US household income disparity

PJ & WTF need to "get a room" --

[I don't even want to think about who plays "pitcher" and who plays "catcher" Originally Posted by atlcomedy

Soon we're going to need an entire hotel floor. So far we need rooms for: WTF and PJ, Ansley and Becky, Ed and the rodent

Soon we're going to need an entire hotel floor. So far we need rooms for: WTF and PJ, Ansley and Becky, Ed and the rodent Originally Posted by discreetgent

I just wanna be able to peek through your keyhole. You getting more behind than all of us combined!

Cute.

If you actually believe that Krugman is "right about the stimulus" (that is, that we need even more deficit spending, with little regard for how the money is spent), would you like to provide an example of a case where that's actually worked, or, barring that, take a stab at explaining why you think it would work now? Originally Posted by CaptainMidnight

Sorry, I haven't been following this thread every day. Been working on a product's liability case about 16 hours a day in the past two weeks.

First, I think the last stimulus was poorly designed. I think I posed on that somewhere on this board in the past few months. Two main flaws:

1. Too many projects that took too long to fund. You need to get the money into the economy ASAP.

2. Too much reliance of tax cuts.

I forget the exact multipliers, but I've seen published figures in economics journals on what the multipliers are on various spending measures are. The highest is to just give the money to low income taxpayers (or non-taxpayers) because they almost invariably spend it all. The worst is to give it to those who are well off. They don't spend much at all. If you give the money to my file clerk, she'll spend every nickle in a week. If you give me extra money, I'll invest in European government and corporate bonds, BIC (but not R) stocks, European growth stocks, and American growth stocks. I won't buy anything. Seems like the highest multiplier I saw was 1.8 or 1.9. Lowest was tax refund or cut to the wealthy: .35.

Nor would I, nor do I think Krugman would, counsel against ignoring deficits. Unfortunately, like the grasshopper in the fable of the ant and the grasshopper, we played during the good times and spent foolishly when times were good, so we have less margin for error. We would need to start cutting faster than we otherwise might like to do. And probably sooner. But the way to get out of the deficit is to grow the economy the way Clinton did in the 90's. And you can only do that once we get out of the liquidity trap that we are now in.

I also suspect that we might differ on where cuts need to be made to bring the budget into balance once times get back to normal. But that is a different story for another day.

As for you question on historical examples of Keynesian stimulus in economies already riddled with debt, I haven't the time to look. If I did, I'd probably start in the 1960's in Europe and S. America. But that being said, there is no doubt that our preexisting and unjustifiably high level of debt has somewhat tied our hands and substantially diminished the room for maneuver.

I forget the exact multipliers, but I've seen published figures in economics journals on what the multipliers are on various spending measures are. The highest is to just give the money to low income taxpayers (or non-taxpayers) because they almost invariably spend it all. The worst is to give it to those who are well off. They don't spend much at all. If you give the money to my file clerk, she'll spend every nickle in a week. If you give me extra money, I'll invest in European government and corporate bonds, BIC (but not R) stocks, European growth stocks, and American growth stocks. I won't buy anything. Seems like the highest multiplier I saw was 1.8 or 1.9. Lowest was tax refund or cut to the wealthy: .35. Originally Posted by TexTushHog

Word!

Also because Rudy brought it up in the other thread; I terms of money supply this means, the money given to the low income people is mostly M1.

The money given to the high incomes ends up mostly as M3, and the rest as M2 and M1.

M1 and M2 is controllable by the Fed to a certain degree, M3 not really.

But for some the topic always goes to the progressive nature of the tax code, never the regressive nature of sales tax or other revenue generating tactics of various forms of government entities. I never hear these same folks that bitch about Federal income taxes and about the poor not paying their fair share suggest that we start paying traffic tickets on a % of your income or passports or car registrations. You will get no argument out of me that we are taxed to death but for once it would be a welcome change for those that have, to acknowledge that those that are less fortunate are not some free loaders not paying as much as they can in various forms of taxes.







http://www.tax.com/taxcom/features.nsf/Articles/0DEC0EAA7E4D7A2B852576CD007146 92
Since 1992, the bottom 90 percent of Americans have seen their incomes rise by 13 percent in 2009 dollars, compared with an increase of 399 percent for the top 400.

The annual top 400 report was first made public by the Clinton administration, but the George W. Bush administration shut down access to the report. Its release was resumed a year ago when President Obama took office

Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006, the new data show. That rate is lower than the typical effective income tax rate paid by Americans with incomes in the low six figures, which is what each taxpayer in the top group earned in the first three hours of 2007.
Payroll taxes did not add a significant burden to the top 400, not changing the rounding of rates by even one decimal. With payroll taxes taken into account, the effective tax rate of the top 400 would be 17.2 percent in 2006 and 16.6 percent in 2007, my analysis shows -- the same as not counting payroll taxes. As a point of comparison, about two-thirds of Americans pay more in Social Security, Medicare, and unemployment taxes than in federal income taxes.

