Green Party = More Ignorant of Economics than Democrats... if that's possible

[TripleB]

I'm listening to this online debate between the 2012 Libertarian and Green Party presidential candidates.

http://www.youtube.com/IVoterNetwork

I'm only 10 minutes in and the Green Party is running on a "jobs" campaign. The New Deal 2.0 in her own words.

Too bad she hasn't bothered to read even the basics economics book or she would realize jobs are not something the government can directly create nor is it something they should directly create.

It's like taking the most ridiculous aspects of the Democrats and condensing them down into a 3rd party of people who really suck at economics.

[TripleB]

What do you feel about capital gains tax and dividends tax increases coming if the Bush Tax Cuts expire?

Green Party: "Only the top 2% of people in the US actually pay capital gains taxes or dividends taxes because only people with great means can afford to invest any money. And the incomes of the top 2% have increased so much in recent years and they've benefited so disproportionately from the economy, that they should pay higher taxes."

She literally said the only people paying any capital gains or dividends tax are rich people who have too much money. Literally, not even hyperbole. WTF??

[melveyr]

Too bad she hasn't bothered to read even the basics economics book or she would realize jobs are not something the government can directly create nor is it something they should directly create.

Federal government hires an FBI agent. Boom. Job created. I don't see what is so hard to get about that.

The point is never if the government can create jobs, it can. The question is whether or not the government is hiring people for work that adds value to society. That is more ambiguous and subjective. But to say that the government can't create a job is pretty ridiculous.

[TripleB]

Too bad she hasn't bothered to read even the basics economics book or she would realize jobs are not something the government can directly create nor is it something they should directly create.

Federal government hires an FBI agent. Boom. Job created. I don't see what is so hard to get about that.

The point is never if the government can create jobs, it can. The question is whether or not the government is hiring people for work that adds value to society. That is more ambiguous and subjective. But to say that the government can't create a job is pretty ridiculous.

On a net basis, the government destroyed jobs by hiring an FBI agent or at best, simply maintained a neutral number of jobs. The government has to collect taxes to pay for that FBI agent.

Those taxes means people have less money to buy something they want. If the FBI agent cost $100k per year in training/benefits/salary, that's $100k that taxpayers got stolen from them, that they could have used to buy a new microwave, or a new TV or a new suit.

So essentially, we shifted a job from a tailor over to the job of an FBI agent who is going to harrass a farmer over buying too much ammonium nitrate fertilizer.

In fact, since there's overhead costs in collecting taxes, there has to be a net destruction in jobs by having the government "create" them.

[melveyr]

Too bad she hasn't bothered to read even the basics economics book or she would realize jobs are not something the government can directly create nor is it something they should directly create.

Federal government hires an FBI agent. Boom. Job created. I don't see what is so hard to get about that.

The point is never if the government can create jobs, it can. The question is whether or not the government is hiring people for work that adds value to society. That is more ambiguous and subjective. But to say that the government can't create a job is pretty ridiculous.

On a net basis, the government destroyed jobs by hiring an FBI agent or at best, simply maintained a neutral number of jobs. The government has to collect taxes to pay for that FBI agent.

If the situation was a balanced budget your point could be perfectly valid. But our government rarely runs a balanced budget. Most of the time our government runs a budget deficit which increases aggregate demand.

Additionally, why does our government have to tax in order to spend? Isn't it more logical to assume that our government has to spend in order to tax? If the government had never spent any dollars the private sector would have no dollars for the government to tax away in the first place.

[TripleB]

If the situation was a balanced budget your point could be perfectly valid. But our government rarely runs a balanced budget. Most of the time our government runs a budget deficit which increases aggregate demand.

Additionally, why does our government have to tax in order to spend?

There's 2 ways for the government to tax us:

1) A direct tax
2) Inflation

The government has to tax us one of those ways in order to spend money. They either seize money through taxes and spend with those, or print more money, thus causing inflation, and spend those new dollars they printed.

Suppose the government decided to print $100k and hire an FBI agent. They devalued the spending power of everyone by a total of $100k in aggregate, thus the government taxed us by stripped us of spending power, which is equivalent to taking the $100k in physical bills.

