Lost generation v greedy geezers

Young people have suffered more than anybody else because of the economic crash and lack of real recovery. My generation suffered a similar downturn (in 1981) but it was followed by a robust recovery that gave us a chance to make a good life. Our children have been stuck in second gear - if they are lucky.

And it is going to become more challenging for them. Older generations suffered a big hit on their savings, but that has been made up by the return of stock returns. Some of my generation did not recover, but many had the option of bailing out of the job market. Young people cannot do that. In fact, they will be on the hook to pay the bills.

Unemployment rate among young people is 12.5%, which is 2 1/2 times that for the over 25 group. It would be more than 20% if we added back those who dropped out of the labor market to take refuge in college or training programs. A little more than half of young folks are working full time--compared with about 80% of the rest of us and 12% earn minimum wage or less. The median wage for young workers has fallen more than 5%, after adjusting for inflation; those 25 and are about where they were in 2008.

The disadvantage may stay with young folks a long time. Studies have shown that long periods of unemployment permanently lower lifetime earnings.

On top of all that, many college graduates and even college dropouts have a very large hangover of debt. And if they studies something like gender studies, drama or even my beloved history, they may never earn enough to pay them off.

It is no consolation that European youth are worse off, even if they have more government programs to "help" them.

This is causing great changes in society. "Kids" are staying at home much longer, postponing marriage and children. Our birth rates are dropping from already low levels.

Even during the Great Depression, we enjoyed some periods of steep growth where young people found jobs. The deep drop of the 1980s was follow by a steeper boom and we enjoyed twenty-five years of great economic growth.

We had a slowdown during the 1970s, when things went sideways. The postwar economic boom lasted from roughly 1948-1972. We had ten bad years until the Reagan recovery. We are now in year five of the bad times. We await a Ronald Reagan, but even if he comes, the kids still have a problem we did not ... US.

The baby boom is retiring and will demand payments from today's young people. Even in good times, the old folks would be a big burden on the young ones. With the slows, it will be even worse. The poor kid sleeping on his friend's couch will be paying a big part of his meager salary to the old folks in Sun City. That is why we urgently need to reform pensions.

There are no good choices. We will be giving up good things either way. Old people "deserve" the high pensions they have "earned". On the other hand, young people deserve to keep more of the salaries they earn, especially because it is our generation of old people who bequeathed to them this sideways economy.

My generation was lucky. We enjoyed the postwar book 1948-72 as kids. We suffered the ten years after that, but then the Reagan boom gave us twenty-five years of prosperity. An American born in 1945 had the best work life opportunity in the history of the world. The history of the world, not just America. It would be great if we could recreate this world. Maybe we can. But it really is the gold standard, in many ways created by the unique situation of the U.S. post WWII.

If we cannot, I think it only fair that my generation share the pain with our kids. We need to ask less from them, take less than we "deserve" or "earned." They are our kids, after all and we owe them some of the chances our parents gave us. Perhaps we can accept a level of comfort a little more like our parents (they were poorer than we are) and give our kids a level a little more like ours.

And maybe young people might reconsider the change they voted for.

Reference

Posted by Christine & John at September 14, 2013 2:13 PM
Comments
Comment #370692

Thank god we lived during the recovery time of Reagan after the disastrous time of Jimmy Carter. I have no compassion on the younger generation who thinks capitalism is evil and that Obama’s change is the way to go. The ONLY way the younger generation will have anything is if another Ronald Reagan can clean up the mess of Obama and the democrats. To the younger generation who voted for Obama, I say keep paying into my SS and Medicare. They will work (if they can), they will live with their parents, and they will pay vast amounts of hard earned money into the boomers benefits, but they will get nothing in return. A man reaps what he sows.

Posted by: Jake at September 14, 2013 6:54 PM
Comment #370693

Jake

Young people are by definition inexperienced voters. The first time I voted, I voted for Jimmy Carter. I learned from my mistake and voted for Ronald Reagan the next time. It was not as clear this time for young people. The Obama folks did an excellent job of making Romney look terrible.

We should be heartened, however, in that fewer young people voted for Obama the second time around. By 2016, many will have learned their lessons. Let’s hope there will be a good alternative.

Posted by: CJ at September 14, 2013 7:22 PM
Comment #370695

C&J,

You keep writing about this as though it were true. Baby boomers are not leeching off today’s younger workers. They are simply cashing in their FICA tax deducted surplus contributions to SS, which they began paying in excess in the early years of the Reagan administration. Actually, they are going to get less than they put in. Baby boomers anticipated the problem and prepared for it.

