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Feb 8 2011, 12:54 AM (Post #1)
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Bill O'Reilly vs. Barry Soetoro
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Feb 14 2011, 05:42 PM (Post #31)
Well why can't we do the shuffle?!
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So, what would define long-term policy?
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Feb 16 2011, 02:28 AM (Post #32)
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Wasn't this post supposed to be about B.O. and President Soetoro, pre-super bowl entertainment, and the "big sit down"? and not wish-washy theoretical "Keynes knows best" economics?
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Feb 16 2011, 04:07 AM (Post #33)
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The topic moved into economic theory. I don't find it to be wish-washy at all. On the contrary, I find it to be really interesting, thus why I changed my major from Computer Science to Business Economics in the first place.

I never said that John Keynes knows best. I do like some of his ideas, though. In particular, using short-term policy to steer the economy in certain directions - it's a pretty cool idea. I know that a lot of people don't agree with this methodology. However, I have yet to see anyone suggest anything better.
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Feb 16 2011, 04:28 AM (Post #34)
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QUOTE (Dancing Fool @ Feb 15 2011, 08:07 PM)
The topic moved into economic theory.  I don't find it to be wish-washy at all.  On the contrary, I find it to be really interesting, thus why I changed my major from Computer Science to Business Economics in the first place.

I never said that John Keynes knows best.  I do like some of his ideas, though.  In particular, using short-term policy to steer the economy in certain directions - it's a pretty cool idea.  I know that a lot of people don't agree with this methodology.  However, I have yet to see anyone suggest anything better.
*


sbiggrin.gif

I love both so... I'm in computer science AND business/economics. Why not pursue your interests?

But anyway I agree: Economics is a really fascinating topic, and I believe that everyone in the US be required to take (and understand) introductory economics before being allowed to vote on economic matters.
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Feb 16 2011, 04:41 AM (Post #35)
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QUOTE (Dancing Fool @ Feb 14 2011, 09:42 AM)
So, what would define long-term policy?
*


Typically things that are about "normal" conditions. Long-term policy is really hard because there's not as much (good) data on it. How easily can you test a hypothesis about some factor that takes 5 years to happen when so much can happen in 5 years?

But in general it refers more to institutions and government spending profile. Regarding institutions, things like protecting basic property/contracts is very important. But I also mean things like education, investments in research and technology, etc.

Regarding spending profile, it means how much does the government spend in general vs. how much tax it gets; where it spends that money; and where it collects that money. It has strong repercussions, which are intuitive but hard to test empirically.

For example, running a persistent deficit that exceeds the growth rate of the economy is simply unsustainable. (Say, deficits equal to 4% of GDP with economy growing 3% a year) Even running persistent deficits is generally considered to be bad for growth because it crowds out private investment (here I'm talking about long-term growth).

As for taxation (and "negative tax" like subsidies), some taxes are more distortionary than others. By distortionary I mean they affect behavior (usually in an adverse way). For example, taxing the primary wage-earner in a household may not affect employment levels that much, but taxing the secondary wage-earner affects employment levels a lot (the reason is pretty intuitive). In contrast, taxing consumption of things, especially those with negative externalities (like cigarettes/fossil fuels) may actually incentivize people to do something that's better (in aggregate) for society. Also, subsidies in the US are usually very misplaced. For example, agriculture is a commodity business, and oil is already extremely profitable. Neither industries should receive subsidies because by a simple cost-benefit analysis it's a huge cost to social welfare. Basically the point is, the composition of taxes (and negative taxes) really affects how the economy develops in the long run. Ideally you want to have tax/spending policy so that the economy develops into a healthier direction.

Of course, these are just from the perspective of maximizing "efficiency" with little regard for "equity". Often sacrifices in efficiency are made to produce a more equal outcome. For example, consumption taxes, although much more efficient than income taxes, are highly regressive and thus seen as unfair.