The tailor who I would have bought a new suit from is out of a job because my dollars bought less food, gas, etc, and thus even though my nominal dollar amount was the same (as before the government printed this new $100k), my spending power was reduced so I had to spend more money on other things, and I couldn't afford to hire the tailor to make me a new suit.

[melveyr]

If the situation was a balanced budget your point could be perfectly valid. But our government rarely runs a balanced budget. Most of the time our government runs a budget deficit which increases aggregate demand.

Additionally, why does our government have to tax in order to spend?

There's 2 ways for the government to tax us:

1) A direct tax
2) Inflation

The government has to tax us one of those ways in order to spend money. They either seize money through taxes and spend with those, or print more money, thus causing inflation, and spend those new dollars they printed.

Suppose the government decided to print $100k and hire an FBI agent. They devalued the spending power of everyone by a total of $100k in aggregate, thus the government taxed us by stripped us of spending power, which is equivalent to taking the $100k in physical bills.

The tailor who I would have bought a new suit from is out of a job because my dollars bought less food, gas, etc, and thus even though my nominal dollar amount was the same (as before the government printed this new $100k), my spending power was reduced so I had to spend more money on other things, and I couldn't afford to hire the tailor to make me a new suit.

Hypothetical: What if I provided a brilliant service to the FBI agent and all of his income went to me. Let's say I decided to save all of that 100k and never spent it. Would you agree that this would mitigate or potentially cancel out the inflationary effect?

Edit: I noticed you conveniently left out the second part of my argument in your quote. It is hard to stomach but very enlightening once fully internalized.

[TripleB]

Hypothetical: What if I provided a brilliant service to the FBI agent and all of his income went to me. Let's say I decided to save all of that 100k and never spent it. Would you agree that this would mitigate or potentially cancel out the inflationary effect?

So the government prints $100k new dollars, hires an FBI agent, and the FBI agent decides to give all $100k of his income over to you.

There's $100k new dollars in the system, and thus a devaluation of the spending ability of all dollars by a small amount, even if people choose not to spend that money.

What if I figured out a way to make gold from lead, but I didn't spend any of the gold? I just converted 1 ton of lead into 1 ton of gold but buried it in my back yard. Well if the rest of the world knows that I can do this, what happens the price of gold even if I never sell my gold?

This is a corollary to your example - the government printed the $100k so even if it goes to you and you sit on it, the potential for you to eventually spend it exists, and thus the devaluation occurred at the time the money was printed.

Also, you would have to decide to take the $100k in cash and stick it under your mattress. If you decide not to spend it by putting it in the bank, then the bank lends that money out to someone else, and thus the money supply is inflated and devaluation occurs.

[melveyr]

Hypothetical: What if I provided a brilliant service to the FBI agent and all of his income went to me. Let's say I decided to save all of that 100k and never spent it. Would you agree that this would mitigate or potentially cancel out the inflationary effect?

So the government prints $100k new dollars, hires an FBI agent, and the FBI agent decides to give all $100k of his income over to you.

There's $100k new dollars in the system, and thus a devaluation of the spending ability of all dollars by a small amount, even if people choose not to spend that money.

What if I figured out a way to make gold from lead, but I didn't spend any of the gold? I just converted 1 ton of lead into 1 ton of gold but buried it in my back yard. Well if the rest of the world knows that I can do this, what happens the price of gold even if I never sell my gold?

This is a corollary to your example - the government printed the $100k so even if it goes to you and you sit on it, the potential for you to eventually spend it exists, and thus the devaluation occurred at the time the money was printed.

Also, you would have to decide to take the $100k in cash and stick it under your mattress. If you decide not to spend it by putting it in the bank, then the bank lends that money out to someone else, and thus the money supply is inflated and devaluation occurs.

If the market were merely a money printing detection device in the way that you described it our currency would already be useless. Couldn't you very easily argue that the government has an infinite amount of money already? If it doesn't matter whether or not it is spent, why does our money still hold any value if the government has an infinite amount?

If your banking story were true wouldn't we already have a recovery? If deposits created loans then why are credit conditions so tight right now? Wouldn't it make more sense if bank lending were determined by the differential between cost of funds and the risk adjusted return of loan prospects?