I would suggest that if you are concerned about future generation, then you deal with the skewed income distribution that has emerged over the past 30 years in which the SS cap has protected much more of the total increase in earned income from SS tax than anticipated. The assumption of the Reagan appointed Commission was that 90% of earned income would be subject to the SS tax. As more of the increase in income has been concentrated at the higher levels, the cap has reduced that assumption significantly. Raise the cap and you go a long way to meeting the Greenspan assumption and solving SS future funding.

Frequently in these discussions, little attention is paid to the future overall retirement income problem. What began as a tax advantaged supplement to SS and private pensions (401K plans) has morphed into the primary vehicle for corporate private pension plans. The old days of defined benefit plans have declined dramatically and replaced by defined contribution plans (401K). The problem is that these plans are voluntary, subject to market conditions, subject to substantial management fees, able to be depleted early through loans and early withdrawal and are not guaranteed by the full faith and credit of the US government.

So, instead of weakening SS, it would seem incumbent upon those concerned about the future to strengthen SS. It may well be the only game in town that retirees can count upon in a few years. In a few years, there will be no private pensions.

Posted by: Rich at September 14, 2013 7:44 PM
Comment #370697

During Jimmy Carter’s one term, his administration created 10.3 million jobs. In Reagan’s first term, it was only 5.3 million, and in his second term, 10.7 million, barely better than Carter. Oh. And by the way, Reagan tripled the debt while doing it. Sorry to interrupt those idle dreams of Reagan with cold facts. Carry on.

Posted by: phx8 at September 14, 2013 7:46 PM
Comment #370698

C&J,

I certainly agree with your assessment of how those who are

However, I’d add that nearly ALL citizens are struggling!

I look at myself and I juxtapose my trajectory and career with what President Obama seems to Always use as a barometer of success — “If you work hard, get a good education and play by the rules, you should be able to prosper.”

I only wish Obama and company would look into the mirror and see the enormous dichotomy that has existed for at least the last five years or so.

For me, I did all of the aforementioned things that Obama has peddled in speech after speech over the last 4-plus years! I’m more educated, more experienced, have played by the rules to a fault and have only managed to go backwards financially.

I now make ~ $30k to $35k less today than I did back in 2008!!!I’ve experienced the 1981 - 1983 recession and this listless, non-recovery does not even come close as a comparison to the Reagan recovery post 1983.

Moreover, a large segment of society has had to dip into their 401k plans and max their credit cards out just to survive. This hole will be enormously difficult to dig out of — especially for those 45 years or older (less time to make it up with not a lot of positive growth opportunities in sight). The under 25 crowd at least has longevity on their side.

That said, I’m really sad for those young people who can’t find employment and/or I’m sad for the college graduate who is working a job where the educational requirement calls for only a H.S. diploma or GED.

What does that mean for the H.S. diploma-only crowd?

Take a gander at — it’s startling!

Posted by: Kevin L. Lagola at September 14, 2013 8:15 PM
Comment #370699

C&J,

I certainly agree with your assessment of how those who are

However, I’d add that nearly ALL citizens are struggling!

I look at myself and I juxtapose my trajectory and career with what President Obama seems to Always use as a barometer of success — “If you work hard, get a good education and play by the rules, you should be able to prosper.”

I only wish Obama and company would look into the mirror and see the enormous dichotomy that has existed for at least the last five years or so.

For me, I did all of the aforementioned things that Obama has peddled in speech after speech over the last 4-plus years! I’m more educated, more experienced, have played by the rules to a fault and have only managed to go backwards financially.

I now make ~ $30k to $35k less today than I did back in 2008!!!I’ve experienced the 1981 - 1983 recession and this listless, non-recovery does not even come close as a comparison to the Reagan recovery post 1983.

Moreover, a large segment of society has had to dip into their 401k plans and max their credit cards out just to survive. This hole will be enormously difficult to dig out of — especially for those 45 years or older (less time to make it up with not a lot of positive growth opportunities in sight). The under 25 crowd at least has longevity on their side.

That said, I’m really sad for those young people who can’t find employment and/or I’m sad for the college graduate who is working a job where the educational requirement calls for only a H.S. diploma or GED.

What does that mean for the H.S. diploma-only crowd?

Take a gander at — it’s startling!

