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Why Greenspan, why?


Alan Greenspan is....
Mr. Fantastic!
0%
 0%  [ 0 ]
out of his mind.
50%
 50%  [ 1 ]
no longer able to hide his partisanship.
50%
 50%  [ 1 ]
Total Votes : 2

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mister



Joined: 05 Jul 2004
Posts: 301
Location: brooklyn
Why Greenspan, why?  Reply with quote  

Can anyone explain Alan Greenspan to me? Please? I'd love to understand. I only catch tidbits of what he says, and it comes across...

"Fiscal responsbility, Bill Clinton! Giant tax cuts please, George W! Tighten that Social Security belt, Boomers!"


Anyone with a better understanding of economics than I? Would we have been totally fine with the shortfalls without those cuts? This is how it seems to me.

And the pledge of support required to get tickets to Bush's appearances?

This is just sick.
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Post Sat Aug 28, 2004 3:10 am   View user's profile Send private message AIM Address
chris
Site Admin


Joined: 02 Mar 2004
Posts: 3833
Location: People Republic of Northern California
 Reply with quote  

I used to follow the markets and therefore Greenspan Speak pretty closely.


When we were looking at a two-trillion dollar (ten-year) surplus going into 2000, Greenspan said that we should use it, if at all, to pay down the national debt. (Just in case the projections for a surplus were too optimistic.)

The Democrats went, screw that, we want more social programs. (Which they didn't get, because of the Republican dominated congress.)

The Republicans went, screw that, we want tax cuts and defense spending.(Which eventually they got because of W. and Saddam.)

What happened is that we got a huge tax cut, everyone got more spending in his district, and the surplus went away, pretty much as the fed guys thought it might. (They can't really say anything, or it will happen. They can only obfusicate and hint.)

Basically, everyone pursued his own agenda, oblivious to the fact that there was no way that the growth in assets (and therefore revenue to the government) through the last three years of the century, could be sustained over any period of time. There has, in fact, been growth in assets in the form of real estate, from which much of the revenue is tax exempt, so, while it helps with employment, it doesn't produce the kind of revenue that a stock market boom does.

No one seems to think that the deficit affects the economy. The Republicans, who shut the government down in '95 because it was so important to balance the budget, now claim that deficits are good and necessary to grow the nation out of a recession. (This is essentially, the same tactic used by M.C. Hammer when his career was faltering -- so now, we are driving a leased Bently, drinking Crystal, and we can't go home because the gas man wants in to turn off our heat.)

Tax cuts can, indeed, stimulate the economy by encouraging business investment. This is the Republican/Supply Side rational. To a point, it seems to work. Structured as they are, however, the higher income groups will get much, much more "real"money from the tax cuts because they pay much more "real" money (real being true amounts, not percentages of income) . The rational being that they will spend it and it will trickle down to the rest of the economy. The theory goes, that Donald Trump will buy a pack of gum, and Nabu the 7-11 guy will get three cents in wages selling it to him, and Earl the chickle chopper will get five cents making the gum, the gum market will be stabililized by Trump's demand, Nabu and Earl will be living high on their wages, and the whole wonderful cycle will begin again when they go to Walmart and buy sneakers which are sewn together in Vietnam by six-year olds.

If Donald Trump decides to buy bonds instead of a pack of gum, however, he is basically lending his tax cut back to the Government. Rich people tend to buy more bonds than gum. Go figure.

That all actually kind of works, except that in recent history, it has always, always led to huge deficits. Regan nearly tripled the debt, it looks like Bush may almost double it (if you take into account the evaporated surplus) in just a few years. When interest rates are low, as they are now, the debt can be maintained fairly easily, but when interest rates rise, it takes a larger amount of money to pay interest on the debt (see Bonds that Trump bought, above) , so a larger percentage of the revenue coming into the government (your tax dollars), go to servicing that debt,(as much as a third in the early 90s) leaving less money to go to programs, and especially entitlements (Social Security and Medicare) which grow every year. With prime rate now at 1.5%, still the lowest in a forty years, the debt doesn't seem too bad. It's aike a credit card with no interest for the first six months. When the interest kicks in, about the same time that the cool outfit you bought goes out of fashion, you are paying way bigger bills with way less money. You need more revenue.

Now, thre are a couple of ways to make more revenue. Grow the economy so that the amount taxed grows, or raise taxes. To grow the economy, you can either cut taxes to stimulate business investment, thus increasing the deficit, or you can take tax dollars and put it into infrastructure (roads, power lines, bridges, parks, etc.) and education, hoping that the jobs produced from those things will trickle-up. That is, Bob will get a good constructioin job building roads, he will buy asphalt from Manuel the asphalt maker, who will take his family to Wal Mart to buy sneakers sewn together by a six year old in Viet Nam.

There is a third way to produce huge amounts of revenue. You participate in a technological revolution. This appears to only happen about every 50 years or so (industrial revolution, post WW2 boom, techno-boom of the '90s). This appears to be something you really can't bet on, and should be viewed along the lines of finding a twenty-dollar bill blowing down the street.

So, that's economics as I understand it. As non-partisan and I can be, which probably isn't much. And, as usual, I could be completely full of shit. It does seem to me, however, that the whole process sort of revolves on that kid in Viet Nam sewing those sneakers together. If we could only get him to work for 75 cents a day instead of a dollar, then Donald Trump could chew all the gum he wants.

Post Sat Aug 28, 2004 2:15 pm   View user's profile Send private message Send e-mail Visit poster's website
mister



Joined: 05 Jul 2004
Posts: 301
Location: brooklyn
 Reply with quote  

Thank you, Author Guy. Your economic input is most appreciated. Would you like fries with that?
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Post Sat Aug 28, 2004 8:21 pm   View user's profile Send private message AIM Address
Goudron



Joined: 03 Aug 2004
Posts: 2570
Location: near Cleveland OH
Thanks from me too  Reply with quote  

Now I have a canned response for the guy at work who likes to think that Donald Trump will buy lots of gum Smile
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Post Sat Aug 28, 2004 8:47 pm   View user's profile Send private message Visit poster's website
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