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The Economy Got Off to a Historically Bad Start in 2014

nostromo 12y ago
I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. After years of propping up the economy and expanding the supply of money, we have very little to show for it on "main street." We have booming real-estate prices in some cities, a growing stock market, and lots of cheap money flowing into the hands of the wealthy -- but most regular folks have been completely shut out of this recovery. Imagine if in 2009, instead of using the traditional means to expand monetary supply, we just started sending checks to all citizens. It seems we're still waiting for the trickle down effect to kick in from the Fed's stimulus. Why are we waiting for banks to lend and businesses to hire? If the goal is to prime the economic pump with an influx of new money, put that money in the hands of people who will actually go out and buy something.
- jacobolus 12y ago
  Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. But to answer your question: yes, we’d increase liquidity, reduce unemployment and dramatically improve the lives of basically everyone in the society if we taxed capital gains as income, restored inheritance taxes to historical levels, raised the top marginal income tax rates, and closed various corporate tax loopholes, and then just took the resulting pool of cash and distributed it equally among citizens. In the long term, the great-great grandchildren of today’s billionaires would probably end up richer, too, since the whole society would be richer.
  - nostromo 12y ago
    Let's put aside the Federal Government (and taxes and spending) for a moment and focus on the Federal Reserve. The Federal Reserve printed a large amount of money in response to the crisis. (That was a silent tax on anyone holding cash.) To inject this money into the economy, they bought a bunch of securities. My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash to citizens? Cash to citizens seems more fair than picking winners and losers and propping up assets that would otherwise be worth much less. It seems the Federal Reserve's strategy of the past 5 years has done very little to reboot the economy, and has worsened wealth inequality dramatically.
    - jacobolus 12y ago
      That would help too (the effects are somewhat similar: inflation is sort of a flat tax on wealth, and wealth distribution is extremely unequal in this country; debtors would greatly benefit), but again, you’re going to get cries of “socialism”.
    - maxxxxx 12y ago
      I think the 2008 events have shown that the Fed's purpose is to keep the "financial system" happy. Regular citizens don't really count anymore.
      - waps 12y ago
        But don't you think that if the financial system gets unhappy, you'll quickly follow in that unhappiness ? 2008 was really bad for the financial system. 2009 was really, really bad for everyone else. One was the direct cause of the other.
    - dragonwriter 12y ago
      > The Federal Reserve printed a large amount of money in response to the crisis. (That was a silent tax on anyone holding cash.) To inject this money into the economy, they bought a bunch of securities. My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash to citizens? Because that's all that the Federal Reserve can do. If you want someone to do something else, you'll need to talk to the government, not the Fed (even if that is just talking to the government about changing the rules on what the Fed can do.) Of course, the more you give flexibility to the Fed to do more of the things that otherwise would be within the domain of the government, the more you undercut the whole point of an independent central bank (while simultaneously undercutting democratic accountability.) > It seems the Federal Reserve's strategy of the past 5 years has done very little to reboot the economy, and has worsened wealth inequality dramatically. The Federal Reserve, by design, does not have a general set of tools for dealing with the economy, but a very limited set of tools for managing the money supply.
      - 001sky 12y ago
  - oldmanjay 12y ago
    What I like about wealth redistribution scenarios is how they're so much easier to sell when you ignore the potential negative effects.
    - iammyIP 12y ago
      What potential negative effects would that be?
      - arg01 12y ago
        Depends on the type of redistribution. It's not hard to imagine inflation as an effect for a lot of them (though the inflation could have a net positive effect depending on the redistribution scheme). At the very least people may quit horrible jobs for low pay if they can feed themselves without doing them (you can at least nominally call that bad from one point of view).
    - jqm 12y ago
      Redistributing some wealth would be a positive for the economy at this point and time. It's like playing monopoly and someone wins all the money. The game is over at that point. Now sure... some people try to keep it going by lending money. But when the winner gets all that as well and the other party eventually has mortgaged and sold everything there is no more money for the winner to get. Getting money out of the hands of accumulators and hoarders (oh, I mean, "investors") and back into the hands of consumers would be the best thing that could happen to everyone at this point in time. It would re-energize the system. But... give that the hoarders have much more political clout this is difficult to do. Even if it is ultimately in their best interest.
      - crazy1van 12y ago
        > Getting money out of the hands of accumulators and hoarders (oh, I mean, "investors") and back into the hands of consumers The banking system may be seriously flawed, but I'm not following your critique of accumulators / hoarders / investors. When people acquire excess money, they rarely put in under a mattress. They don't need it right now so they enter into a transaction with someone who does need it in return for more money later. For example, when a "hoarder" puts money into a bank account, the bank doesn't just stare at it. It lends it to someone who needs money now. The bank gets paid back interest and some of that goes to pay interest to the "hoarder". Obviously, this is a simplification, but the idea is the bank is an intermediary that matches people who want more money later with people who want money now.
  - mullingitover 12y ago
    > Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. I seem to recall a round of stimulus checks that were sent out in 2008, before things went to hell. Even better than a one-time stimulus, I think the permanent removal of payroll taxes would be best, possibly even replacing them with permanent (albeit small) subsidies. The idea of taxing the socially beneficial act of working and hiring workers is pretty repugnant anyway.
    - jqm 12y ago
      "The idea of taxing the socially beneficial act of working and hiring workers is pretty repugnant anyway." HEAR! HEAR! Payroll taxes are essentially a form of slavery. Every week you work X number of hours for the government. Almost like you were hauling pyramind blocks under a whip. And, on this point, conservatives (who are often wrong) are exactly right. Taxing innovation and labor are hardly incentives to provide more of it. Tax something else. Tax emissions. Tax fuel. Tax aluminum. Tax land. This would encourage efficiency and conservation anyway. Encourage innovation and productivity. Discourage waste and trashing of common resources. It's more fair and would lead to much better outcomes.