Posted by: Kevin L. Lagola at September 14, 2013 8:17 PM
Comment #370700

Sorry about the double comment post. Had some error messages. And part of my comment disappeared too, Oh well…

Btw, did you know that in 2009, 20% of households reported to have no positive net worth? That’s absolutely stunning.

Posted by: Kevin L. Lagola at September 14, 2013 8:28 PM
Comment #370701

Kevin,

Many don’t seem to appreciate the enormous private sector debt explosion that preceded the Great Recession. It was larger than the private sector bubble that preceded the Great Depression. Those two debt bubbles are unique in modern history and are associated with the two greatest collapses in modern times.

This country’s economy runs on debt. Try as it might, though, by lowering interest to virtually zero and increasing bank reserves, the Federal Reserve has found it difficult to stimulate borrowing. Banks are leery and the consumer is trying to deleverage from debt and save not acquire more debt. That suppresses demand. That suppresses business expansion. That suppresses jobs.

If you have some bright idea as to how to speed up this process without totally tanking a consumer driven economy, please elaborate.


Posted by: Rich at September 14, 2013 8:37 PM
Comment #370703

By the way, if you want to emulate a President that presided over the most successful economic period in modern times, then lets talk about Clinton.

Personally, I think that the effort at partisan comparisons is silly. The economic conditions of Reagan were very different than today and the same with Clinton. Their policies reflected those differences. Reagan dramatically expanded the public deficit and spending. Clinton raised taxes and reduced the public deficit. Different strokes for different times.

It would be helpful if critics seriously took a look at what the economic issues are today rather then some fanciful pining for the past.

Posted by: Rich at September 14, 2013 8:46 PM
Comment #370704

Rich

Indeed we paid into SS. But our governments did not actually save the money. There is actually a problem doing that. Since government controls the money supply, if it “saves” money, it merely lowers the money supply, which it can increase by administrative procedure.

Anyway, the bottom line is that current expenditures are paid by current taxpayer. Always. If government spends money on us, it takes it from the current generation of workers.

This is the truth and all else is lies. You can have a “lockbox” but all it will contain is IOUs which can be made good only by getting the current generation of workers to pay them off.

You can raise the cap on SS, but you are still taxing the current generation of workers to pay your benefits. You may take so satisfaction in making the next generation of richer people pay, but it is still the younger generation that is paying for you.

Re defined contribution plans v defined benefit plans, the world has become more complex and unpredictable. When firm could count on being in business for 100 years, they could make promises. Today that is not possible. One reason a place like Detroit is in so much trouble is that it made promises to be redeemed by future payers, who cannot pay.

Kevin

This weak economy has indeed hurt everyone. Young people have been hurt relatively more. But their problem, as I mentioned above, is us. The older generation hangs like an albatross on their necks. They will be on the hook to pay the promises that we made to ourselves. I expect that in around 10 years they will figure out a way not to do that, so make sure you have enough saved outside SS.

Posted by: CJ at September 14, 2013 8:46 PM
Comment #370705

Rich

I still hope that the REAL stimulus - fracking oil and gas that has added more money to the U.S. economy and created more than a million jobs - will help us. It may work, as long as we (by that I mean the Obama government) doesn’t mess it up.

Beyond that, I am not sure what to do with the economy. I know that what Obama has done is not working, so we should be open to other ideas.

Posted by: CJ at September 14, 2013 8:50 PM
Comment #370708

What Obama has done has been remarkable. At the depth of the recession, no one in my family had a job. We had a lot of stock, but it went down to only $5 per share.

Thanks to the Obama administration, the economic recovery, and one of the greatest bull markets in American history, my 28 year old son has had a good paying job for the past year, with salary and benefits. My daughter just married, and her husband turned down his first job offer because it was only $52,000 per year. My wife is putting down a $10,000 down payment on an existing business Tuesday because she wants to go back to work

Meanwhile, I am retired. I am 56.

The stock of that company announced its earning Thursday. EPS and revenues both up well over 20%. Doing great, especially for a retailer. I set up an option straddle on Wednesday, made $4k on Thursday, and $31k on Friday. The stock price jumped to 117 per share, and we still own a lot.

And while the recession caused by Bush and conservatives was very, very bad, we are recovering.

Did I mention how much the price of my house has increased under Obama?

Oh yeah. My 401k. I bought 100 shares of Tesla a couple months ago at 109 per share. Today it is over 160.

Anyway, while it would be better for the young if the economy recovered faster, that is true; it would be EVEN BETTER if Bush and the conservatives hadn’t killed it in the first place. And that is why there is ZERO chance young people will turn to conservatives and the GOP. Zero. And we haven’t even started on discussing social issues.

