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08/29/2010

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J.Moreau

Debts in Europe and the US are the tip of the iceberg. The Iceberg itself is how are the 0.7 billion Western European and American citizens hoping to maintain their enviable and unique Western prosperity levels when individual incentives to produce in the West are declining, while incentives to produce for at lest 3 billion people in the rest of the world are increasing (relative to current levels).

J.Moreau

IntuitiveEconomics

The 400 pound gorilla of healthcare’s effect on deficits and economic performance is not the law’s effect on medical costs, but primarily its effect on productivity and thus economic growth:

When you tell people:

A) If you make less than $88,000 per year then someone else will pay for your healthcare,

while

B) If you make more than $88,000 you will not only pay for your healthcare but for someone else’s too (i.e. must earn after tax income to pay your medical insurance premiums).

Then what do you think will happen to medical expenditures and, more importantly, to incentives to produce and thus economic growth, which, as you point out is essentially the only effective antidote to satisfying the naturally greater and greater appetite for medical services?

Joseph Swanson

Becker gets this one right. Policies that promote investments in total factor productivity growth produce long-term economic growth.

JAS

Elze

On a positive note, hopefully creditors will take note of 3.58 to 1 ratios and stop lending money to various government entities, thus putting pressure on government spending even if it results to “too little too late”.

The FED on the other hand, with its loose monetary policy is essentially forcing savers (those fools who did not spend their money and of which fools we do not seem to have enough) to accept returns that in no way reflect the real risks they are taking by lending, especially when lending directly to the sovereign(*). So active monetary policy becomes yet another form of the indirect redistribution of wealth that the government mandates through Keynesian manipulation of the economy. You can expect to fool some savers all the time and all savers some of the time. But you cannot fool all savers all of the time, forever.

The dynamics may be gaining enough critical mass to explode in a “mother of all crises”, resulting in a sudden rather than gradual end to the Western Welfare State (dis)incentives to produce.

(*) BTW, if there is a way to short overall mid-term US economic performance, please post.

ffxiv gil

The Iceberg itself is how are the 0.7 billion Western European.Then what do you think will happen to medical expenditures and, more importantly, to incentives to produce and thus economic growth.

Curt Doolittle

I remember when my father, already under duress in his business, told the family that if Wallace won the election it would simply be smarter for him not to work. It was just too hard to run a business at the time. Whether or not he really would have joined the great society, I dont really know. But his feelings were certainly expressed with honesty.

Right now small business people all over the country are saying a modern version of the same sentiment. They cannot get credit. But they know the welfare state isn't viable support for them. And they see the state as either incompetent or predatory. So they really have few choices.

I build medium sized companies. Seven so far in my career. And I am beginning to feel like there isn't any point in trying any longer. If the government hates me, and demonizes me. Then why should I work so hard, and take so many risks, to create companies and jobs?

Jim

Using the CPI brought forward from a 1950 baseline, I am clearly "middle class". My taxes, consisting of federal income tax, state income tax, state county and city sales tax, telephone tax, gasoline tax, natural gas tax, sewage and water tax, automobile taxes, airline taxes, taxi taxes,capital gains taxes,and pass-through product taxes are in excess of 65% of my gross income. Since I live on fixed income and my house is worth 30% less than a year or two ago. There is no investment gain in stocks, bonds, savings. Well, I am not all that excited about paying more taxes to help the feds out. More likely I will be looking for lower costs to live and that doesn't include going back to work or continuing to live in a high tax state, city, county.

Joshua Norman

" Debts in Europe and the US are the tip of the iceberg. The Iceberg itself is how are the 0.7 billion Western European and American citizens hoping to maintain their enviable and unique Western prosperity levels when individual incentives to produce in the West are declining, while incentives to produce for at lest 3 billion people in the rest of the world are increasing (relative to current levels).

J.Moreau"

J Moreau there is variable that was overlooked in your post. The variable is that America's politician are the ones who control spending policy and they have a strong bias to spend taxpayer money. Another thing you need to take into consideration is the 50 year program of unlimited immigration, which has created demand for the various spending programs of the government.

Matt

The Laffer Curve and Debt to Government Revenues as a Metric for Judging Insolvency Risk

As Becker suggests, debt to tax revenue may not be a superior meausre of insolvency risk. The Laffer Curve implies that having low tax collection as a percent of GDP would be very beneficial: a government would need a smaller marginal increase in the tax rate to raise as much tax revenues as a government that has already has a higher tax rate.