[TripleB]

If the market were merely a money printing detection device in the way that you described it our currency would already be useless. Couldn't you very easily argue that the government has an infinite amount of money already? If it doesn't matter whether or not it is spent, why does our money still hold any value if the government has an infinite amount?

The government doesn't hold an infinite amount of money. At a certain point, people would stop accepting it if they chose to print too much. This has been seen time and time again in other countries like Zimbabwe where a hamburger costs several hundred trillion dollars.

The government has to keep it's money printing in check or the free market will slap it.

Look at QE 1, QE2 and the recent QE Infinity. Look at what happened to the price of gold on those days. Did gold go up or did the dollar go down (relative to gold) in anticipation of the new money being printed?

Here's an analogy. The police can go to your house, drum up ridiculous charges, plant evidence, and put you in front of a grand jury for child pr0n, 1st degree murder, or whatever. And even if you're totally innocent, if a few dirty cops conspired against you, you'd be screwed and go to prison forever.

Do the police posses an unlimited amount of power? They possessed strong power against you in this one case, but if they tried to do that too many times, people would figure it out, and in the LAPD in the last 30 years that is what happened. Dirty cops possessed seemingly unlimited power but they got out of hand and got caught. The same for the US government if they tried to print too much money.

If your banking story were true wouldn't we already have a recovery? If deposits created loans then why are credit conditions so tight right now? Wouldn't it make more sense if bank lending were determined by the differential between cost of funds and the risk adjusted return of loan prospects?

All else equal, it's true. The "problem" is new banking regulations that requires a greater amount of capital to be held in banks occurred at the same time as the money printing. So while new money is out there, banks aren't allowed to lend as much of it as before.

[melveyr]

I understand if my infinity example was not that clear. What I was trying to emphasis was that because the government has no physical constraint on money production you could already conceptualize them as having an infinite of money created, ready to be spent at will. It is the spending of the money that will potentially cause inflation.

What I meant to also emphasis is that you are very focused on the supply of money, but are not focusing on the demand. Do you think that we should have a static fixed supply of money? What if demand for money increases as our economy grows? Our government is the monopoly supplier of dollars, do you think they should never respond to changes in demand?

[moda0306]

Of course the government can "create jobs."

After some Japanese pilots decided to attack Peal Harbor we ended 15% unemployment in a blink of an eye by runnin huge deficits and the war effort.

The real question is, can government create wealth, or at least facilitate the creation of wealth.

And let's be honest here, it's the Repubs that are getting proven wrong day after day while we run large deficits, and "print tons of money," and both interest rates and inflation stay as low as they do.  

The Green Party acknowedges some great things in economics (mostly externalities and the absurdity that resources are inherantly private).  I'm glad they have a voice.

[moda0306]

If a $100 bill printed into the economy automatically "devalues" other money, then by logical extension, the value of treasury bonds goes up, since we've destroyed that...

Unless both our dollars and our national debt are bothe two similar kinds of confetti and taxes help to give them value in the economy.

Gold rose on the announcements of QE because QE lowers bond rates, and I think there's a general consensus here that real rates drive gol, not inflation... Hence the 20-year bear market during modest inflation, but higher t-bill rates.

Where the government can get in trouble with printing money, is in keeping rates so low that people have no reason to hold dollars or t-bills.  However, due to years of foreign demand for our currency draining our financial balance sheets, which still continues today, we are in no position to spend vast sums, borrow vast sums, or somehow "reject" the confetti that we can barely get enough of to pay our debt service obligations every month.  It's a balance sheet recession and it's a deep one.

[MediumTex]

The government is really only constrained by inflation and capital flight.  If there is little or no inflation or capital flight, what would keep the government from spending as much as it wanted?  What would be the force that would stop it?  I can't think of anything (though inflation and/or capital flight will always show up sooner or later if the government's spending gets too crazy).  I'm not saying any of that spending would be efficient compared to what the private sector might otherwise do, but there is no logical stopping point of such spending beyond, of course, the actual productive capacity of the economy at the time. 

