Debt

[Coffeeman]

i didn't edit anything, i clipped and responded to the assumptions that led you to the incorrect conclusion.

 

 

OK, so clipping is different than editing, how? Discuss....

 

Edit: I can agree with yourr main point of my flawed logic, BTW, since I am a well-educated moderate. I can also admit when I made a mistake i.e. bothering to type all this background crap (to explain my basic idea of 2 vastly different mindsets) at all...

Edited March 29, 2007 by Coffeeman

[tonorator]

And I can't tell you how much I appricate this high-level exchange; wish there was more of it in the Tailgate.

 

 

please explain.

[10MILESDEEP]

Are you trying to tell me that the macro economic impact of me taking $100 and paying down credit card debt or investing in a 401K is the same as if I take that $100 and buy a VCR or some other consumer good? If so, I'd be really interested in your substantiating that claim.

 

 

 

I'd like to subscribe to that newsletter as well.

[Azazello1313]

Are you trying to tell me that the macro economic impact of me taking $100 and paying down credit card debt or investing in a 401K is the same as if I take that $100 and buy a VCR or some other consumer good? If so, I'd be really interested in your substantiating that claim.

 

 

well, if you take that 100 and send it to the CC company, then they will have another $100 in liquid cash, then they will turn around and do SOMETHING with it, whether they loan it to some other individual to buy a VCR, or they loan it to some business for capital investment, or what have you. if you put the $100 in a 401k, the fund manager will use it to buy stocks or bonds, or some other use that will very much keep that 100 bucks "in the economy". the money doesn't just disappear out of the economy if you don't use it to purchase some consumer item.

[wiegie]

I respectfully disagree. Every article that I've found discussing actual economic growth over the last 10 years has attributed consumer spending as the foremost catalyst, with tax cuts (which indirectly contribute to spending) as a the second most driving factor. I agree that capital investments and the such drive long-term growth, but that's more of a (correct) text book answer.

 

If I'm wrong I owe you a beer and an apology. But at this point, you'll have to prove it because right now we're just pissing in circles. I'd actually be happy if you proved me wrong; sort of as a cost of enlightenment, if you will. So if you've got some empircal data addressing economic growth over the last 10 years which shows the primarily factor to be something other than consumer spending or tax cuts, I would actually be very interested in reading that.

 

And I can't tell you how much I appricate this high-level exchange; wish there was more of it in the Tailgate.

 

I'm not sure what articles you are reading, but they must not be very good ones.

 

Economic growth occurs when we produce more output than we did before. The amount of stuff that we can produce is determined by technology, human capital, and the capital stock. Consumer spending does not create more output. (How could it?)

 

I will firmly say this--almost no economists would cite consumer spending as a significant source of economic growth in the long-run. It might affect short-run fluctuations in the business cycle, but that is all. The only way that consumer spending can lead to higher economic output is in the short-run when prices and/or wages are sticky and almost nobody would argue that this has been the case for a decade.

 

I'd like for you provide some citations to back your claim, but here are a few that I came across very quickly:

 

http://www.brookesnews.com/052609econfallacy.html

 

http://www.iie.com/publications/papers/baily1003.pdf

 

http://www.stanford.edu/~ljlau/Presentatio...ons/021028a.PDF

Edited March 29, 2007 by wiegie

[Ursa Majoris]

Consumer spending does not create more output. (How could it?)

 

Not consumer spending per se but the DESIRE and ability (via credit if necessary) to spend - surely that generates more output?

[10MILESDEEP]

well, if you take that 100 and send it to the CC company, then they will have another $100 in liquid cash, then they will turn around and do SOMETHING with it, whether they loan it to some other individual to buy a VCR, or they loan it to some business for capital investment, or what have you. if you put the $100 in a 401k, the fund manager will use it to buy stocks or bonds, or some other use that will very much keep that 100 bucks "in the economy". the money doesn't just disappear out of the economy if you don't use it to purchase some consumer item.