First, I think the last stimulus was poorly designed. I think I posed on that somewhere on this board in the past few months. Two main flaws:

1. Too many projects that took too long to fund. You need to get the money into the economy ASAP.

2. Too much reliance of tax cuts. Originally Posted by TexTushHog

I certainly agree with you that the stimulus was "poorly designed!"

But can one have expected any other outcome? The design was handed over to congressional hacks who naturally targeted it at their favorite constituencies, such as public employee unions. Note that much of the money was simply sent to states with no accountability, so that legislatures could punt on making any politically tough decisions -- thus guaranteeing that more bailouts will be necessary!

The tax cuts included in the stimulus totalled about one-third of the whole bill. They were restricted to lower income groups in the form of rebates and refundable tax credits. Programs of this type are popular with politicians for obvious reasons, but in an economic sense they tend not to work as well as policymakers think. The same thing was done in by the Bush administration in the spring of 2008 (to the tune of about $150 billion). There was a small blip in retail sales around May of '08 as I recall, but then the pattern settled quickly down into a "pre-stimulus" appearance. Anyone curious about the issue can google "permanent income hypothesis." It's controversial, but I think it has a fair amount of validity, especially today when people are interested in reducing their credit card debt. So to a significant degree, the effort may have done little more than to transfer a bit of debt from the private sector to the public sector.

Concerning the idea of getting the money out into the economy ASAP, consider this ad absurdum idea: Let's say we simply decided to take the $862 billion and send large checks to every poor and near-poor family in America. For instance, find the bottom 50 million households and send each a check for about $17,000 immediately. Of course, there's no question that would stimulate the economy for a little while, but what then? It wouldn't be long before we'd have a great deal of trouble managing the comedown from what would be tantamount to a massive sugar high.

I forget the exact multipliers, but I've seen published figures in economics journals on what the multipliers are on various spending measures... Originally Posted by TexTushHog

I don't think anybody has any idea what a "ballpark" multiplier is, let alone an exact one! A lot of the stuff based on those 1970s-style macro models just amazes me. I am a skeptic and seriously doubt you'd be likely to find a real-world multiplier anywhere near 1, let alone 1.5 or more. I've always wondered whether some of these people, had they been around in the mid 1800s, would have fallen for Bastiat's "broken window fallacy!"

BIC (but not R) stocks... Originally Posted by TexTushHog

What's the matter, TTH? Uncomfortable with some of them Russkies? (I'm with you there. You can send me a couple of their better-looking female spies, though. I'll find a way to dig up lots of secrets!)

As for you question on historical examples of Keynesian stimulus in economies already riddled with debt, I haven't the time to look. If I did, I'd probably start in the 1960's in Europe and S. America... Originally Posted by TexTushHog

In many cases such as 1960s-'70s Europe and South America, countries began big, expensive government programs, sometimes with the aim of stoking growth, but often just because they wanted to greatly expand social programs. The result was always the same: Abject failure. Now we see the U.K. and Germany trying to cut government spending in every way politically possible. They've been down the garden path with all this before. They are beginning to realize that if they don't start making tough choices now, they could soon be in for a whole world of hurt.

But the way to get out of the deficit is to grow the economy the way Clinton did in the 90's. And you can only do that once we get out of the liquidity trap that we are now in. Originally Posted by TexTushHog

I certainly agree that we need to grow the economy, but remember, Clinton presided over a time when government grew at the lowest rate in modern history. In this regard, Bill was the "anti-Obama." I posted this earlier in this thread:

...But he did one big thing that's widely unappreciated. In 1993, there was something of a debate going on between Bob Reich (Secretary of Labor) and Bob Rubin (policy advisor and later treasury secretary). At the time, an economic recovery was underway but was a bit weak. Reich is sort of a somewhat less radical version of Paul Krugman. He's always interested in stimulating the economy by Keynesian means, despite mountains of evidence that such efforts never produce the desired results and often inflict serious damage on an economy over time (as we're about to see).

On the other hand, Bob Rubin argued that we needed to restrain the growth of government spending in order to calm the bond markets. The term "bond vigilante" was in widespread use at the time. Deficits then, of course, were miniscule compared with today, but were of enough concern that Perot gained a lot of support when he went on TV with all those charts.