The productive capacity of an economy is always a hard barrier to spending by either the private sector or the government at any particular point in time.  Let's say, for example, that the government wanted to provide an aircraft carrier to every citizen of the United States.  It wouldn't be that the government didn't have the ability to print up enough money to buy these ships; rather, it would be that there simply wasn't enough productive capacity in existence to build them at the time, no matter how much money was available to purchase them.

In a situation where you have capital flight, as in Zimbabwe, what you see is not just that the government is attempting to spend beyond the productive capacity of the economy, the productive capacity of the economy itself is contracting through the the process of capital flight, which just accelerates the government's destruction of the economy.

It all works itself out in the end, but I think that empire-like nations such as the U.S. do have some large advantages when it comes to stimulating their own economies, and they can get away with certain practices for a lot longer than other nations could simply because the nation in the position that the U.S. is in will remain the preferred destination for international capital and its currency acting as world reserve currency will also help dampen inflationary pressures it might otherwise experience.  I think that the British empire basically went through this whole process about a century ago as it entered its period of decline.  We will get there, too, it will just take a while. 

[craigr]

The problem with government spending on what it wants is that it is a negative force for freedom in most cases.

Meaning if the Red Cross could deficit spend without worry it doesn't worry me terribly much as they buy new blood banks, relief supplies, etc.

When the government deficit spends without worry you get overseas wars, domestic police state weaponization and surveillance, more government regulators, bigger government pensions, more welfare, etc.

So when people say government can spend without worry I think they should consider what that really means. The government is really lousy at spending money that promotes future prosperity and freedom. They are not a benevolent organization no matter how hard they try and we shouldn't give them a blank check, even if the economic arguments made any sense (which they don't to me for a multitude of reasons).

I didn't watch this debate, but I'm surprised that if the Libertarian and Green Party candidates shook hands there wasn't a matter/anti-matter explosion.

[MediumTex]

The problem with government spending on what it wants is that it is a negative force for freedom in most cases.

Meaning if the Red Cross could deficit spend without worry it doesn't worry me terribly much as they buy new blood banks, relief supplies, etc.

When the government deficit spends without worry you get overseas wars, domestic police state weaponization and surveillance, more government regulators, bigger government pensions, more welfare, etc.

So when people say government can spend without worry I think they should consider what that really means. The government is really lousy at spending money that promotes future prosperity and freedom. They are not a benevolent organization no matter how hard they try and we shouldn't give them a blank check, even if the economic arguments made any sense (which they don't to me for a multitude of reasons).

I didn't watch this debate, but I'm surprised that if the Libertarian and Green Party candidates shook hands there wasn't a matter/anti-matter explosion.

And even when the government is simply doing the bidding of a certain private sector set of interests, that industry often doesn't give an oink about the freedoms and liberties of the citizenry--they normally just want to see their own market position and profits secured through the use of the government's monopoly on the use of force.

Defense contractors are the most obvious parties that are guilty of this sort of thing, but a lot of private sector interests do it--i.e., persuade the government to do something that is great for them, but terrible for the country in general.

For example, I think that if you told people in 1990 that 20 years after the end of the Cold War U.S. defense spending would be at the exact same level as a percentage of GDP that it was in 1990 with no foreign nation engaging in an arms race with us or threatening our borders, they probably would have said you were crazy.

[stone]

Craigr, I agree with your points about the perils of government spending being put towards creating wars, bureaucracy etc. I also agree with Melvyr and Moda's points about the private sector sometimes failing to keep money circulating in the real economy (due IMO to a lack of customers able to pay for stuff). To me it does count as a waste if people are unemployed whilst people want what they could willingly provide. Wouldn't a flat citizen's dividend paid out to everyone bypass the perils of government and yet move funds to potential customers? I think simply moving taxes off transactions could do a lot in that direction.

I think a big mistake is when people conflate bidding up the prices of pre-existing assets with "investment" and so advocate moving taxes off finance. Moving taxes off finance can foster "reverse capital flight" and so give a country a free ride for a while but IMO that just hollows out the real economy and renders a country incapable of earning its way in the long term.


Last time I voted is was Green for the local government and a UKIP for European government.