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Fantastic Blog Post About Supply Side Economics And Austerity


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#1 FCP Bob

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Posted 24 June 2012 - 08:37 AM

This is one of the best things that I've read from Mark Dow.http://markdow.tumbl...old-get-over-it

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Basically, supply-side policies work best when there is pent-up private sector demand. By lowering the cost of investment, you can unleash a self-reinforcing cycle. The bigger the pent-up demand, the bigger the payoff to an improvement in expectations. Without that pent-up demand, resources freed from supply-side measures and austerity get saved, not spent, and no self-reinforcing cycle is triggered.The world of 1980 had tons of pent-up demand and gale-force tailwinds. Inflation and interest rates were coming down from high levels, household leverage was very, very low, financial innovation non-existent, consumption had been deferred, and demography was coiled as the baby boomers were just coming on line. On the government side, unions were powerful, price and wage controls were a reality, and tax rates were high. This was the ideal set up for supply side reforms.Fast-forward to post-2008. Whatever the opposite of pent-up demand is, that’s what we have. Inflation and interest rates are already low, household leverage is a major burden, consumption was pulled forward during the boom, and demography is no longer our friend. Plus, we have globalization acting like a supply shock to our labor pool, holding down wages. In short, the tailwinds are now headwinds. On the government side, unions are far less powerful today, there are no price and wage controls, and tax rates are low. It seems next to impossible to make the case that supply-side policies can have anywhere near the effect today that they had in the 80s.....We need to be pragmatic. Adjust and compete. Look around the globe without preconceived notions and see what we can learn from others. Being stuck in the same old big government/small government debate keeps us from doing this. Sometimes supply-side policies are right and sometimes they’re not. Sometimes Keynesian polices are right, sometimes they’re not. Until we approach policies as tools in a toolkit and not as divine scriptures, we are going to be stuck in an ideological logjam, wasting precious time. Time to get off the ideological paradigm.

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#2 Balloon guy

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Posted 24 June 2012 - 09:10 AM

So isn't this guy really making the case that we are stuck with a big bag of crap and the only way through is to get back to the fundamentals for supply-side policies?Because re-enforcing a screwed up economy by ignoring that our fundamentals are screwed up seems like putting a bandaid on cancer
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#3 FCP Bob

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Posted 24 June 2012 - 09:32 AM

View PostBalloon guy, on 24 June 2012 - 09:10 AM, said:

So isn't this guy really making the case that we are stuck with a big bag of crap and the only way through is to get back to the fundamentals for supply-side policies?Because re-enforcing a screwed up economy by ignoring that our fundamentals are screwed up seems like putting a bandaid on cancer
No he is saying the exact opposite thing.He is saying there is no fundamental policy that is universally the correct thing to do at all times. It depends on the current conditions.Read what I quoted from the post. Supply side policies work best when there is a large pent up private sector demand. That is not the case today.
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#4 hblask

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Posted 24 June 2012 - 10:03 AM

More excuses from the Big Government crowd: sure our policies have lead to disaster every time they've been tried, but that's because they just happen to have been tried under the wrong conditions every time.
"Isn't it enough to know that I ruined a pony making a gift for you?" -- J. Coulton


#5 FCP Bob

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Posted 24 June 2012 - 11:56 AM

View Posthblask, on 24 June 2012 - 10:03 AM, said:

More excuses from the Big Government crowd: sure our policies have lead to disaster every time they've been tried, but that's because they just happen to have been tried under the wrong conditions every time.
Yup, Economists who then become Hedge Fund Managers are known for having a huge bias towards big government.
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#6 Balloon guy

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Posted 24 June 2012 - 12:28 PM

View PostFCP Bob, on 24 June 2012 - 09:32 AM, said:

