Economic Debate Thread

[666andahalf]

As much as I loved you in the last podcast, I gotta call you out George on your response on how to fix the economy.

The main point is that taxes and regulation aren't what's holding business back - its simply demand. There just simply isn't enough people buying things because of the demand shock caused by the financial crisis for businesses to justify expanding their operations. Taxes right now are the lowest they've been since the '90s, so current taxes can't be the reason. As for future taxes and regulations, take a look at history, and you'll see that the US economy did perfectly fine with a relatively higher tax rate in the 50's-early 70's and the '90s. Same goes for the regulation side too.

Also in regards to "Laissez-faire", you're forgetting that that attitude is what got us into this mess in the first place. There was no oversight over the financial sector (and the rating agencies) as it expanded into new types of securities. This was exacerbated by the fact that the government was run by people who didn't want to regulate them in the first place.

There is a cycle that this country and the world has gone through continuously:

- Abuse in the financial sector leads to an economic crisis (banking crisis, financial crisis, depressions, whatever you want to call it) --> Government moves in to "plug the hole" by adding regulation to prevent it from happening again --> The economy is fine for a while, so forces in democracy push to weaken or eliminate that regulation / investors find new investments that aren't regulated --> abuse leads to another crisis

Lather, rinse, repeat. See: Great Depression, Savings-and-Loan Crisis of the 80's, and the current crisis today.

Laissez-faire is a great idea in concept, but history has proven over and over again that markets aren't perfect. Everyone learns in Econ 101 that perfect markets and therefore perfect competition requires all of the following characteristics:

Infinite buyers and sellers – Infinite consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.
Zero entry and exit barriers – It is relatively easy for a business to enter or exit in a perfectly competitive market.
Perfect factor mobility - In the long run factors of production are perfectly mobile allowing free long term adjustments to changing market conditions.
Perfect information - Prices and quality of products are assumed to be known to all consumers and producers.
Zero transaction costs - Buyers and sellers incur no costs in making an exchange (perfect mobility).
Profit maximization - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
Homogeneous products – The characteristics of any given market good or service do not vary across suppliers.
Non-increasing returns to scale - Non-increasing returns to scale ensure that there are sufficient firms in the industry.
(Taken from Wikipedia's Perfect Competition entry)

Already in a modern world, perfect information and homogeneous products don't exist because marketing departments make it their goal differentiate their products and convince you of information about their products that may not necessarily be wholly accurate. This means that on a fundamental micro-level, perfect markets aren't common, and therefore can't translate to a macro level. In turn, this leads to market imperfections (like bubbles), which leads to economic crises.

We also can turn to history again to prove that in the days before economic regulation, recessions were more common and much more severe -- many of them caused by stock market crashes and banking failures.

Ultimately, in a perfect world, we wouldn't need regulation or safety-net programs to protect the economy, but time and time again, in the absence of regulation people have proven that they will make poor long-term decisions in the effort to make a buck... and everyone suffers because of it. I don't believe the state should be responsible for running the whole market economy either, simply free markets with responsible oversight and consumer protections.

[butters911]

As much as I loved you in the last podcast, I gotta call you out George on your response on how to fix the economy.

The main point is that taxes and regulation aren't what's holding business back - its simply demand. There just simply isn't enough people buying things because of the demand shock caused by the financial crisis for businesses to justify expanding their operations. Taxes right now are the lowest they've been since the '90s, so current taxes can't be the reason. As for future taxes and regulations, take a look at history, and you'll see that the US economy did perfectly fine with a relatively higher tax rate in the 50's-early 70's and the '90s. Same goes for the regulation side too.

Also in regards to "Laissez-faire", you're forgetting that that attitude is what got us into this mess in the first place. There was no oversight over the financial sector (and the rating agencies) as it expanded into new types of securities. This was exacerbated by the fact that the government was run by people who didn't want to regulate them in the first place.