Another consideration is that often short-term and long-term policy are at odds with each other. For example, long term policy says we should reduce our deficit significantly to the point where the national debt is contained between 10 and 40% of GDP, but in the short term raising taxes or cutting spending significantly will be a really bad idea.
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Feb 16 2011, 10:26 PM (Post #36)
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QUOTE (Jinghao @ Feb 15 2011, 09:28 PM)
sbiggrin.gif

I love both so... I'm in computer science AND business/economics. Why not pursue your interests?

But anyway I agree: Economics is a really fascinating topic, and I believe that everyone in the US be required to take (and understand) introductory economics before being allowed to vote on economic matters.
*


I'd like to take that, and say that unless you also understand technology, taxes and every other issue, you cannot vote.

We need an IQ test in this country, both for candidates as well as voters. Too many dumbasses destroying our Democracy...
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Feb 16 2011, 10:27 PM (Post #37)
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QUOTE (Jinghao @ Feb 15 2011, 09:41 PM)
Typically things that are about "normal" conditions. Long-term policy is really hard because there's not as much (good) data on it. How easily can you test a hypothesis about some factor that takes 5 years to happen when so much can happen in 5 years?

But in general it refers more to institutions and government spending profile. Regarding institutions, things like protecting basic property/contracts is very important. But I also mean things like education, investments in research and technology, etc.

Regarding spending profile, it means how much does the government spend in general vs. how much tax it gets; where it spends that money; and where it collects that money. It has strong repercussions, which are intuitive but hard to test empirically.

For example, running a persistent deficit that exceeds the growth rate of the economy is simply unsustainable. (Say, deficits equal to 4% of GDP with economy growing 3% a year) Even running persistent deficits is generally considered to be bad for growth because it crowds out private investment (here I'm talking about long-term growth).

As for taxation (and "negative tax" like subsidies), some taxes are more distortionary than others. By distortionary I mean they affect behavior (usually in an adverse way). For example, taxing the primary wage-earner in a household may not affect employment levels that much, but taxing the secondary wage-earner affects employment levels a lot (the reason is pretty intuitive). In contrast, taxing consumption of things, especially those with negative externalities (like cigarettes/fossil fuels) may actually incentivize people to do something that's better (in aggregate) for society. Also, subsidies in the US are usually very misplaced. For example, agriculture is a commodity business, and oil is already extremely profitable. Neither industries should receive subsidies because by a simple cost-benefit analysis it's a huge cost to social welfare. Basically the point is, the composition of taxes (and negative taxes) really affects how the economy develops in the long run. Ideally you want to have tax/spending policy so that the economy develops into a healthier direction.

Of course, these are just from the perspective of maximizing "efficiency" with little regard for "equity". Often sacrifices in efficiency are made to produce a more equal outcome. For example, consumption taxes, although much more efficient than income taxes, are highly regressive and thus seen as unfair.

Another consideration is that often short-term and long-term policy are at odds with each other. For example, long term policy says we should reduce our deficit significantly to the point where the national debt is contained between 10 and 40% of GDP, but in the short term raising taxes or cutting spending significantly will be a really bad idea.
*


How come when I see you in person, we never have these types of conversations...and you're playing Angry Birds instead?
rotfl.gif riiight.gif
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Feb 17 2011, 12:18 AM (Post #38)
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QUOTE (Jinghao @ Feb 16 2011, 04:41 AM)
Typically things that are about "normal" conditions. Long-term policy is really hard because there's not as much (good) data on it. How easily can you test a hypothesis about some factor that takes 5 years to happen when so much can happen in 5 years?

But in general it refers more to institutions and government spending profile. Regarding institutions, things like protecting basic property/contracts is very important. But I also mean things like education, investments in research and technology, etc.

Regarding spending profile, it means how much does the government spend in general vs. how much tax it gets; where it spends that money; and where it collects that money. It has strong repercussions, which are intuitive but hard to test empirically.

