Unemployment question for the economists among us

[jasper383]

 

This claim has no warrant, and market forces are not infallible.

 

 

Would the subprime market (and this series of failures) have been as large if the GSEs and other government programs encouraging subprime lending had not existed?

[J the D]

 

Would the subprime market (and this series of failures) have been as large if the GSEs and other government programs encouraging subprime lending had not existed?

 

 

No.

[jasper383]

 

No.

 

 

Then the claim does have warrant.

[Brother Mango]

Melville's wife, thanks for the education. Your input and the videos posted by Dave Campbell help paint a decent picture of the current situation.

 

It's funny that "Moral Hazard" is the name of the "bomb" that was described in the videos.

 

Overall, I understand all of this much better and appreciate the efforts.

[Brother Mango]

 

Then the claim does have warrant.

 

 

Here's what I see in this inquiry: "how can we still be right, and make the government wrong?" I don't see how this helps.

 

Melville's wife shared a lot of good information that wasn't about blaming, fault-finding or grouching. I've got no interest in who's right and who's wrong. Ok. Let's all agree that the government sucks. If that's unanimous, now what?

 

To be a responsible citizens, there should be an interest in learning something. Letting go of one's opinions, and being open to asking sincere questions--not rhetorical questions. Not smarmy questions. It doesn't mean coming to complete agreement; it only means setting out to inform one's opinions and being ok with revising one's opinions.

 

Government isn't perfect, markets aren't perfect. That's not at all why I opened this thread. I actually wanted to learn something, and that's been a success.

[ThudMaker]

......... Government isn't perfect, markets aren't perfect. That's not at all why I opened this thread. I actually wanted to learn something, and that's been a success.

Why be excited to learn things that may or may not be right?

[collinwho]

 

If a rich person only spends .50 of each dollar but he/she has $5, the rich person spends $2.50. The poor person may spend $.99, but is still spending $1.51 less than the rich person. The rich person/poor person comparison with how much of $1 they will spend is too simple a twist of statistics and should be used a bit more carefully than it has been in this example.

 

 

That is true, but it misses the point. The issue isn't money that the people already have. The issue is money coming from the government in the form of a stimulus. If they give $1 to a poor person and a rich person, the poor person will spend more of that $1. The idea is that, in order for stimulus money to be effective, it needs to be spent.

[Ender_rpm]

 

If a rich person only spends .50 of each dollar but he/she has $5, the rich person spends $2.50. The poor person may spend $.99, but is still spending $1.51 less than the rich person. The rich person/poor person comparison with how much of $1 they will spend is too simple a twist of statistics and should be used a bit more carefully than it has been in this example.

 

 

I agree in principle with what you are saying, but you are over looking the fact that the "poor" in this scenario out number the "rich" 10:1. So for every $2.50 the one "rich" dude will spend, the "poor" will spend $9.90. Even if the "rich" person spends at teh same rate as the "poor", the sheer number of po folk spending $ will overwhelm the "rich's" contribution 2:1. The real #'s of course are far more granular.

[lug]

The real point is those poor mofo's are spending the money that got taxed out of the rich guy.

[Brother Mango]

 

If a rich person only spends .50 of each dollar but he/she has $5, the rich person spends $2.50. The poor person may spend $.99, but is still spending $1.51 less than the rich person. The rich person/poor person comparison with how much of $1 they will spend is too simple a twist of statistics and should be used a bit more carefully than it has been in this example. Why be excited to learn things that may or may not be right?

 

 

Within your statement, there's a cool question that could be asked:

"what's the scenario that would make it more beneficial to target tax reductions to the poor?"

 

I didn't think of the scenario you painted. I thought of this:

A rich person gets $1 and puts the whole dollar in an investment. A poor person gets $1 and spends the whole dollar. The rich person's dollar isn't counted in the GDP.

 

 

Why be excited to learn things that might not be right?

There are a lot of non-economists dressing up their opinions as truth, and it's really about them wanting to be clever or bombastic. If Mellville's wife is 100% incorrect, let's engage it and try to clean it up. Maybe there's something for her to learn, as well. But at least it's not an exercise in being clever. So far, I know I'm not knowledgable enough to say she's wrong. That doesn't say I'm gullible, either.

 

 

I like knowing that there's something called a Moral Hazard. That's a heckuvalot more interesting than "government sucks; the 2-party system sucks; slap bass sucks; Brother Mango sucks; tadpoles suck; the color orange sucks."