Posted by: phx8 at September 14, 2013 9:19 PM
Comment #370709

C&J, agree that the working class is being put upon considerably. However, you are way off the mark, IMO, as to the cause. Actually, you do know the cause, IMO, but you just choose to frame the problem around the dem/reps.
Young people are feeling the brunt of it and they should know the truth as to how we got where we are.

Lemme try: near the end of the cold war the beldenberger crowd got together and determined that the best way to proceed in a peace time nuclear tipped world was to ‘globalise’ the economy. In so doing, every country would be so entwined in a world economy that no one country could go off by itself and attack the world or their neighbor with nukes.

Gov’t basically wrote corporations a blank check to ‘globalise’ and gov’t set about promoting trade agreements, harmonizing laws among nations, setting up intl institutions such as IMF, WTO, world court, and so on - - -

Started with Carter, but really got going under Regan and has been pedal to the metal with every pres/admin since up and to the current.

Young people, please note who is winning in this ‘globalisation’ game. Not the people. Big gov’t and big corporations (corpocracy) are winning bigtime. Some tautology; 1% owns 20%, 10% own 40%, with the recession/depression we witnessed the greatest xfer of wealth in history, us to them. Bush printed a 4 or 5 $T and Obama followed that with more $T so that now we are looking at $20T debt. Recall that the too big to fails were bailed out, some more than once, the US taxpayer has paid for two wars, floated the IMF, funding such things as Homeland Security at $600M per life saved, and so on - - -

Young people, before you go the polls, look around and see what your gov’t has done for you and then rack that up against what your gov’t has done against you, We’ve heard talk of creating jobs as far back as 2008. Goldman Sacs doesn’t want the minimum wage raised, etc. It’s admirable if a CEO knocks down some millions per hour but try and raise wages for the working stiff?? When union heads are lobbying congress for a rewrite of Obamacare, that should tell you something.

IMO, this ‘long lived’ recession is all about the new world order and leveling of the playing field so that all nations will be on a somewhat equal footing to compete in the globalised world. For that to happen your wages have to go on down … . .

Otherwise, we have the Corpocracy we deserve.

Posted by: Roy Ellis at September 14, 2013 9:19 PM
Comment #370710
I know that what Obama has done is not working, so we should be open to other ideas.

Maybe we should embrace Keynesian Reaganomics?

Compare government employees under the two Presidents:
http://krugman.blogs.nytimes.com/2012/03/03/austerity-recovery-continued/

Compare government spending (excluding transfer payments):
http://krugman.blogs.nytimes.com/2012/03/03/reagan-obama-austerity/

Obama comes across as a champion of austerity when compared to Reagan.

Posted by: Warren Porter at September 14, 2013 9:28 PM
Comment #370712

Warren

The problem for Obama is that debt is already so high. Whether or not we want to blame him, there is not much else we can do.

Fracking might yet pull us out of the doldrums.

Posted by: CJ at September 14, 2013 10:04 PM
Comment #370717

Please, Warren, lets not confuse conservatives with the actual facts about Reagan. Their heads might explode.

Posted by: Rich at September 14, 2013 10:31 PM
Comment #370720

Rich commented in response to me:

If you have some bright idea as to how to speed up this process without totally tanking a consumer driven economy, please elaborate.

1. Lower the U.S. corporate tax rate to 17% (Canada lowered theirs to 18% recently). The U.S. rate is at 35% and is one of the highest in the industrialized world.

2. Tap into our energy resources (LNG, fracking, Keystone Pipeline, Anwar; don’t demonize clean coal or coal in general because of an irrational fear of fossil fuels). I’m all for clean and green energy, but not forcing it upon us with anachronistic price controls.

3. Stop spending more than we have.

4. Do comprehensive tax reform.

5. Do not let government pick winners and losers in “pet” industries. Let the private sector lead using supply and demand triggers and robust competition.

6. Pay down our national debt and get the debt-GDP growth ratio going in a positive direction.

7. Nix the Department of Education and let each state’s leaders handle their own unique educational challenges.

8. End the public sector union (Democratic Party) kabal.

9. Fast-track more free trade agreements, strategically punish countries that flout our trade laws.

10. Repeal and replace Obamacare with a solution that has realistic goals to restore certainty in the marketplace.

11. Install term limits for Congress.

12. Pass a F$#&!^* Budget and follow it!


The aforementioned ideas are off the top of my head.