For example, running a persistent deficit that exceeds the growth rate of the economy is simply unsustainable. (Say, deficits equal to 4% of GDP with economy growing 3% a year) Even running persistent deficits is generally considered to be bad for growth because it crowds out private investment (here I'm talking about long-term growth).

As for taxation (and "negative tax" like subsidies), some taxes are more distortionary than others. By distortionary I mean they affect behavior (usually in an adverse way). For example, taxing the primary wage-earner in a household may not affect employment levels that much, but taxing the secondary wage-earner affects employment levels a lot (the reason is pretty intuitive). In contrast, taxing consumption of things, especially those with negative externalities (like cigarettes/fossil fuels) may actually incentivize people to do something that's better (in aggregate) for society. Also, subsidies in the US are usually very misplaced. For example, agriculture is a commodity business, and oil is already extremely profitable. Neither industries should receive subsidies because by a simple cost-benefit analysis it's a huge cost to social welfare. Basically the point is, the composition of taxes (and negative taxes) really affects how the economy develops in the long run. Ideally you want to have tax/spending policy so that the economy develops into a healthier direction.

Of course, these are just from the perspective of maximizing "efficiency" with little regard for "equity". Often sacrifices in efficiency are made to produce a more equal outcome. For example, consumption taxes, although much more efficient than income taxes, are highly regressive and thus seen as unfair.

Another consideration is that often short-term and long-term policy are at odds with each other. For example, long term policy says we should reduce our deficit significantly to the point where the national debt is contained between 10 and 40% of GDP, but in the short term raising taxes or cutting spending significantly will be a really bad idea.
*




Why would raising taxes or cutting spending be a really bad idea? They're part of short-term fiscal policy that leads an economy in one direction or another. If they're so bad, then why are they used?
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Feb 17 2011, 05:24 AM (Post #39)
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QUOTE (Dancing Fool @ Feb 16 2011, 04:18 PM)
Why would raising taxes or cutting spending be a really bad idea?  They're part of short-term fiscal policy that leads an economy in one direction or another.  If they're so bad, then why are they used?
*


I mean in the current climate, raising taxes/cutting spending is a bad idea because the economic recovery is weak.
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Feb 17 2011, 04:31 PM (Post #40)
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Actually, I've always agreed with spending cuts - but I don't believe that they are the definitive solution to the economic crisis.
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Feb 17 2011, 05:35 PM (Post #41)
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QUOTE (Dancing Fool @ Feb 17 2011, 08:31 AM)
Actually, I've always agreed with spending cuts - but I don't believe that they are the definitive solution to the economic crisis.
*


Right, they are (from short term perspective) the opposite of what's good for a fast recovery.
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Feb 18 2011, 02:08 AM (Post #42)
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Is there a specific reasoning behind that? Or is that coming from your political perspective?
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Feb 18 2011, 02:17 AM (Post #43)
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QUOTE (Dancing Fool @ Feb 17 2011, 06:08 PM)
Is there a specific reasoning behind that?  Or is that coming from your political perspective?
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The reasoning is nothing complex: In the short term the problem is a demand deficit, so the solution (in the short term) is expansionary policy. A contractionary policy (cutting spending) will exacerbate that demand deficit, so that's not good for the recovery.

I try my best to keep politics out of economic analysis.
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Feb 18 2011, 03:01 AM (Post #44)
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I don't really feel that the short term problem is demand deficit - rather, the incentive for firms to produce goods in the U.S. has declined, causing unemployment.
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Feb 18 2011, 03:57 AM (Post #45)
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QUOTE (Dancing Fool @ Feb 17 2011, 07:01 PM)
I don't really feel that the short term problem is demand deficit - rather, the incentive for firms to produce goods in the U.S. has declined, causing unemployment.
*


No, it certainly is demand deficit: Less of what's being produced is consumed than in 2007, for instance. The "Incentive for firms to produce" you mention is the demand for their goods.
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