 

Edited:

ThudMaker:

My previous comments say more about me than about your questions. I'm irritated today, about unrelated stuff. So, please read my comments with 50% of the attitude I put on it.

[ThudMaker]

I agree in principle with what you are saying, but you are over looking the fact that the "poor" in this scenario out number the "rich" 10:1. So for every $2.50 the one "rich" dude will spend, the "poor" will spend $9.90. Even if the "rich" person spends at teh same rate as the "poor", the sheer number of po folk spending $ will overwhelm the "rich's" contribution 2:1. The real #'s of course are far more granular.

I know. I didn't really want to point out that the rich person might have $90 to every $1 a poor person has.

 

Poor people vs rich people, I'm disgusted with the class warfare stuff that "targeting" the poor is an example of. If a tax cut or increase is good for one American, it's good for all, rich or poor.

[ThudMaker]

Why be excited to learn things that might not be right? There are a lot of non-economists dressing up their opinions as truth, and it's really about them wanting to be clever or bombastic. If Mellville's wife is 100% incorrect, let's engage it and try to clean it up.

Mellville's wife isn't right or wrong. Melville's wife has posted something attributable to Keynesian economics. As has been mentioned already by someone else, within economics there are a few different major philosophies. That is simply one macro view.

[Brother Mango]

I know. I didn't really want to point out that the rich person might have $90 to every $1 a poor person has. Poor people vs rich people, I'm disgusted with the class warfare stuff that "targeting" the poor is an example of. If a tax cut or increase is good for one American, it's good for all, rich or poor.

 

But the rich person won't spend much of that $90.

 

This isn't class warfare, and it isn't as clear as an across-the-board increase of decrease. If 2 people go and spend $200 on groceries, it's gonna hurt one person more than the other.

[isaac42]

 

That is true, but it misses the point. The issue isn't money that the people already have. The issue is money coming from the government in the form of a stimulus. If they give $1 to a poor person and a rich person, the poor person will spend more of that $1. The idea is that, in order for stimulus money to be effective, it needs to be spent.

 

 

Absolutely correct.

[isaac42]

The real point is those poor mofo's are spending the money that got taxed out of the rich guy.

 

Which he got in the first place through the labor of the poor people.

[isaac42]

 

The cool question is "Why isn't everyone fairly taxed?" It shouldn't matter whether one is rich or poor.

 

 

That one is easy. Everyone isn't fairly taxed because there is no consensus as to what constitutes "fairly taxed". Some people think the system is fair now. Others think the wealthy should pay more. Others think the wealthy should pay less. Given this state of affairs, it's not possible for everyone to be taxed fairly, because someone will always say that it isn't fair.

[ThudMaker]

But the rich person won't spend much of that $90.

Do you think the rich person is putting his/her $90 in a bank savings account that earns 1.2% interest? Your logic is flawed if you think investing money isn't "spending." The difference is that the rich man spends and receives a return (profit or loss) on what he/she has spent.

[ThudMaker]

There are many more poor (and middle class) people than there are rich people.

Thanks, Captain Obvious.

[Brother Mango]

 

Do you think the rich person is putting his/her $90 in a bank savings account that earns 1.2% interest? Your logic is flawed if you think investing money isn't "spending." The difference is that the rich man spends and receives a return (profit or loss) on what he/she has spent.

 

 

Thanks for clarifying. I didn't necessarily mean that the rich person's doallar would go into a regular savings account. Yet, I did go back and review and saw that investments do count in the GDP. I missed that part.

 

So, it sounds like a Keynsean idea (Paradox of Thrift) to spend money rather than save/invest it in oder to help the overall economy. If I'm understanding correctly.

 

A critique of Keynes is that perhaps a person doesn't buy a $50 pair of shoes and supports the economy directly; however, the $50 goes into a gov't bond or is loaned to a small business owner ... helping the economy in a less obvious way.

 

Ok. So, I see a lot of ways to look at this. Why not tax everyone at the same rate? The people coming in the front door to buy shoes, and the people who loan money to the shoe store owner ... and the shoe store owner, herself? Why not tax them all at, say, 15%?

 

Also, they aren't mutually exclusive groups. The person buying shoes might be contributing, via savings or a CD, to the owner's loan. It might be a small amount, but they're in on it.