Posted by: Kevin L. Lagola at September 14, 2013 11:29 PM
Comment #370721

WP stated:

“Maybe we should embrace Keynesian Reaganomics?”

With all due respect, Krugman is a partisan hack. Anyone can cherry-pick data. Look at Apples to Apples comparisons as well as the long-view results.

Btw, nobody is saying that Reagan, and G.W. Bush for that matter, didn’t spend too much…they did!

phx8:

I’m glad you and your family are doing so well. Please share your strategy and secret with the 35% of Americans who disappeared from the labor market.

Posted by: Kevin L. Lagola at September 14, 2013 11:47 PM
Comment #370722

Actually, I am one of the ones who disappeared from the labor market. So is my wife. She wants to go back as a business owner because this is a great environment.

We recognized a recovering American economy. We recognized that effective measures were going in place, and took full advantage. Not just a little. I used margin to leverage stock investments and pay six figure tax bills. It worked.

Strategy? I was lucky. And luck comes when skill meets opportunity. When I played basketball and made a ridiculous shot, that was one of my trash talk lines.

Anyway, I dislike giving financial advice, but I think it is safe to say young people should be buying real estate, whether it is property or their first house. Everyone is concerned about debt, and no one likes to borrow, but the truth is, this is a terrific time to take on debt. Money is cheap. But all anyone can think about is deleveraging. It is one of the ironies of an environment of asset deflation. Interest rates have gone up over the past year, and they will likely continue to rise at a modest rate from extraordinarily low levels, yet all anyone can think about is reducing debt, whether it is the government or personal.

At some point, the stock markets will undergo a 10 percent correct, a drop of @ 1500 points on the DJIA. This is normal, but everyone will freak out about it… who knows, there’s always something… and that would probably be a good entry point into the market for a novice investor.

But a person can make money in the stock markets regardless of whether it goes up or down. Learn about stocks, fundamental analysis, technical analysis, how bonds work, options, short sales, stochastic trends lines, and Japanese candlestick patterns. “Japanese Candlestick Charting Techniques” by Steve Nison is a terrific book.

Posted by: phx8 at September 15, 2013 12:36 AM
Comment #370723

phx8

I am doing well, but my kids are not and young people in general are not. That is why people like us should be willing to take less in Social Security. It sounds like you don’t need it, so let the young people keep some of their money, because most of them do need it.

Posted by: CJ at September 15, 2013 4:09 AM
Comment #370725

“Btw, nobody is saying that Reagan, and G.W. Bush for that matter, didn’t spend too much…they did!”

Kevin,

Reagan deficit spent because the economy dictated it. He pulled back from his massive tax reductions with a huge tax increase and other revenue increases when the economy began recovering. That adjustment continued with GH Bush and Clinton.

I know that Keynesian economics is anathema to conservatives and Krugman is a “partisan hack” to some. But, what would you call increased deficit spending during a severe recession to stimulate the private sector (Reagan’s tax cuts while increasing spending) and reversing course by increasing taxes during a recovery other than classical Keynesian policy?

Posted by: Rich at September 15, 2013 10:14 AM
Comment #370728

phx8,

I’m curious as to what state, city or region you live in? If this isn’t too personal.

My state (Delaware) is one of a small handful of states whose unemployment rate matches or is above the national average (7.3%).

Moody’s just gave our state a very poor overall recovery rating, much to the chagrin of the Governor and his administration.

I am, however, lucky enough to live in the middle of a metropolis(NYC, Philly, Baltimore and DC). This allows for some flexibility in commuting to a potential quality job or opportunity.

Posted by: Kevin L. Lagola at September 15, 2013 10:43 AM
Comment #370729

Rich

What is anathema re Keynesian economics is the idea that we can fine tune the economy with spending. Most people recognize that spending can stimulate the economy. But not all spending is created equal. Beyond that, politicians are happy to spend to stimulate but loath to cut back. It becomes a ratchet that goes ever up.

If Reagan acted as you say, he deserves to be revered as one of the few politicians who actually acted for the good of the country instead of letting his own partisan interest influence his judgement. I admire him even more.

Another problem is size and effect. A little is good. A lot gets to be less effective and even toxic. Debt is so very large now that perhaps additional stimulation is not useful.

Finally, it depends on what we are spending on. Keynesian sometimes think that any spending is good. But it is not. If we spend $1 million to build a bridge, it will pay much more back in more efficient movement of goods and people. If we give that same money to people who spend it on cigarets and whiskey and wild women we temporarily lift some industries, but create health problems down the road.

As I recall, Krugman actually believes in the broken window fallacy, i.e. if you break a window you stimulate economic growth since people are employed and money spent replacing it.

It would be great if we could make sound investments when the economy was slumping. These would be investments we SHOULD make anyway and we would change only the timing. I praised the Obama stimulus for providing money for creation of artificial/restored oyster reefs. This was a great investment in green infrastructure. Unfortunately, it was not the common one.

Posted by: CJ at September 15, 2013 10:46 AM
Comment #370730

C&J,

I doubt very seriously that you are going to get anywhere with your call for today’s seniors to take less from SS. The baby boomers are already going to get less than they put in with no changes in the benefit payout.

Are you suggesting that the US default on its obligations for the treasury bonds held by the Trusts? If there is to be a default or haircut imposed on US bond holders, why should US seniors be the guy holding the empty bag? What about those holding more than a trillion dollars of bonds related to recent wars? Does debt funding of the Iraq and Afghanistan wars take precedence over US retirement and disability investors? The truth of the matter is that the war debt will be rolled over without anyone blinking an eye. But, when it comes to SS, that is another story.

That said, there are certainly things that can be done to tweak the SS system to increase its future solvency. As I said before, adjusting the cap to meet the assumptions of the Greenspan Commission would be a simple start. There also is some wiggle room on means testing. I also think that it is about time to look at the demise of the defined benefit private pension system. The 401K defined contribution system may have been a good system as a supplement but it is a very bad system as a primary vehicle for retirement pensions for a variety of reasons.

Posted by: Rich at September 15, 2013 10:49 AM
Comment #370735

Rich

SS can change the terms for recipients. They can raise the age to get full benefits, change how adjustments are made or who can receive benefits besides the old guys who “earned” them. None of this would affect the full faith and credit.

Re defined contribution v defined benefit - we can look at that, but I don’t see how the defined benefit will ever come back given the uncertainty that now fills our economy. The only way you could guarantee is if you charged such fantastically high premiums in relation to payout that you could guarantee it.

Current rules allow people to put 10% of their earnings into retirement funds and employers often match 5%. Perhaps it makes sense to increase those numbers. Personally, I think you should be able to defer taxes on as much money as you wish. People should be encouraged to put windfalls into such accounts, tax deferred until used. Intelligent people would smooth their income in this way, saving more in flush times. Others could have the safety net of SS, but recognize that they should start saving at younger ages.

My youngest son was recently surprised to find that we were not as poor as our lifestyle suggests. I was happy when he restated the wisdom - live modestly when you have to and then keep on doing that when you don’t.

Posted by: CJ at September 15, 2013 11:11 AM
Comment #370740

Kevin,
Oregon.

CJ,
I would not be willing to take less in Social Security. However, I would be willing to see the payroll cap removed, which would instantaneously make SS solvent forever.

But that is part of what kills conservatism in the eyes of young people. They see conservatives and the GOP opposed to removing the payroll cap because it protects the rich- the old people with big six figure incomes- and leaves everyone else holding the bag. In theory, everyone starts from the same beginning point in terms of their possible future need for SS and health care. Yet the rich are allowed to opt out. A great deal of the wealth is inherited wealth, unearned wealth, and that should have even less of a claim to opting out because it runs counter to American goals; it creates a bad and ultimately unstable form of society.

Posted by: phx8 at September 15, 2013 11:25 AM
Comment #370741

C&J,

Keynesian government stimulus by deficit spending doesn’t necessarily mean increasing direct government spending. A tax cut if funded by a government deficit would certainly qualify. I am not an economist, but I believe that is essentially true.

The major issue frequently debated in recent years is between whether the government stimulus should be supply side or demand side. Whether investment for production and investment should be favored or the ability of the consumer to purchase should be favored.

In my perhaps naive opinion, what often seems lost is that when government, in a time of economic downturn, deficit funds either with a supply side or demand side stimulus and whether by foregoing tax revenue or directly increasing spending, it is engaged in Keynesian economics.

Much of the opportunity to use government deficit spending effectively has been lost over the past few years by silly debates about the supposed horrors of deficits in general. The Tea Party nonsense. We had to do it. The debates should have been more directed at the best and long term use for the government deficit spending.

The key to managing deficit spending is the performance of the economy. What I find depressing in recent years is the insistence of many conservative critics in focusing on some abstract concept of what they consider good government, i.e., deficit spending is always bad, tax cuts are always good,etc. It would be like some doctors arguing about whether or not to use a drug or how much without consideration as to the condition of the patient.


