothing.

When the companies doing this are -banks- though, there is a huge problem. Because the investor getting screwed over is basically the entire US economy. A bank that is 'too big to fail' declaring bankruptcy would crash the US economy. And that's basically what happened. And so we bailed them out and proved to them that risky investments aren't actually risky at all. There's a nice fat buffer for them, in the form of the bailouts. And the top employees got nice big bonuses.

A better manner of dealing with the problem would have been to take that same money and privatize those banks that were most insolvent. As is, what needs to be done is reinstating regulations that restrict banks from making risky investments with our economy as collateral. And possibly taking a certain amount of the banking system out of the hands of the private sector. If a bank is insured by public funds, it should be required to act in a responsible fashion. Otherwise you're simply allowing them to gamble with government dollars.

 

Know what?

Given the power, I could balance that budget right quick.

I can think of a few expensive things we don't need, like a drug enforcement agency, because in a country with only civil drug laws, that's the job of the police. And I can think of a few things that might bring in money, like being the worlds drug tourism epicenter until the rest of the world followed suit.

Or on a more serious note, I could even balance it WITHOUT legalizing and regulating all drugs. But I'm quite certain either way, there just ain't enough money for the DEA... poor fellas.

 

...
A less progressive tax system isn't trickle up, it's trickle down. And what are we managing? To have an economic crash? To have a shrinking middle class? To have an increasing income gap between the rich and poor? To have the highest unemployment rates since the Great Depression? Well, yes, we are managing these things quite well.

A progressive tax rate is based on the notion that although successful competition should be rewarded, those rewards should not be without limits. That out-competing your neighbors should not entitle you to live in luxury while they starve. A simple idea really. Why should there be people making hundreds, even thousands of times what other hard working people earn?

 

Really, I never said a less progressive system was trickle up. extracting surplus encompasses many distinct social processes and activities.

States are subject to influence and parties are payed to manage and dispense patronage if you must know.

What luxury and starvation. Its a simple idea that has been lost on the so called developed world.

 

I think it's obvious the Federal budget 'could' be balanced, but more to the point would have been to ask "Do you want to balance the Federal budget?"

Realistic debt can be managed, and I've had debt at times during my life, but have had none at all for over 20 years now. Some here may think I look at it in simplistic terms, and I admit it has become very complex, but it can still be reduced to a large number of much simpler and easier to resolve problems.

 

heres how you do it, its short, sweet, and smiple. put us back on the gold standard and spend 10% less than what is budgeted. if the money runs out it dosent get done that budgeting period but has a front row seat for the next one.

 

I do want to balance the federal budget. Make me supreme leader of the US for one week, and then revert it back to the losers in control. Problem solved. Would also solve a lot of other problems we have.

As far as I know, illadelph, toro, roor, they don't need bailouts, and my "daily driver" is a roor, not a GMC

:coffee: