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Thread: LA Times: Obama stimulus spending: $246,436 per new job

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Let's do a mental exercise and look at some basic economics. I am only presenting a 'common sense' approach here and no specifics.

    I have just got paid from my job making widgets. I have two dollars - one I send off to the federal government and the other I put in the bank.

    The one that goes to the government is collected by the IRS. So part of the dollar goes to pay for their time and effort. The remains are now in the general pool where Congress (after taking their expenses out of it) decides where to spend it. The remains are now back in the economy paying for something or other.

    The dollar I put into the bank allows the bank to pay its expenses and hold out the portion required by law - let's say that it is an arbitrary 50%. The bank holds onto that 50% and sends the other 50% into the economy through loans.That 50% circulates in the economy and then is put back into the bank again. So 25% goes back out again, etc. In each step the bank is making money "out of thin air" because they are giving 50% out in loans while my account still says 100%. This is a money multiplier situation. So my one dollar I saved in the bank becomes roughly $2 in value - $1 in the bank and another dollar circulating as loans.

    Now Keynes is going to point out rather quickly that the dollar that went to the government also ends up in banks so the same multiplier works out. So it really does not matter whether the government or the individual spends the money.

    But lets go back to what I do in my job. I make widgets. My company buys raw materials which I use to create a finished widget. The finished widget is sold by my company for more than the costs of the raw materials and my time. Thus, my company has also made money 'out of thin air', also known as profits. So my job has produced more money for the economy as a whole.

    The money that is paid to the IRS does not make money 'out of thin air' until it hits a bank. Congress does not make money 'out of thin air' until it spends the money and the recievers put it into a bank. So my dollar that went into the bank and then went out in loans may end up somewhere in the private sector creating more money 'out of thin air'. Or it went to the government to buy some of the government debt in which case it did not increase.

    Now our current recession is universally blamed on a credit crunch. There was no money to lend out. That meansthat bank deposits were not keeping up with the demand for loans. So the government solution was to generate more government debt soaking up investment dollars into non-productive investments so that they can spend more money. Another solution may have been to encourage more savings, but our government's tax policy is very 'anti-saving'. Bank accounts (where more money is created) pay interest which is taxed as straight income. The tax rate on the interest is such that, when you take into account the rate of inflation, you actually have less money value than when you started. And yet increasing our savings rate would help our economy avoid a credit crunch. Our problem in the past is ignoring the savings rate and just concentrating on the spending rate.

    So there, proof that the private sector is a better place for money than filtering it through the government.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by carlkay58 View Post
    Our current recession is universally blamed on a credit crunch.
    No it's not.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by Whip Comes Down View Post
    No it's not.
    Then what do you blame it on? Everyone (President Obama, Democrats, Republicans, NPR, CNN, FoxNews, etc) has been stating that all along.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by carlkay58 View Post
    Then what do you blame it on?
    The economic cycle.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by carlkay58 View Post
    The dollar I put into the bank allows the bank to pay its expenses and hold out the portion required by law - let's say that it is an arbitrary 50%. The bank holds onto that 50% and sends the other 50% into the economy through loans.That 50% circulates in the economy and then is put back into the bank again. So 25% goes back out again, etc. In each step the bank is making money "out of thin air" because they are giving 50% out in loans while my account still says 100%. This is a money multiplier situation. So my one dollar I saved in the bank becomes roughly $2 in value - $1 in the bank and another dollar circulating as loans.
    Sure. But there's also a money multiplier effect when someone - including the government - spends money. The money is spent, and then spent again, etc. This also translates into a job multiplier effect.

    Now Keynes is going to point out rather quickly that the dollar that went to the government also ends up in banks so the same multiplier works out. So it really does not matter whether the government or the individual spends the money.
    Right, I say that too, me being Keynes for a day!

    Now our current recession is universally blamed on a credit crunch. There was no money to lend out. That meansthat bank deposits were not keeping up with the demand for loans. So the government solution was to generate more government debt soaking up investment dollars into non-productive investments so that they can spend more money.
    Non-productive investments? In a recession, there is a lack of productive investments. That's why the government steps in.

    Another solution may have been to encourage more savings, but our government's tax policy is very 'anti-saving'. Bank accounts (where more money is created) pay interest which is taxed as straight income. The tax rate on the interest is such that, when you take into account the rate of inflation, you actually have less money value than when you started. And yet increasing our savings rate would help our economy avoid a credit crunch. Our problem in the past is ignoring the savings rate and just concentrating on the spending rate.
    Absolutely. We should have done that. But we didn't.

    So there, proof that the private sector is a better place for money than filtering it through the government.
    Of course it is.

    But we're in a crisis. The private sector isn't filtering enough money. It needs a boost so it can get going again. A stimulus is a temporary, one-time measure designed to get the private sector moving again.

    Thanks for a productive, reasoned post instead of empty mocking with no substance.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by misterman View Post
    Nobody's savings is depleted.

    The government borrows money to get it out in the economy again. It works just like with a bank. You put your money in, and someone borrows it and spends it on business activity. Nothing unusual about that, and nobody's savings is depleted.

    Genius.
    You don't have a clue do you? What grade are you in?
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    At least Bill saved his transgressions for grown women. Not suggesting what he did was OK. But he didn't chase 14 year olds.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by akyron View Post
    They just have no clue whatsoever do they?
    None at all!! They still don't realize where the money is going to come from.
    Quote Originally Posted by Top Cat View Post
    At least Bill saved his transgressions for grown women. Not suggesting what he did was OK. But he didn't chase 14 year olds.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by apdst View Post
    You don't have a clue do you? What grade are you in?
    Too bad you can't have an intelligent conversation instead of offering nothing except violations of forum guidelines.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by misterman View Post
    Too bad you can't have an intelligent conversation instead of offering nothing except violations of forum guidelines.
    Ok, you want an intelligent conversation? Fine. I'll ask again: where is the money going to come from???
    Quote Originally Posted by Top Cat View Post
    At least Bill saved his transgressions for grown women. Not suggesting what he did was OK. But he didn't chase 14 year olds.

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    Re: LA Times: Obama stimulus spending: $246,436 per new job

    Quote Originally Posted by apdst View Post
    Ok, you want an intelligent conversation? Fine. I'll ask again: where is the money going to come from???
    It's borrowed. Didn't you see what I wrote?

    Do you mean how will it be paid back?

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