Posted by: Rich at September 15, 2013 11:36 AM
Comment #370742

“I was happy when he restated the wisdom - live modestly when you have to and then keep on doing that when you don’t.”

Excellent advice, C&J. Warren Buffet is another model to emulate. He still lives in a moderate ranch house purchased many years before he became a billionaire.

I recall reading a study a few years ago about the correlation between levels of income and satisfaction with life. It was apparent from the study that little gain in satisfaction or happiness in life was achieved beyond a surprisingly modest income level. Once the basics were secured, anything beyond had little effect.

Posted by: Rich at September 15, 2013 12:03 PM
Comment #370743

From today’s WP Business column we learn that 95% of income gains reported since 09 has gone to the top 1%.

Otherwise - - -

Posted by: Roy Ellis at September 15, 2013 1:08 PM
Comment #370744

phx8

” However, I would be willing to see the payroll cap removed, which would instantaneously make SS solvent forever.” - that sure is very liberal of you. You want to let others pay for you and pretend to be noble. Let them pay more now that you have assured you pile.

The old people with six figure incomes probably are not subject to payroll tax. So, again, they got the money before and now they are taking it again.

Beyond that, inherited wealth is also not subject to payroll tax.

After it is all done, you are still sticking the young people with your bills, right after you told us how rich you are by taking advantage of the wonderful Obama economy, that has left many young people in misery.

Honestly, were you trying to tee up the spike shot?

Rich

Re stimulus - much of the effectiveness of stimulus has been eroded by its overuse. Politicians like to spend. Keynes gave them an excuse to do that.

Keynes might actually work in theory, but it is implemented by politicians who have incentive to be dishonest. There is never a good time to cut spending or raise taxes. In fact, in good times they will call for MORE spending, since we have the money to do all those things people want.

We also have unexpected “stimulus” we should exploit. For example, the additional wealth injected into the economy by the fracking revolution has been significantly bigger than the Obama stimulus and we don’t have to pay it back.

Re deficit spending - We have run deficits most of the time since the 1960s and the ones we have had recently are the biggest in history. We were not in recession for that whole time. Presumably, we should have run surpluses for more of that time and de-stimulated.

This is no coincidence. Politicians like to spend and they send the bill to the next generation. We could get away with that when the number of workers was growing. This has now changed and sending the bill to our kids will hurt them much more than our parents much smaller bills hurt us.

Posted by: CJ at September 15, 2013 2:01 PM
Comment #370746

C&J,

Did you forget about the Reagan tax increases; the GH Bush tax increases and the Clinton tax increases coupled with spending reductions? If I recall correctly, we actually had a surplus in the general on budget accounts (excluding payroll tax revenue/outlay) in the last two years of the Clinton administration. It simply is not true that government can’t or won’t tame deficits. It’s recent history. Perhaps Reagan, GH Bush and Clinton were unusually competent or economic circumstances dictated policy.

Posted by: Rich at September 15, 2013 4:09 PM
Comment #370747

Rich

Maybe we need Reagan, Bush1 or Clinton, but we had Bush 2 and Obama.

Still the sixty year record shows a lot more deficit than surplus.

Of course we also need to agree when too much is too much. And we also need to overshoot. It takes a while for actions to be manifest. If we spend at one point, or cut, the conditions are different by the time stuff happens. A politician doesn’t want to help the next guy, especially an opponent.

IMO, we understand too little about the economy to fine tune. It would be useful to have infrastructure projects prepared to be deployed during hard times, but I don’t imagine politicians tolerating the wait. Or deploying where most needed.

Have you been to W Virginia. They have some really great roads with almost no traffic. The Feds paid for them when Robert Byrd was powerful.

We also need to rebuild sewer systems and inland waterways, but politicians tend not to like such things since they are hard to see.

Posted by: CJ at September 15, 2013 4:26 PM
Comment #370748

CJ,
Can you make a cogent argument why the payroll cap on SS should not be removed? I did not see one.

Posted by: phx8 at September 15, 2013 5:11 PM
Comment #370750

phx8

I would accept that the cap be removed, but then we should lower the rate. It is a type of tax that pulls money out of the working economy into government sector. Firms as well as individuals pay the tax. It is essentially a tax on employment.

I expect politicians would be as careful with those revenues as they have in the past.

Beyond that, SS was created as an insurance program, not a welfare. It was supposed to preserve the pride of the workers and give them skin in the game. It already favors the poor over the rich. Those who contribute least get a lot more back. High earners like us already subsidize the others.

