lesson in economics that even a simple minded right winger can understand

[Ricter]

Quote from Max E. Pad:

In your opinion if you had to make a choice between attempting to inflate wages, or allowing the price of a carrot to go down, which situation do you think would cost less money, and be easier to accomplish?

You have me on the spot, I don't typically think "as if" I am the public sector.

Ok, as government... well I'm not sure about carrot growing, but for grain government is deflating the price, via transfer payments to farmers based on yield, which is why farmers now plant all that they can. (This is why we have so much trouble with FTAs, because other countries know we are subsidizing our agriculture, and this is where countervailing tariffs come in.)

As government, of course I want wages going up, but that should only be if productivity warrants it (or we're returning to trend, as from a recession) so my focus has to be on the latter.

So what's easier, lowering the price of carrots by making transfer payments to growers, or raising wages by spending on productivity improvements? Unfortunately, the latter, if successful, does not necessarily mean that business will share those gains, won by say infrastructure and education spending, with their workers. Recent history indicates they will not--those pesky stockholders you see. (Uh oh, taxes, entitlements looming...)

I'd say it's easier and cheaper (in the short-term) to lower the price of carrots--they can be sold to our citizens cheaply, and the surplus can be sold abroad, improving our current account. To raise productivity and increase the odds wages will grow in tandem, that's going to be more difficult short-term, but cheaper in the long run.

 

[Covertibility]

There have been cases in Urban enterprise zones of tax breaks that were supposed to be for hiring workers but instead went to buying new equipment that found its way out of the zone.

 

[Mav88]

Quote from Covertibility:

There have been cases in Urban enterprise zones of tax breaks that were supposed to be for hiring workers but instead went to buying new equipment that found its way out of the zone.

There will always be abuse and fraud in ANY society as long as human DNA stays like it is. The question is, what type of economics has the most prosperity for the most people with the workload distributed in a moral fashion.

 

[Ricter]

Quote from Mav88:

There will always be abuse and fraud in ANY society as long as human DNA stays like it is. The question is, what type of economics has the most prosperity for the most people.

Mixed economies, which is no doubt why they are the prevalent type.

 

[Epic]

Quote from Ricter:

We know that. The point of the "hole in the ground" element is to indicate that the carrot grower is not going to be using the money, and neither is the bank going to be loaning it unless there is demand for a loan--the hole in the ground is the bank, if there is no demand for money.

Well ok, I'll buy that argument as long as the underlying assumption is correct, i.e. banks are not loaning money at all. But what we've been seeing for the past couple years is that this assumption is not correct. Banks are absolutely lending to consumers at an increasing rate. Remember that banks don't make money if they can't lend. They are not loaning to businesses because it is still risky and there is low demand there. But if you want to go get an auto loan it is simple to qualify and you get a VERY low rate. Need a credit card? No problem. Need a HELOC and you have equity? No problem.

Need a business loan? That's tough without SBA backing. Need a residential construction loan? You'd better have income and a down payment.

But the fact is that banks are more than willing to lend for the right things. In fact, they are desperate to lend for those things.

Quote from Brass

In keeping with the scenario, what if businesses aren't borrowing because there is no demand for their wares because potential consumers don't have the money to buy product? However full the tank may be, the motor only works upon ignition. I think you missed the point of the analogy.

This is a good point and is actually supported by the stats. banks are increasing lending in the areas where there is increased demand. Most headlines suggest that people aren't borrowing because banks aren't lending. That is a huge false assumption. A bank cannot survive without lending. The surveys by the FED and BLS continue to reaffirm the idea that lending standards are easing only in areas where there is increasing demand for loans. Autos, Credit Cards, Commercial Real Estate, etc... NOT the other way around.

So if it is absolutely necessary for the gment to get involved, it is very inefficient for it to give the money to Kofi without any stipulation. The most efficient thing to do would be to focus the money where it would spur borrowing. Obviously this dramatically distorts pricing in those markets, but at least it wouldn't be as inefficient and temporary.

I would suggest that now that the inventory of homes has fallen through the floor. It wouldn't be horrible to consider the idea of residential construction/renovation credits. Get a loan to build or renovate your home and get a $10-15K immediate credit that you can get by filing an amendment to the prior year tax return. They could even go one further and require that in order to qualify, all work must be done by contractors. No owner-builder stuff that doesn't create jobs.

 

[Max E.]

Quote from Ricter:



I'd say it's easier and cheaper (in the short-term) to lower the price of carrots--they can be sold to our citizens cheaply, and the surplus can be sold abroad, improving our current account. To raise productivity and increase the odds wages will grow in tandem, that's going to be more difficult short-term, but cheaper in the long run.

I agree with you, its cheaper and easier to lower the price of carrots. and there will be ample demand within the united states once the price goes low enough.

So instead of the krugman, bernanke, approach, of trying to inflate prices, why dont we balance the budget, and allow prices to drop? You guys are hunting for demand, well when prices go down demand goes up, Like you said, the great thing about this approach is that we dont have to spend any money.

The lack of demand is being caused by the fact that prices are out of range, if prices go down demand will go up.

 

[Lucrum]

Quote from Max E. Pad:

I agree with you, its cheaper and easier to lower the price of carrots. and there will be ample demand within the united states once the price goes low enough.

So instead of the krugman, bernanke, approach, of trying to inflate prices, why dont we balance the budget, and allow prices to drop? You guys are hunting for demand, well when prices go down demand goes up, Like you said, the great thing about this approach is that we dont have to spend any money.

The lack of demand is being caused by the fact that prices are out of range, if prices go down demand will go up.

A response even a simple minded left winger can understand.

 

[Ricter]

Quote from Max E. Pad:

I agree with you, its cheaper and easier to lower the price of carrots. and there will be ample demand within the united states once the price goes low enough.

So instead of the krugman, bernanke, approach, of trying to inflate prices, why dont we balance the budget, and allow prices to drop? You guys are hunting for demand, well when prices go down demand goes up, Like you said, the great thing about this approach is that we dont have to spend any money.

The lack of demand is being caused by the fact that prices are out of range, if prices go down demand will go up.

Ahh, so you'd like to see some deflation!
(Because in a deflationary environment people buy more.)

 

[Max E.]

Quote from Ricter:


(Because in a deflationary environment people buy more.)

They do eventually.

Put it this way, if we had taken the austerity approach right from day one, the economy would be healthy again.

The problem now is that we are half assing it between keynesian economics and austrian economics, and we wonder why we are not getting anywhere...... The same thing is happening in Europe, we cut a little, spend a little, and half ass both ideologies, we need to pick a direction....

 

[mrbill]

Excellent post, OP. But, it's too bad your heading is false. So much just went over the heads of so many, not to even mention Lucrum, who is just trying to figure out a one liner to say you're somehow wrong, but all those big words get in the way.

The historical argument about trickle down has been proven to not work, and even though there are points to be made, would never work in this economic environment (almost zero interest, no demand due to lack of jobs), and if there were something there, it would have happened over the last years of these super low taxes.