No he is saying the exact opposite thing.He is saying there is no fundamental policy that is universally the correct thing to do at all times. It depends on the current conditions.Read what I quoted from the post. Supply side policies work best when there is a large pent up private sector demand. That is not the case today.
I get it, I just have some serious skepticism about the idea that anyone has a grasp of the whole thing well enough to say something as bold as your guy. Now I preface that with acknowledging that I am really weak on economic theory, but I do not trust any concept that includes having a heavy debt loaded buyer pool, interest rates that have been screwed up so bad by this 'as long as they are low then things will get better' for a decade, and a straw man argument that taxes are already as low as they need to be to mean that we can try this new way of thinking about supply and demand factors on human nature.I am probably wrong because like I said I know enough about economics to know I don't know much, but in my opinion, the only way through this economic pull back is serious pain while we accept the need for raising interest rates, and restricting government spending to levels that make them less of a parasite on society and more of a vitamin.As Ross Perot used to say: Someone has to pay for the party we just had.
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#7 CaneBrain

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Posted 24 June 2012 - 04:11 PM

View Posthblask, on 24 June 2012 - 10:03 AM, said:

More excuses from the Big Government crowd: sure our policies have lead to disaster every time they've been tried, but that's because they just happen to have been tried under the wrong conditions every time.
Yes, yes the 50 years after the Great Depression were an awful time to be an American.
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#8 hblask

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Posted 24 June 2012 - 04:37 PM

View PostCaneBrain, on 24 June 2012 - 04:11 PM, said:

Yes, yes the 50 years after the Great Depression were an awful time to be an American.
Do you mean after the 50% or so cuts after WWII? Yes, yes it was.The massive Keynesian spending during the Great Depression, on the other hand, did wonders.
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#9 FCP Bob

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Posted 24 June 2012 - 05:43 PM

http://www.brookings...ssons_romer.pdfThis discussion of fiscal and monetary policy in the 1930s leads me to a third lesson from the Great Depression: beware of cutting back on stimulus too soon. As I have just described, monetary policy was very expansionary in the mid-1930s. Fiscal policy, though less expansionary, was also helpful. Indeed, in 1936 it was inadvertently stimulatory. Largely because of political pressures, Congress overrode Roosevelt’s veto and gave World War I veterans a large bonus. This caused another one-time rise in the deficit of more than 1½% of GDP. And, the economy responded. Growth was very rapid in the mid-1930s. Real GDP increased 11% in 1934, 9% in 1935, and 13% in 1936. Because the economy was beginning at such a low level, even these growth rates were not enough to bring it all the way back to normal. Industrial production finally surpassed its July 1929 peak in December 1936, but was still well below the level predicted by the pre-Depression trend.19 Unemployment had fallen by close to 10 percentage points—but was still over 15%. The economy was on the road to recovery, but still precarious and not yet at a point where private demand was ready to carry the full load of generating growth. In this fragile environment, fiscal policy turned sharply contractionary. The one-time veterans’ bonus ended, and Social Security taxes were collected for the first time in 1937. As a result, the deficit was reduced by roughly 2½% of GDP.
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#10 hblask

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Posted 24 June 2012 - 06:13 PM

View PostFCP Bob, on 24 June 2012 - 05:43 PM, said:

Indeed, in 1936 it was inadvertently stimulatory[...]And, the economy responded. Growth was very rapid in the mid-1930s. Real GDP increased 11% in 1934, 9% in 1935, and 13% in 1936.
Stimulus so good it takes effect before it happens!
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#11 akoff

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Posted 25 June 2012 - 05:24 AM

we are 15 trillion or some number in debt...i think needing more stimulation is a hard arguement to make.
"The fact that we are here today to debate raising America 's debt limit is a sign of leadership failure. It is a sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. Increasing America 's debt weakens us domestically and internationally. Leadership means that, "the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."
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#12 InternetExplorer

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Posted 25 June 2012 - 01:53 PM

soros trashes EMH
QUOTE (Spademan @ Thursday, April 5th, 2012, 2:03 PM) <{POST_SNAPBACK}>
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