 

 

 

this is so wrong right from the beginning... not even sure where to start.

[Azazello1313]

http://www.brookesnews.com/052609econfallacy.html

 

 

economics cracks me up. to an economist, consuming goods and services....which is basically everything we strive for economically as individuals, the enjoyment of anything money can buy...they sum up as "the extermination of value". it's pretty easy to see why it's technically correct, but still, it's funny.

[Azazello1313]

this is so wrong right from the beginning... not even sure where to start.

 

 

so you don't start. how convenient.

[wiegie]

Not consumer spending per se but the DESIRE and ability (via credit if necessary) to spend - surely that generates more output?

 

How could it?

 

The mere desire to consume more doesn't allow us to actually produce more. The only way we can actually produce more is if we are more productive (which could be caused by us having more technology, more skills, or more capital goods).

[wiegie]

this is so wrong right from the beginning... not even sure where to start.

 

Az is not wrong at all.

[10MILESDEEP]

Az is not wrong at all.

 

 

 

Correct. I went back and re-read the scenario. If in fact we are only talking about one $100 transaction he is correct.

 

I was thinking in aggregate... if you have a sizeable portion of the economy that is paying down $100 on their credit cards rather than spending on new toys. In the aggregate case, the many mutiple $100's that are paid in do not just recycle through the economy at the same value.

[Ursa Majoris]

How could it?

 

The mere desire to consume more doesn't allow us to actually produce more. The only way we can actually produce more is if we are more productive (which could be caused by us having more technology, more skills, or more capital goods).

 

OK, got it. You are talking physical ability to increase production, I was thinking in terms of inspiring more production, in other words providing a reason for more production.

[Chavez]

Money needs to continue to circulate within that economy to fuel SPENDING. While savings/debt reduction does bring long-term stability (which is good), our economy is largely driven by short-term, quarterly profit reports.

Well, if investment people would re-calibrate and look at companies for their long-term health and stability as opposed to quarterly numbers, that would even out. And it might be a GOOD thing - would result in fewer companies engaging in book-cooking to artificially drive up stock prices (Enron, I'd be looking at you if you still existed).

I can't even imagine what would happen if we applied that principle to the federal government.

 

It would be horrible to have our children and grandchildren not saddled with a heinous debt, I agree.

[Chavez]

I was thinking in aggregate... if you have a sizeable portion of the economy that is paying down $100 on their credit cards rather than spending on new toys. In the aggregate case, the many mutiple $100's that are paid in do not just recycle through the economy at the same value.

 

...plus the CC company would have to lay people off, further exacerbating the effect.

 

Bottom line is, if you pay off your credit cards/HELOCs/car loans as opposed to buying new stuff, you pretty clearly hate America.

[yo mama]

Well, if investment people would re-calibrate and look at companies for their long-term health and stability as opposed to quarterly numbers, that would even out. And it might be a GOOD thing - would result in fewer companies engaging in book-cooking to artificially drive up stock prices (Enron, I'd be looking at you if you still existed).

 

It would be horrible to have our children and grandchildren not saddled with a heinous debt, I agree.

 

Don't be a wisenhiemer, Chavez. You admit (as we all must) that corporate America and its investors are driven by short-term profits. They shouldn't be, but they are. I agree shifting our collective view towards long-term fiscal health would be best, but that's not what's actually happening.

 

As far as the my federal government comment, my point was this: if the Feds stopped debt-financed expenditures it would grind to a halt, at least in the short term. Am I wrong? I'm a big believer in the a balanced budget. But our government doesn't seem to agree with me.

Edited March 29, 2007 by yo mama

[wiegie]

Correct. I went back and re-read the scenario. If in fact we are only talking about one $100 transaction he is correct.

 

I was thinking in aggregate... if you have a sizeable portion of the economy that is paying down $100 on their credit cards rather than spending on new toys. In the aggregate case, the many mutiple $100's that are paid in do not just recycle through the economy at the same value.