Needless to say, Rubin was right and Reich was wrong. Clinton was smart enough to see that and eventually resisted calls for more foolish "stimulus" spending.

One of my favorite comments about stimulus packages was made by Bob Kerrey, former Democratic senator from Nebraska. He said the only stimulus package he supported was the one that had been provided by his ex-girlfriend, singer-actress Debra Winger. Wise man! Originally Posted by CaptainMidnight

Concerning the presence of a possible "liquidity trap" ( a controversial notion in any case), massive government spending is manifestly not the way to combat one. Just look at Japan, which many people thought fell into a liquidity trap in the '90s. Since then, they've gone for one stimulus measure after another, tripling their debt/GDP ratio to almost 2:1. Their economy is still mired in stagnation, and has been for years.

I also suspect that we might differ on where cuts need to be made to bring the budget into balance once times get back to normal... Originally Posted by TexTushHog

I have a very succinct answer to that one:

Everywhere!

What's the matter, TTH? Uncomfortable with some of them Russkies? (I'm with you there. You can send me a couple of their better-looking female spies, though. I'll find a way to dig up lots of secrets!) Originally Posted by CaptainMidnight

ROFLMAO. It shows that you are an American Russian spies are totally useless. However knowing at least one well connected блатмейстер ("blatmeister") or "blat queen" is very useful.

Russian economy really is actually блат ("blat") and the post-soviet market a giant барахолка ("baracholka") full of wanna-be "bisnismeni".

ROFLMAO. It shows that you are an American Russian spies are totally useless. However knowing at least one well connected блатмейстер "blatmeister" or "blat queen" is very useful. Originally Posted by ..

Just to make it clear, I didn't mean that I expected to get any "secrets" from the hypothetical attractive female spy...I was thinking maybe I could entice her to come see me by suggesting that I had dug up some juicy little secrets for her to take back to her handlers!

I figure Russian spies are far from useless if they're attractive and think I have some information they need!

I figure Russian spies are far from useless if they're attractive and think I have some information they need! Originally Posted by CaptainMidnight

you mean, you have for them the macro-economic multipliers from THH, and the M3 money supply from Rudy?

you mean, you have for them the macro-economic multipliers from THH, and the M3 money supply from Rudy? Originally Posted by ..

Shhhh!!!! Don't tell anyone, but they are hermetically sealed inside a mayonnaise jar underneath Funk & Wagnall's porch.

Multipliers have to be over 1. Otherwise, you're assuming that the poor and near poor save some of what they get and that the people they spend with don't re-spend.

As to why I don't invest much in the R of the BRIC "block", I see Russia mostly as a commodities play and I have more than enough unhedged exposure for my taste to commodity prices via my oil and gas income (mostly gas). So I don't see that Russia does all that much for my portfolio. In the portfolio of others, it may serve as a hedge against very high oil prices, as would Brazil to a lesser degree.

Multipliers have to be over 1. Otherwise, you're assuming that the poor and near poor save some of what they get and that the people they spend with don't re-spend. Originally Posted by TexTushHog

I am assuming no such thing.

The belief that spending must result in a multiplier of 1 (or more than one) rests on fallacies left over from the old macro models of decades ago. They have been discredited by various types of robustness anaysis conducted in recent years.

Consider this: If the multiplier was 1.0, then for every dollar of aggregate demand produced by government spending, we would produce an extra dollar of GDP. Whatever was then produced would be free to society without reducing anyone's consumption or investment.

If the multiplier is greater than 1, as is apparently assumed by some of Obama's advisors, then real GDP rises by more than the cost of whatever the money is spent on, so consumption and/or investment rises for someone else. Some people even think the multiplier for certain types of spending is greater than 2!

The apparent wonderfulness of that idea suggests that it would be good policy to have a never-ending series of stimulus packages so that we could enjoy exponentially increasing economic growth. That's Tooth Fairy economics.

The obvious problem is that for anything that is stimulated, something else has to be de-stimulated. Believing otherwise is not significantly different from falling for Bastiat's "broken window fallacy."

The ECB recently commissioned a study indicating a typical 0.5 multiplier for social spending. Remember, these guys serve countries with lavish welfare states, so you'd think they would like to avoid findings that understate any potential benefits mitigating the net costs of the programs.

A number of researchers believe that the "multiplier" (if one can call it that) for some types of government spending is not much greater than zero.

Maybe the fiscal multiplier should really be called a fiscal divider!

The obvious problem is that for anything that is stimulated, something else has to be de-stimulated. Believing otherwise is not significantly different from falling for Bastiat's "broken window fallacy."
Originally Posted by CaptainMidnight

Agreed...damn twice in one week.