There is a cycle that this country and the world has gone through continuously:

- Abuse in the financial sector leads to an economic crisis (banking crisis, financial crisis, depressions, whatever you want to call it) --> Government moves in to "plug the hole" by adding regulation to prevent it from happening again --> The economy is fine for a while, so forces in democracy push to weaken or eliminate that regulation / investors find new investments that aren't regulated --> abuse leads to another crisis

Lather, rinse, repeat. See: Great Depression, Savings-and-Loan Crisis of the 80's, and the current crisis today.

Laissez-faire is a great idea in concept, but history has proven over and over again that markets aren't perfect. Everyone learns in Econ 101 that perfect markets and therefore perfect competition requires all of the following characteristics:

Infinite buyers and sellers – Infinite consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.
Zero entry and exit barriers – It is relatively easy for a business to enter or exit in a perfectly competitive market.
Perfect factor mobility - In the long run factors of production are perfectly mobile allowing free long term adjustments to changing market conditions.
Perfect information - Prices and quality of products are assumed to be known to all consumers and producers.
Zero transaction costs - Buyers and sellers incur no costs in making an exchange (perfect mobility).
Profit maximization - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
Homogeneous products – The characteristics of any given market good or service do not vary across suppliers.
Non-increasing returns to scale - Non-increasing returns to scale ensure that there are sufficient firms in the industry.
(Taken from Wikipedia's Perfect Competition entry)

Already in a modern world, perfect information and homogeneous products don't exist because marketing departments make it their goal differentiate their products and convince you of information about their products that may not necessarily be wholly accurate. This means that on a fundamental micro-level, perfect markets aren't common, and therefore can't translate to a macro level. In turn, this leads to market imperfections (like bubbles), which leads to economic crises.

We also can turn to history again to prove that in the days before economic regulation, recessions were more common and much more severe -- many of them caused by stock market crashes and banking failures.

Ultimately, in a perfect world, we wouldn't need regulation or safety-net programs to protect the economy, but time and time again, in the absence of regulation people have proven that they will make poor long-term decisions in the effort to make a buck... and everyone suffers because of it. I don't believe the state should be responsible for running the whole market economy either, simply free markets with responsible oversight and consumer protections.

Thats exactly right. Lowering taxes and deregulating is exactly what got us in this mess. If we just raised taxes on the top 2% of earners to where they were under Clinton the economy would be fixed in ten years, give or take

[yalaneri]

What does economics mean to me, and why is it important as a senior in high school? The question is a prompt for which I have to write an essay for my economics class. I have no idea what to write! I know next to nothing about economics, and it has to be five paragraphs. Thanks in advance for any help!
_____________________________________
market samurai ~ marketsamurai ~ marketsamurai.com

[Spideydude]

As much as I loved you in the last podcast, I gotta call you out George on your response on how to fix the economy.

The main point is that taxes and regulation aren't what's holding business back - its simply demand. There just simply isn't enough people buying things because of the demand shock caused by the financial crisis for businesses to justify expanding their operations. Taxes right now are the lowest they've been since the '90s, so current taxes can't be the reason. As for future taxes and regulations, take a look at history, and you'll see that the US economy did perfectly fine with a relatively higher tax rate in the 50's-early 70's and the '90s. Same goes for the regulation side too.

Also in regards to "Laissez-faire", you're forgetting that that attitude is what got us into this mess in the first place. There was no oversight over the financial sector (and the rating agencies) as it expanded into new types of securities. This was exacerbated by the fact that the government was run by people who didn't want to regulate them in the first place.

There is a cycle that this country and the world has gone through continuously:

- Abuse in the financial sector leads to an economic crisis (banking crisis, financial crisis, depressions, whatever you want to call it) --> Government moves in to "plug the hole" by adding regulation to prevent it from happening again --> The economy is fine for a while, so forces in democracy push to weaken or eliminate that regulation / investors find new investments that aren't regulated --> abuse leads to another crisis

Lather, rinse, repeat. See: Great Depression, Savings-and-Loan Crisis of the 80's, and the current crisis today.