 

Actually, even in the aggregate, Az is basically still correct.

[wiegie]

OK, got it. You are talking physical ability to increase production, I was thinking in terms of inspiring more production, in other words providing a reason for more production.

 

Aha, I was just taking it as a given that people's wants were insatiable (hence causing the motivation to want more stuff to always be there).

[yo mama]

I'm not sure what articles you are reading, but they must not be very good ones.

 

I'd like for you provide some citations to back your claim, but here are a few that I came across very quickly:

 

http://www.brookesnews.com/052609econfallacy.html

 

http://www.iie.com/publications/papers/baily1003.pdf

 

http://www.stanford.edu/~ljlau/Presentatio...ons/021028a.PDF

 

I'll have to compile my articles later. Can't spend *all* day in this thread.

 

However, you cites blow. The first is largely unsubstantiated theory. It may be well researched, but does not address any kind of empirical data addressing this nation's economic growth over the last decade. It's abstract academia, at its finest. The second at least details the various factors that go into economic growth, but discusses them within the context of OECD countries in general; not this country specifically and its growth over the last decade. The third is a power point presentation dealing primarily with south east asia.

 

Again, I'm not saying your wrong. But you'll have to give me something beter than these cites to prove it.

 

In the meantime, a quick google search reveals many recent articles that are very much on point. Once such article (from a 2004 webposting from the investment advisors Frost & Sullivan) is typical of what I'm getting at: "The U.S. economy has grown for nine consecutive quarters after a three-quarter-long recession in 2001... Consumer spending continues to be the dominant force keeping the economy afloat. Consumer spending has not entered the negative zone for more than 22 quarters."

 

The article may not come from one of your ivy league text books, but if you can find fault with its factual allegations, please let me know.

Edited March 30, 2007 by yo mama

[wiegie]

I'll have to compile my articles later. Can't spend *all* day in this thread.

 

However, you cites blow. The first is largely unsubstantiated theory. It may be well researched, but does not address any kind of empirical data addressing this nation's economic growth over the last decade. It's abstract academia, at its finest. The second at least details the various factors that go into economic growth, but discusses them within the context of OECD countries in general; not this country specifically and its growth over the last decade. The third is a power point presentation dealing primarily with south east asia.

 

Again, I'm not saying your wrong. But you'll have to give me something beter than these cites to prove it.

 

In the meantime, a quick google search reveals many recent articles that are very much on point. Once such article (from a 2004 webposting from the investment advisors Frost & Sullivan) is typical of what I'm getting at: "The U.S. economy has grown for nine consecutive quarters after a three-quarter-long recession in 2001... Consumer spending continues to be the dominant force keeping the economy afloat. Consumer spending has not entered the negative zone for more than 22 quarters."

 

The article may not come from one of your ivy league text books, but if you can find fault with its factual allegations, please let me know.

 

I don't have a problem with the article, I have a problem with your interpretation of it. All your article suggests is that consumption is keeping us out of a recession. If people suddenly stopped spending and started saving, we would probably go into a recession (i.e. have negative economic growth), but the economy would come out of it relatively quickly AND long-run economic growth would trend higher as the money people saved was converted into investment. This is basically what I have been arguing in this entire thread. I can pretty much guarantee that if you contacted the authors of the article and asked them if household spending is a source of economic growth, they would say "no".

 

I'm also not sure what your intellectual objections are to my articles. The first one clearly explains why your ideas don't really make sense and the next two explain the real sources of economic growth.

[Puddy]

So...how about that Dave Ramsey guy

[yo mama]

So...how about that Dave Ramsey guy

 

You totally want in on this bra and panty tickle fight. Admit it.

[Yukon Cornelius]

bacon is good for the hart

[CaP'N GRuNGe]

bacon is good for the hart

 

 

Not if it's venison bacon.

Edited March 30, 2007 by CaP'N GRuNGe

[wiegie]

You totally want in on this bra and panty tickle fight. Admit it.