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>Instead it’s subsidies mostly tax breaks and consumption for little long term return. There's nothing wrong with consumption. Consumption is what drives the U

>Instead it’s subsidies mostly tax breaks and consumption for little long term return. There's nothing wrong with consumption. Consumption is what drives the US economy and makes it the powerhouse that it is. The American consumer is what is keeping the US out of a recession while export-driven economies like Germany are heading into recession. The problem with our fiscal policy was that the tax cuts passed by Trump almost exclusively went to the richest people who have a low MPC (marginal propensity to consume). There's nothing wrong with expanding the deficits, the US doesn't need to worry about debt and the falling bond yields confirms that. But that fiscal spending should have been targeted at the poorest people in America. It should have been to give them universal health care or free higher education, not cutting corporate taxes.

40acres 7y ago
Fiscal policy and the private sector have not done enough to ensure long term growth -- as mentioned asset inequality has lead to a lot of capital in the hands of actors that do not spend money. Advancement in technology is deflationary by nature and so a lot of growth is only realized by the top. In times like this the public sector must intervene to frame the future for it's citizens and economy: focus on the health and education of your citizens, mitigate future risk by funding solutions to climate change, secure safety by spending on military and providing equal opportunity to quell internal social unrest. If you have strong instutions and control the currency that your debt is in (US, UK, Japan, China -- as long as the communist party maintains its current strength) this is the way to go, globalization will take a hit but will cycle back in the future.
ericd 7y ago
Why has this idea that consumption is wealth-generating caught on so thoroughly? Consuming, consuming, consuming seems like it's just burning the stored wealth of the country, by selling off our valuable productive assets in exchange for trinkets (really, we're selling dollars, but those come back looking to buy up real estate, companies, etc). What's really wealth generating is investing in things that fuel long term productivity growth at a higher rate than the cost - education, automation, useful infrastructure (here's looking at you, Chinese ghost cities), tools/machinery, and R&D. Everyone buying TVs is the complete opposite, yet it would show up as a short term boost to the GDP.
- Despegar 7y ago
  The problem is that you're under the impression that "consumption" is somehow less virtuous than "investment". You mentioned China, but that's a perfect example of an economy that isn't driven by consumption. And they desperately want it to be. China is extremely reliant on exports and state-driven infrastructure spending. If there was actual domestic demand for everything they produce they'd be in a much better spot and that infrastructure would actually be utilized.
  - ericd 7y ago
    I'm under the impression that the main driver of long-term wealth is increases in productivity. Hence why "investment" in productive assets (including a well educated populace) is a larger driver of long-term wealth than "consumption". They're reliant on exports and state-driven infrastructure spending because they're not yet wealthy, per capita. It's the stored wealth that allows a consumption-driven economy, not the other way around.
    - mlazos 7y ago
      Most Americans are in debt and have no stored wealth. I know that intuitively it seems like stored wealth should be good for an economy but it’s not the case. Spending more money than you have (debt) is actually better for the economy because it results in more movement of goods and services. Leveraged consumption grows businesses which hire more people which creates wealth. I do think that education is important, but you also need consumption to drive demand for educated professionals in growing businesses. In short you need both for the economic cycle to work.
      - ericd 7y ago
        I'm not arguing against debt. I understand that debt can grow the economy, increase asset values, increase incomes, etc etc, but debt only helps the long term wealth of a country if it's used toward productive ends. It helps GDP/incomes in the short term if it's spent on consumption, but spending the credit on unproductive investments doesn't increase the amount of debt that people/businesses can service long term. When an economy can no longer service more debt, that's when you see debt crises and contractions begin. EDIT: Here's a pretty good overview of debt cycles, and when debt helps/doesn't: https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0 Or if you have more time to devote to the subject: https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B07GLBHM48 https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B0... EDIT 2: When I say "stored wealth", I don't mean the amounts in normal peoples' savings accounts, but the productive capital of the country - land, businesses, infrastructure.
stanfordkid 7y ago
Blindly investing money into “the poor” is a foolish endeavor that yields little strength to a country. Herd immunity and preventative health is a quantifiable thing and so I support universal healthcare. But we have to stop this disasterous assumption that the only reason people are poor is their circumstances. The best way to help poor people is to lower the minimum wage so they can get jobs. Subsidizing the poor increases consumption which is bad not only for the first order effect (throwing away money)... but also for the little thought of second order effect: it incentivizes people to build businesses that cater to consumption that was in the first place unsustainable. Smart people that could have been doing something else instead facilitate the creation of businesses that are only funded by inflation and cheap credit. This is the story of the US economy in the past 30 years. The two largest disasters in recent history: the student loan bubble and the housing bubble, were both founded upon the notion that we should “give money away” without any real measurement of whether or not there would be a return on capital. Our government should invest the majority of capital in basic research, healthcare, education and infrastructure... not the creation of a consumption driven bloated welfare state.
- coldcode 7y ago
  We should force the poor into indentured servitude or slavery as a proper solution, as the South was better off when workers were all unpaid and uncared for. Giving everyone's tax money to wealthy people will result in a better world for everyone. /s Libertarian fantasy must be a pretty dull medium. Always the same story.
  - voldacar 7y ago
    This wasnt a very substantive comment... People go to HN to avoid discourse like this :(
- SubiculumCode 7y ago
  A serious and frequently permanent loss of productivity occurs when people live on a financial cliff where minor unfortunes can propel even smart individuals into unemployment and homelssness, and their children into poorer education outcomes, while minor investments and more equitible distributions of wealth in a society create robust sustainable growth. In the case of student loans, they should have come with restrictions on increases in admin costs at the college as tuition has inordinately increased. In terms of the housing crisis, do not discount the role of predatory lending by institutions that used to engender trust. I find your position to ignore context and subtelty, and to propogate myths about poverty and the impoverished as primarily being the result of a meritocracy.