Laissez-faire is a great idea in concept, but history has proven over and over again that markets aren't perfect. Everyone learns in Econ 101 that perfect markets and therefore perfect competition requires all of the following characteristics:

Infinite buyers and sellers – Infinite consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.
Zero entry and exit barriers – It is relatively easy for a business to enter or exit in a perfectly competitive market.
Perfect factor mobility - In the long run factors of production are perfectly mobile allowing free long term adjustments to changing market conditions.
Perfect information - Prices and quality of products are assumed to be known to all consumers and producers.
Zero transaction costs - Buyers and sellers incur no costs in making an exchange (perfect mobility).
Profit maximization - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
Homogeneous products – The characteristics of any given market good or service do not vary across suppliers.
Non-increasing returns to scale - Non-increasing returns to scale ensure that there are sufficient firms in the industry.
(Taken from Wikipedia's Perfect Competition entry)

Already in a modern world, perfect information and homogeneous products don't exist because marketing departments make it their goal differentiate their products and convince you of information about their products that may not necessarily be wholly accurate. This means that on a fundamental micro-level, perfect markets aren't common, and therefore can't translate to a macro level. In turn, this leads to market imperfections (like bubbles), which leads to economic crises.

We also can turn to history again to prove that in the days before economic regulation, recessions were more common and much more severe -- many of them caused by stock market crashes and banking failures.

Ultimately, in a perfect world, we wouldn't need regulation or safety-net programs to protect the economy, but time and time again, in the absence of regulation people have proven that they will make poor long-term decisions in the effort to make a buck... and everyone suffers because of it. I don't believe the state should be responsible for running the whole market economy either, simply free markets with responsible oversight and consumer protections.

Thats exactly right. Lowering taxes and deregulating is exactly what got us in this mess. If we just raised taxes on the top 2% of earners to where they were under Clinton the economy would be fixed in ten years, give or take

Uh. No. You cut spending. You promote investment. You don't add an entitlement that no one wanted. Course, given your avatar, I'd doubt you'd listen to reason.

[Mr. Noodle]

One big problem is over-spending, not under-taxing. Taxation suppresses economic activity, thus resulting (counter-intuitively) in less government revenue. IOW, the government collects more money by taxing 100 companies a little than 15 companies a lot.

The housing collapse was caused by the cumulative decadal effect of slack, irresponsible loan standards -- the very same factor that caused the stock market crash of the 1920s. The only solution was to return credit standards back to where they were prior to the Clinton administration (I'm experiencing these stricter standards, because we are re-financing our house).

The stimulus bill made a bad recession even worse, because all it did was put the nation into even deeper debt, and debt was the cause of the disaster in the first place. It was like trying to cure alcoholism with beer. In the meantime, Obama's regulatory hostility to the petroleum industry has punished the poor by jacking up domestic gasoline prices -- because the poor are the least able to absorb the cost of a gallon of gas.

So in practical effect, Obama's administration has been the most anti-poor administration I can remember. Motives don't matter when it comes to policy, all that matters are what actually happens.

[FSUSpiderFan]

] In the meantime, Obama's regulatory hostility to the petroleum industry has punished the poor by jacking up domestic gasoline prices -- because the poor are the least able to absorb the cost of a gallon of gas.
.

Yeah I fail to see how proposing to tax oil companies more will make them lower prices. If Obama raises their taxes they will just raise prices to pass the extra cost to the consumer.

[666andahalf]

What does economics mean to me, and why is it important as a senior in high school? The question is a prompt for which I have to write an essay for my economics class. I have no idea what to write! I know next to nothing about economics, and it has to be five paragraphs. Thanks in advance for any help!

Economics is critical to learn in High School, because at the end of the day, it ultimately affects your life. If you don't understand the effects of Supply/Demand, interest rates, etc on both the Micro and Macro scale, you'll find that you're sailing in an ocean without a map. The economy could crumble and you'd lose your job or the Fed could jack up interest rates right as you're about to buy a house, etc.

Also, many schools teach a Government/econ class, but fail to link the two. It's important to know what the government does, how it does it, and why. Economics can be a powerful tool to determine the "why" part.