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When this was first announced a couple weeks ago, I read the "fact sheet" posted. In it they talked about an emphasis on putting the money into "disadvantaged

by nika 16y ago

When this was first announced a couple weeks ago, I read the "fact sheet" posted. In it they talked about an emphasis on putting the money into "disadvantaged areas" and "focusing on innovative technologies like clean energy". So, your concern about investments being made more based on political pull than on merit is well founded. Over 50 years ago an environment of heavy government regulation and anti-competitive legislation (as you describe in the first part of your post) was posited by Ayn Rand in Atlas Shrugged. The argument being that it is in politicians interest to make business hard so that businesses are beholden to politicians. She called it the "aristocracy of pull". I like to point out that taking $2B out of the economy will prevent the creation of- in my estimation- 4,000,000 jobs over the next 10 years. The money must come from taxes or inflation, and that lowers the bottom line at the end of the year when business owners large and small are deciding whether to expand or not. The lack of expansion in the first year means the businesses lose out on the profits that would have come from it on the second year, and like compound growth the missed opportunity compounds as well. Better to let people allocate their own resources and capital. Central planning doesn't work, and inevitably leads to the aristocracy of pull.

nkassis 16y ago
"The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Now this model can be sustained as long as the economy grows faster than the interest you have to pay. This is why deficits spending isn't in itself that bad, it's the size of the deficit that's the issue. (probably oversimplified the whole issue but that's what I got from second semester of macroecon)
- sskates 16y ago
  Sorry, the government can't create wealth for free. If the government wants to allocate dollars, it must at some point come from taxes (pulling dollars in the economy back out of it) or inflation (printing more dollars and decreasing the value currently held dollars). Now, the economy may grow such that the amount of wealth in the future is much larger than the amount we have now, and therefore represents a smaller fraction of the economy, but the fact remains that the wealth comes from somewhere.
  - nkassis 16y ago
    What if the money allocated by the gov ends up creating more wealth than it would have previously? This is important to consider I think. This kind of program in my view can be a good idea if it creates more wealth than taken from the economy. I know it's unpopular to say this but government can create wealth (internet, space, health research...) that I don't think would have happened without.
- nika 16y ago
  When you borrow money, you create a bond, right? So you have the money you borrowed (the principle) that you spend into the economy, and yet there's also this new bond out there. That bond is an asset. That bond is an increase in the money supply. Borrowing money is the mechanism by which the currency is inflated.
- anamax 16y ago
  > "The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Not so fast. Borrowed money is money that is unavailable for other purposes. That happens immediately. It's not like the borrowed money was under a mattress. The payback is from taxes or inflation, and the latter works only if the inflation is a surprise to the lender. Expected inflation is factored into the interest rate.
daniel-cussen 16y ago
I was with you until you mentioned 4,000,000 jobs lost over 10 years on a $2B mix of taxes and inflaton. $5k per job? You sure about that?
scottkduncan 16y ago
> "I like to point out that taking $2B out of the economy will prevent the creation of- in my estimation- 4,000,000 jobs over the next 10 years." That's quite an estimate. I'm not quite sure how you got to this figure, but this seems to say that each $500 of additional taxes reduces job creation by one ($2B/4M). Inverting this logic would mean that the recent $120 billion reduction in payroll taxes, which was only part of the package extending the Bush tax cut, should allow for the creation of 240,000,000 jobs. Way to go Obama...although now we need to find a couple hundred million more Americans to fill all these awesome jobs you created! I'm surprised there are such wild claims in such a highly rated post.

by nika 16y ago

nkassis 16y ago

"The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Now this model can be sustained as long as the economy grows faster than the interest you have to pay. This is why deficits spending isn't in itself that bad, it's the size of the deficit that's the issue. (probably oversimplified the whole issue but that's what I got from second semester of macroecon)

sskates 16y ago
Sorry, the government can't create wealth for free. If the government wants to allocate dollars, it must at some point come from taxes (pulling dollars in the economy back out of it) or inflation (printing more dollars and decreasing the value currently held dollars). Now, the economy may grow such that the amount of wealth in the future is much larger than the amount we have now, and therefore represents a smaller fraction of the economy, but the fact remains that the wealth comes from somewhere.
- nkassis 16y ago
  What if the money allocated by the gov ends up creating more wealth than it would have previously? This is important to consider I think. This kind of program in my view can be a good idea if it creates more wealth than taken from the economy. I know it's unpopular to say this but government can create wealth (internet, space, health research...) that I don't think would have happened without.
nika 16y ago
When you borrow money, you create a bond, right? So you have the money you borrowed (the principle) that you spend into the economy, and yet there's also this new bond out there. That bond is an asset. That bond is an increase in the money supply. Borrowing money is the mechanism by which the currency is inflated.
anamax 16y ago
> "The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Not so fast. Borrowed money is money that is unavailable for other purposes. That happens immediately. It's not like the borrowed money was under a mattress. The payback is from taxes or inflation, and the latter works only if the inflation is a surprise to the lender. Expected inflation is factored into the interest rate.

daniel-cussen 16y ago

I was with you until you mentioned 4,000,000 jobs lost over 10 years on a $2B mix of taxes and inflaton. $5k per job? You sure about that?

scottkduncan 16y ago

> "I like to point out that taking $2B out of the economy will prevent the creation of- in my estimation- 4,000,000 jobs over the next 10 years." That's quite an estimate. I'm not quite sure how you got to this figure, but this seems to say that each $500 of additional taxes reduces job creation by one ($2B/4M). Inverting this logic would mean that the recent $120 billion reduction in payroll taxes, which was only part of the package extending the Bush tax cut, should allow for the creation of 240,000,000 jobs. Way to go Obama...although now we need to find a couple hundred million more Americans to fill all these awesome jobs you created! I'm surprised there are such wild claims in such a highly rated post.