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onetime2 · 01-07-2004, 05:17 AM

Quote:

Originally posted by shakran
You weren't forced to take a macroeconomics class in school were you? I hated that class, but it did lead to some understanding of the economy that I wouldn't have otherwise.

The output potential is a measure of the maximum sustainable output - i.e. all resources allocated at 100% and at maximum efficiency. Resources in this case means not only raw materials, but also machinery, and (most important for this situation) human resources. The output potential is figured with everyone working at 100%.

Government spending means government is buying stuff. The industries they're buying stuff from have to ramp up production to meet the demand, but the economy isn't very good and they aren't creating jobs to do it. Instead, they're making their people work longer hours, maybe increasing the length of time between inspection/repair on their machinery, etc. In short, they're operating at over 100%. You can do this for awhile, but eventually the people get tired, the machines break, etc, and things come crashing back below 100% (broken machine = output reduced far below 100%. People using sick leave to avoid having to work themselves to the bone = output reduced far below 100%).

That's a very simplistic example, but I didn't feel like writing a novel at 1:30 in the morning

Basically, what Bush is able to do here is artificially boost the economy. He'll probably be able to maintain it past the election, but shortly after that we're gonna hurt.

Look at it this way. WHY is the economy so much better? We're in debt up to our eyeballs, and Iraq is not going to alleviate that situation at all any time soon. We've lost 6 million jobs since Bush took office, and they haven't been replaced yet. The government is cutting its income while increasing its expenditures despite the fact that we're already holding a massive deficit. Corporations are downsizing left and right. If you hold a job for 10 years you're damn lucky. In short, there is absolutely NO REASON for the economy to look this rosy, except that it's being artificially manipulated. This pseudo-boom won't last forever, and when it busts it's gonna hurt. Especially when you factor in the fact that in 4 years the baby boomers start retiring, which will stress the holy hell out of social security, medicare, etc. When the boomers are retired, we're gonna have a huge population of people who are not contributing to the economy but who are using resources from it, and they're likely to do that for 30+ years because our life expectancy is so high. This country is in deep economic trouble and unless we start fixing it right now, today, with none of this cutting taxes bullshit, and none of this "social security will fix itself, let's pretend there's no danger here" bullshit, and none of this "I don't care about the deficit" bullshit, we're going to suffer an economic meltdown that will make the depression look like a picnic.

After all, the depression was mainly a matter of confidence. People no longer had confidence in the economy, so they quit investing, spending, etc, so businesses started getting in financial trouble, so people got more worried, and spent even less, until it had snowballed into a terrible situation.

The coming depression won't be about confidence at all. It will involve real economic shortfalls rather than perceived ones. We can have all the confidence we want, but if the money's not there, the money's not there. In other words, the depression was relatively easy to get out of - create artificial jobs (new deal/WPA) to get money flowing so people would stop worrying so much and start spending. In the coming crash, we won't be able to get off that easy.

BTW, I completely agree with you that the government needs to spend responsibly, but Bush isn't doing that either. It's irresponsible to invest money in a system (Star Wars) that was already proven not to work, and is of limited value anyway. After all, Star Wars was designed to stop Soviet ICBMs from hitting us. They're not bloody likely to be launching any at us any time soon. Iraq is a huge expenditure that was not necessary. We are supposed to defend ourselves, not attack at random. Afghanistan harbored bin Laden, who attacked us, and therefore we had every right to go in and dismantle the organization that was sheltering him. I supported that fully.

Saddam did not attack us, had no way of attacking us (his best missile flew 120 miles. How is that a threat to us, thousands of miles away?). Plus, Iraq diverted military resources from finding bin Laden, who is still at-large. In short, Iraq was a war that we did not NEED to fight for our national security. We gained NOTHING from it (and lost much), so it was an irresponsible decision to invade - whether you look at it from a moral, humanitarian, or economic viewpoint. Bush will have spent billions on fighting Iraq - billions that could have gone into strengthening the economy. He is NOT a fiscally responsible president.

heh. went and wrote a novel anyway. sorry for the length.

In fact I took quite a few Macro classes. You're terminology is confused. Maximum sustainable output is different from maximum output potential. By definition you can never exceed the maximum output potential.

As far as your explanation, your analysis, while thoughtful, is mistaken. Bush has not artificially inflated anything. As noted, his spending has little real impact on the economy and corporations are not downsizing like crazy as you seem to think. Productivity levels are increasing making new jobs unnecessary until consumer demand ramps back up to the levels we saw in the recent past. The growth we saw under Clinton was far from sustainable (not blaming Clinton, just putting it in a time context) and everyone knew it. Articles were written for years about how even a slowdown in the economy would **feel** much worse than it is because we were used to seeing 5 or 6% economic growth. The Federal Reserve has had a goal of 2.5 to 3.0% GDP growth since Greenspan took over. That's the range (maybe a little more now that the economy has proved prices won't go crazy so long as productivity continues to increase) he will continue to shoot for with his monetary policy.

Your belief that it's all about confidence is absolutely right. So long as the consumer is confident and spending money, the economy will remain healthy. The things that have allowed the consumer to continue spending are increasing wealth due to their investments, savings (401ks and the like), and home values. Throw in the low interest rates which have allowed them to both tap into the equity in their homes and/or to save money on debt payments and you've got the answer to why the economy has been performing so well (with the exception of three quarters which showed negative growth rates more than two years ago).

Your forecast of a new depression based on things other than confidence is misguided. There are real economic problems and they have little to do with national debt. Personal debt remains at incredible levels. Credit card debt is particularly worrying as it carries very high interest rates. As far as the boomers who are retiring, not all will be relying on social security as their primary income. Retirees are, more than ever, better prepared for retirement. Access to the stock market, 401k plans, IRAs, etc have never been more prolific. With almost 70% of US families owning their own homes and the home market remaining strong, there is a very real base of wealth that no one seems to add into their "social security nightmare" scenarios. Your simplification of the end to the depression is mistaken as well. There were far more factors than just creating a few jobs, but I will leave that for another discussion.

As far as Iraq, on one hand you claim that his expenditures in Iraq are the reason the economy has been "artificially inflated" and then on the other you claim the money could have been used to help the economy. The fact is that the expenditures for Iraq are miniscule when compared to the economy. Your belief that he's looking to resurrect the Star Wars program is misguided. He wants to build missile defenses, yes but that doesn't just mean guarding against ICBMs. The Star Wars program was never proved impossible. Yes there are experts who claim that it's impossible but how many experts said flying was impossible? Any work done on a "missile shield" can filter down to the battle field. Missile technology is not that complicated, as proven by the guy in New Zealand building his own guided missile in his garage for $5k.

The strategy in Iraq is not just about Saddam being a threat to us directly. It's about putting fear into the governments who support terrorism. It's about showing that there are consequences for those who oppose us. Part of the reason that terror attacks have grown over the last several decades is that those organizing the attacks never suffered any consequences as a result. Creating a viable democratic(ish) economy in the heart of the Middle East will put pressure on Iran, Saudi Arabia, and the other states who continue to support terrorism without directly having to threaten them or invade them.