If you want to simply raise the tax, simply raise the tax and eliminate the fiction that it is paid for by contributions by the worker in question.

But I say again, it is very liberal of you to advocate taxing others to pay for your comfort by advocating a tax you will receive but not pay.

Posted by: CJ at September 15, 2013 6:14 PM
Comment #370753

Removing the cap and lowering the rate would work, but if long-term solvency is the goal, leaving the rate the same would ensure solvency, and possibly even allow an increase in SS payments.

It really becomes a question of what kind of country you want. As a country, we have cut taxes, deregulated, and privatized, all the while shipping jobs overseas and outsourcing; and at the same time, kept wages low. The results are exactly what you would expect.

Most people find it unacceptable. A very small percentage of Americans have done extraordinarily well and garnished most of the wealth for themselves, while almost everyone else has languished. Job creators rule the roost, while the value of labor is denigrated. Government debt has boomed. Meanwhile, deregulation and lack of oversight result in periodic busts, especially in the financial sector, and why not? No one will be held responsible if the ‘take the money and run.’

Not only have wages remained low, but retirement benefits and medical benefits have steadily disappeared from the private sector. Productivity has boomed, yet employee turnover is the rule of the house, thanks to ‘right to work’ laws. What does this mean for young people? It means there is little reason for them to root for continuing such policies.

Posted by: phx8 at September 15, 2013 6:31 PM
Comment #370754

phx8

Your goal is to soak the rich and direct more money to people like yourself.

My goal is to give the young people a better deal, including and especially the poor ones.

That is why I want to lower their rates if we break the caps. The rich would end up paying more almost no matter what and the richest of the rich would pay the most. If you cut the rates in half, you still will manage to get more money out of anybody who makes more than $220k a year. And a guy making a million would end up paying almost five times as much as he does now. BUT the poor kid making $25,000 would only pay half as much.

So my plan lets you soak the rich as you want and still gives the poor kids a better deal, as I want.

The other concerns you mention are not affected by these things. The financial sector is heavily regulated, BTW, and inequality has grown during the Obama years.

Posted by: CJ at September 15, 2013 7:20 PM
Comment #370778

The biggest economic problem I see is that the Republicans can’t get past the cognitive dissonance that keeps them from being able to recognize what a burden on the economy their policies on. You can talk about fracking being some salvation, but that’s one sector, and you can’t pump more out of the ground than what’s there. There’s no guarantee that the supplies will last forever, that the boom will never go bust.

And that’s another thing! Essentially, conservative economic policy is to trust in the creation of bubbles. We really haven’t departed from it since the Stimulus. Instead, Republicans have forced several rounds of austerity at the state, local, and federal levels, while doing their best to get in the way of any reforms to the economy as a whole.

They talk about doldrums, but they don’t talk about the fiscal lag their spending cuts are creating, or the consequences of the sequester, which is ultimately a result of their debt ceiling policy.

If you want to talk about why my generation is getting screwed, why don’t you tell me why we paid for the Iraq war on the credit card, why the Republican Congress passed Medicare reforms early last decade, but didn’t bother to pay for them. Tell me why your people wanted to take Detroit bankrupt, both the Car industry (which Obama saved, thank God), and Detroit, which your Tea Party Governor’s Appointed Emergency manager took into bankruptcy. Explain that to me!

Your solution to the economic problems seems to be largely magic. People getting more confident about investments or something like that. You expect non-linear effects to predominate in a way they don’t, and to be absent in a way they aren’t.

Posted by: Stephen Daugherty at September 16, 2013 5:31 PM
Comment #370785

Stephen

Supplies will not last forever. Nothing does. But in the time here and now fracking has pumped more money into the economy than has the stimulus and probably created or saved more jobs.

Re the young getting screwed - you talk what you think is history. I am talking about the future. That is where you are going to live for the rest of your life and that is the only place where problems can be addressed.

You seem to want to keep on paying for us old guys. Thank you. I could get by w/o SS, and would be willing to do it, but you insist that I will collect the maximum benefit. Think about the steak I will be eating at your expense when you open up that can of pork and beans.

Actually, thanks to your generosity, I will be able to leave more money to my kids when I die, so your program is really helpful to us and them.

Posted by: CJ at September 16, 2013 6:57 PM
Comment #370786

Stephen

Maybe forget about the pork. I am sure you young folks can make do with just the beans.

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Comment #376445


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