40acres 7y ago

Fiscal policy and the private sector have not done enough to ensure long term growth -- as mentioned asset inequality has lead to a lot of capital in the hands of actors that do not spend money. Advancement in technology is deflationary by nature and so a lot of growth is only realized by the top. In times like this the public sector must intervene to frame the future for it's citizens and economy: focus on the health and education of your citizens, mitigate future risk by funding solutions to climate change, secure safety by spending on military and providing equal opportunity to quell internal social unrest. If you have strong instutions and control the currency that your debt is in (US, UK, Japan, China -- as long as the communist party maintains its current strength) this is the way to go, globalization will take a hit but will cycle back in the future.

ericd 7y ago

Why has this idea that consumption is wealth-generating caught on so thoroughly? Consuming, consuming, consuming seems like it's just burning the stored wealth of the country, by selling off our valuable productive assets in exchange for trinkets (really, we're selling dollars, but those come back looking to buy up real estate, companies, etc). What's really wealth generating is investing in things that fuel long term productivity growth at a higher rate than the cost - education, automation, useful infrastructure (here's looking at you, Chinese ghost cities), tools/machinery, and R&D. Everyone buying TVs is the complete opposite, yet it would show up as a short term boost to the GDP.

Despegar 7y ago
The problem is that you're under the impression that "consumption" is somehow less virtuous than "investment". You mentioned China, but that's a perfect example of an economy that isn't driven by consumption. And they desperately want it to be. China is extremely reliant on exports and state-driven infrastructure spending. If there was actual domestic demand for everything they produce they'd be in a much better spot and that infrastructure would actually be utilized.
- ericd 7y ago
  I'm under the impression that the main driver of long-term wealth is increases in productivity. Hence why "investment" in productive assets (including a well educated populace) is a larger driver of long-term wealth than "consumption". They're reliant on exports and state-driven infrastructure spending because they're not yet wealthy, per capita. It's the stored wealth that allows a consumption-driven economy, not the other way around.
  - mlazos 7y ago
    Most Americans are in debt and have no stored wealth. I know that intuitively it seems like stored wealth should be good for an economy but it’s not the case. Spending more money than you have (debt) is actually better for the economy because it results in more movement of goods and services. Leveraged consumption grows businesses which hire more people which creates wealth. I do think that education is important, but you also need consumption to drive demand for educated professionals in growing businesses. In short you need both for the economic cycle to work.
    - ericd 7y ago
      I'm not arguing against debt. I understand that debt can grow the economy, increase asset values, increase incomes, etc etc, but debt only helps the long term wealth of a country if it's used toward productive ends. It helps GDP/incomes in the short term if it's spent on consumption, but spending the credit on unproductive investments doesn't increase the amount of debt that people/businesses can service long term. When an economy can no longer service more debt, that's when you see debt crises and contractions begin. EDIT: Here's a pretty good overview of debt cycles, and when debt helps/doesn't: https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0 Or if you have more time to devote to the subject: https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B07GLBHM48 https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B0... EDIT 2: When I say "stored wealth", I don't mean the amounts in normal peoples' savings accounts, but the productive capital of the country - land, businesses, infrastructure.

stanfordkid 7y ago

Blindly investing money into “the poor” is a foolish endeavor that yields little strength to a country. Herd immunity and preventative health is a quantifiable thing and so I support universal healthcare. But we have to stop this disasterous assumption that the only reason people are poor is their circumstances. The best way to help poor people is to lower the minimum wage so they can get jobs. Subsidizing the poor increases consumption which is bad not only for the first order effect (throwing away money)... but also for the little thought of second order effect: it incentivizes people to build businesses that cater to consumption that was in the first place unsustainable. Smart people that could have been doing something else instead facilitate the creation of businesses that are only funded by inflation and cheap credit. This is the story of the US economy in the past 30 years. The two largest disasters in recent history: the student loan bubble and the housing bubble, were both founded upon the notion that we should “give money away” without any real measurement of whether or not there would be a return on capital. Our government should invest the majority of capital in basic research, healthcare, education and infrastructure... not the creation of a consumption driven bloated welfare state.

coldcode 7y ago
We should force the poor into indentured servitude or slavery as a proper solution, as the South was better off when workers were all unpaid and uncared for. Giving everyone's tax money to wealthy people will result in a better world for everyone. /s Libertarian fantasy must be a pretty dull medium. Always the same story.
- voldacar 7y ago
  This wasnt a very substantive comment... People go to HN to avoid discourse like this :(
SubiculumCode 7y ago
A serious and frequently permanent loss of productivity occurs when people live on a financial cliff where minor unfortunes can propel even smart individuals into unemployment and homelssness, and their children into poorer education outcomes, while minor investments and more equitible distributions of wealth in a society create robust sustainable growth. In the case of student loans, they should have come with restrictions on increases in admin costs at the college as tuition has inordinately increased. In terms of the housing crisis, do not discount the role of predatory lending by institutions that used to engender trust. I find your position to ignore context and subtelty, and to propogate myths about poverty and the impoverished as primarily being the result of a meritocracy.