Matt

To further the Laffer point, the solvency risk is really: the resistance of citizens to further tax increases relative to the amount of additional required tax revenues to remain solvent and the required increase in tax rates. For example, Europeans may be less opposed to Americans on raising tax rates, but because Europe is closer to the maximum point of the Laffer Curve, they would have to raise tax rates by a larger amount than the U.S. to remain solvent. This could actually result in greater opposition than in the US where a smaller increase in marginal tax would be required although the US on a whole is more resistant to tax increases.

J.Moreau

Going from once dismal, to now moderate incentives to produce:

http://online.wsj.com/article/SB10001424052748703369704575462770053958664.html?mod=WSJ_hps_LEFTWhatsNews


Going from once good incentives to produce to now ever more moderate incentives to produce (i.e. Welfare State incentives):

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/30/AR2010073000806.html

American convergence to worldwide average per capita income may come sooner than most Americans think.

J.Moreau

So how are Americans going to face the challenge posed by the fact that 3 billon people who once faced dismal incentives to produce have now enough freedom to at least partially catch up to the West and are thus growing at 10+% annualy?
http://money.cnn.com/2010/07/14/news/international/china_gdp/index.htm

…By transitioning America to European style Welfare State incentives to produce, of course. The proposition is almost ridiculous.

M Hoffman

All of this babble is pointless. The dollar is backed by nothing but the full force and terror of the US government, as the late Saddam Hussein should have recognized. Take the trading of your oil off the dollar and you will pay a price. Since it has no intrinsic value, to discuss potential "default" in "payment" is nonsensical. The dollar is not a commodity but mere digits in computers which can be increased without limit. Taxation is merely a means of controlling the supply of this fiat money in the hands of consumers since government could simply create the "money" to pay its "debts." What should be the relative value of the dollar? This depends upon the "value" of other currencies used in foreign trade." The discussion in these blogs only leads to one conclusion: the bloggers are Ivy League Idiots who are indoctrinated to believe the American "dollar" is something of real intrinsic value rather than merely a tool used by the globe's principal fascists to manipulate the exploitation of natural resources. At some point as the Mideast and Eastern world become independent and the US and Britain become less relevant, it will be impossible to enforce the use of the dollar as the primary reserve currency by force and it will drop rapidly and mercilessly. We will be a more humble but a better nation, less dangerous to the remainder of the world and no longer able to threaten other human beings with our arrogant claimed hegemony. Leader of the free world? Hardly. Fascist bullies for certain. The US will simply follow in the usual pattern of empires similar to the collapse of Britain after WWII. As their foreign debt increased to finance their senseless wars, their tentacles were excised and millions of human beings were freed. Hopefully our collapse will also lead to similar benefits in those parts of the world in which people now find it necessary to arm themselves against the vampires of the West with our ravenous and incessant need for the resources of the remainder of the world. Now go out and enjoy driving your SUV and pickup truck while you still can. Send your moronic kids off to war. Bitch and moan about taxes. Demand government give you everything. Be Americans!

Alex

To further the Laffer point, the solvency risk is really: the resistance of citizens to further tax increases relative to the amount of additional required tax revenues to remain solvent and the required increase in tax rates. For example, Europeans may be less opposed to Americans on raising tax rates, but because Europe is closer to the maximum point of the Laffer Curve, they would have to raise tax rates by a larger amount than the U.S. to remain solvent. This could actually result in greater opposition than in the US where a smaller increase in marginal tax would be required although the US on a whole is more resistant to tax increases.
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WhiskeyJim

The uproar and concern over debt is largely missing the central point that it is not wages driving jobs overseas, it is the total alienation of investment by regulation.

A good example is how we seem to have forgotten how the EPA rules and the strangle hold of the pristine Super Fund laws changed the business climate in the USA forever. There are millions of dollars of land and assets that now are untradable in the US, much of it in abandoned inner cities.

Similar EPA rules kept foreign skimmers out of the Gulf. We all want less pollution. But we have went overboard. We have become a nation hostile to business while we struggle with government monopolies in education, health care, and energy that are driving costs up and the economy into bankruptcy.

No monopoly can innovate or drive costs down. Bureaucracy alone precludes it. Why are the economists not screaming this from the rooftops, since they surely know this to be true?

jst

"The US ratio of spending to GDP is approaching 17%, which is essentially the highest ratio in the world."
... and ...
"One main defect is the failure of this Act to increase the quite small ratio of out of pocket spending by older sick individuals on their own healthcare compared to their spending out of tax dollars."

--

You point out to inefficiencies in the US health-care system by comparing its spending ratio to GDP to other countries. Then you argue that less insurance, and more out of pocket spending, would lead to more efficiency. You fail to mention that other developed nations have a lot of insurance and close to zero out of pocket spending in healthcare. So how do you square this observation with your observation that the US healthcare system is inefficient? Maybe insurance is not so bad after all.

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