[Kindness]

Why not tax everyone at the same rate? The people coming in the front door to buy shoes, and the people who loan money to the shoe store owner ... and the shoe store owner, herself? Why not tax them all at, say, 15%?

 

The competing philosophy is that taxing everyone at the same rate puts a disproportionate burden on those with less. The thought is 15% of 20k is far more damaging than 15% of 200k. In an effort to relieve the burden for the lowest income earners, the higher income earners are taxed more. Balancing absolute fairness is impossible and leads to lots of competing interests calling for competing plans. As incentives and disincentives get thrown into the mix (increasing taxes on things we disagree with politically and decreasing taxes on things we agree with - think of charitable contributions/organizations as an example or also crediting taxes for having children, owning a house, etc.) and an effort is made to balance similar, but not identical situations (for example, a family of 4 with one working parent and family of 4 with two working parents with identical gross income derived from either 1 source or 2 sources, respectively) the straight percentages get lost and convoluted.

 

Further complicating the issue is that once the rules are in place the market finds its equilibrium around those rules. Any shift in the underlying rules (tax laws are just one example) has effects in all aspects of the market, from price of goods, to pay scales to . Thus, even if current rule are "bad" there is a large inertia effect working against major changes.

[ThudMaker]

Thanks for clarifying. I didn't necessarily mean that the rich person's doallar would go into a regular savings account. Yet, I did go back and review and saw that investments do count in the GDP. I missed that part. So, it sounds like a Keynsean idea (Paradox of Thrift) to spend money rather than save/invest it in oder to help the overall economy. If I'm understanding correctly. A critique of Keynes is that perhaps a person doesn't buy a $50 pair of shoes and supports the economy directly; however, the $50 goes into a gov't bond or is loaned to a small business owner ... helping the economy in a less obvious way. Ok. So, I see a lot of ways to look at this. Why not tax everyone at the same rate? The people coming in the front door to buy shoes, and the people who loan money to the shoe store owner ... and the shoe store owner, herself? Why not tax them all at, say, 15%? Also, they aren't mutually exclusive groups. The person buying shoes might be contributing, via savings or a CD, to the owner's loan. It might be a small amount, but they're in on it.

Yes. You're understanding what I'm getting at. You wouldn't want to tax the money from the lender (risk taker) to the store owner. You want to tax it on the way back to the risk taker, when the extra money comes in as capital gains. Unless of course the investment didn't work out, the store owner didn't pay back the money so the risk taker lost his/her shirt. Now also note that the US has the highest or second highest rate of corporate tax. Are we getting value for our money? As a business are you simply going to account for that tax cost in the price of your product? Yes. So that tax is actually passed on to the consumer (poor people). Even though I'm taxing the corporations and rich people, it has an impact on the value of that $1 the poor person can spend.

[isaac42]

 

Thanks, Captain Obvious.

 

 

Your post seemed to imply that it was a 1:1 ratio.

[Brother Mango]

The competing philosophy is that taxing everyone at the same rate puts a disproportionate burden on those with less. The thought is 15% of 20k is far more damaging than 15% of 200k. In an effort to relieve the burden for the lowest income earners, the higher income earners are taxed more. Balancing absolute fairness is impossible and leads to lots of competing interests calling for competing plans. As incentives and disincentives get thrown into the mix (increasing taxes on things we disagree with politically and decreasing taxes on things we agree with - think of charitable contributions/organizations as an example or also crediting taxes for having children, owning a house, etc.) and an effort is made to balance similar, but not identical situations (for example, a family of 4 with one working parent and family of 4 with two working parents with identical gross income derived from either 1 source or 2 sources, respectively) the straight percentages get lost and convoluted. Further complicating the issue is that once the rules are in place the market finds its equilibrium around those rules. Any shift in the underlying rules (tax laws are just one example) has effects in all aspects of the market, from price of goods, to pay scales to . Thus, even if current rule are "bad" there is a large inertia effect working against major changes.

 

Right:

The same amount of $$ impacts people in different ways. A homeowner is impacted different from a renter, even though both are earning the same amount. And it does get complex.

 

Part of the "inertia" is political forces that prevent significant changes. Some people believe that certain farm subsidies are no longer necessary but, good luck fighting the lobbyists and getting buy-in from the elected representatives who'd be negatively impacted.

 

 

I never bought Jerry Brown's notion of a flat tax and everyone doing their taxes on the back of a post card.