      - mikeyouse 12y ago
        Payroll taxes are nothing like slavery. You do yourself no favors with such ridiculous comparisons.
        jqm 12y ago
        I didn't say "payroll taxes are LIKE slavery" (which would be a comparison). I said "payroll taxes are a FORM" of slavery. (along with being a form of theft). Just because we have been doing it and you are used to it doesn't negate this. If one WERE to compare payroll taxes and slavery, I would say the common element is involuntary appropriation of the fruits of labor. So they are not "nothing" alike. They do share at least one very strong common trait. If you find the phrase "slavery" inflammatory or "ridiculous" as you put it... fine. I think you are wrong, but it's irrelevant to the larger point I was making anyway. And that point is... it is better to tax resource usage than to tax labor for a number of reasons. Justice being a primary one, and conservation and improved productivity being others. I'd love to hear your opinion on the actual point being raised if you have one.
  - TacticalCoder 12y ago
    OK but France has crazy high taxes: capital gain taxes, income tax of more than 50% for not that well paying jobs and up to 75% income tax for rich people, a yearly tax on your belongings if you're "rich", 21% VAT, up to 70% inheritance taxes, etc. The private sector is suffocating and closing SMEs left and right, leading to more and more unemployment. So it is not working for France. Unemployment is as crazy high as their taxes are and the situation is overall very, very bad (it's a non-democratic party who won the recent european election in France). I'm not saying I know which level of taxation is correct but once you start hammering people so much that they leave the country or that they simply decide to live of wellfare instead of trying to be entrepreneurs, then it's reasonably safe to ask the question as to whether or not you're too far right on the Laffer curve. Now I'm not saying there aren't country which are socialists and which do better than France: what I'm saying it's that it's not as easy as "tax everything" (which is what you suggest: capital gain taxes, inheritance taxes, more income taxes, etc.). On my own anecdoctical level: my brother left France to go work in Switzerland and I'm personally considering throwing the towel in and moving to a country which doesn't hate his entrepreneurs as much as the country I'm in...
    - opendais 12y ago
      > OK but France has crazy high taxes: capital gain taxes, income tax of more than 50% for not that well paying jobs and up to 75% income tax for rich people, a yearly tax on your belongings if you're "rich", 21% VAT, up to 70% inheritance taxes, etc. Comparing France [44.6% of GDP in tax revenue] vs. US [26.9% of GDP in tax revenue] is a bit disingenuous. The historic norm for the US [c. 1950] taxes he is talking is about 3 to 3.5% of our total GDP higher. France would still be a good 15% GDP ahead in taxes. Ideally, the US would shift burdens and lower destructive spending. France, on the other hand, should be lowering taxes and restructuring its spending. http://www.outsidethebeltway.com/federal-taxes-at-lowest-rate-since-1950/ http://www.outsidethebeltway.com/federal-taxes-at-lowest-rat...
- dragonwriter 12y ago
  > I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. The principle purpose of independent central banking is to put government debt on a secure footing by minimizing the risk of the government acting to monetize the debt by separating direct, day-to-day control of the money supply from the government organs responsible for borrowing and repaying debt, setting spending, etc.; it also seeks to avoid harming the economy through policies that inhibit economic activity, but actually actively promoting job growth is more about fiscal (and specific program) policy of government than monetary policy of the central bank.
  - wpietri 12y ago
    The Federal Reserve has, according to them, three objectives for monetary policy: "maximum employment, stable prices, and moderate long-term interest rates". [1] So actively promoting job growth is indeed part of their remit. [1] http://www.federalreserve.gov/faqs/money_12848.htm http://www.federalreserve.gov/faqs/money_12848.htm
    - dragonwriter 12y ago
      Actively promoting job growth is part of the goal of their monetary policy. The tools they have at their disposal are limited, however, to very narrow monetary policy tools chosen based on the idea of the purpose of having a central bank. While they are intended to seek those objectives in setting monetary policy, monetary policy isn't the principal, or most effective, method available for acheiving those objectives -- fiscal/program policy, which remains in the hands of the government and can't be combined with monetary policy in the same actor without defeating the fundamental purpose of independent central banking -- remains the principal tool there. The fact that the government -- and mostly this means Congress -- pursues no coherent policy leaves the Fed as the main actor, but they are by design not equipped to do more than extremely limited action in this domain (notwithstanding that they are tasked with prioritizing it in the actions they do take.)
- fidotron 12y ago
  Wouldn't your proposal cause massive inflation? My understanding is the fed are somewhat obsessed with keeping inflation down, possibly to a fault.
  - valas 12y ago
    Feds are obsessed with keeping inflation at a certain level, not at zero. I think the target is 3%, while current inflation is around ~2%.
    - shirkey 12y ago
      Government stated inflation based on chained CPI and other new measures to reduce inflation may be at around 2%, but previous formulas used in the past to calculate inflation would show a much higher rate (6-10%)[1]. For those actually buying or consuming anything, that official number is a farce. [1] http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
      - mikeyouse 12y ago
        Shadow stats isn't credible in any way. They can't even be bothered to take the raw data and apply the 'old' weights to them, so they just arbitrarily add a few percentage points to the CPI. The BLS has dedicated far too much effort into showing why they are an asinine source for 'data': http://www.bls.gov/opub/mlr/2008/08/art1full.pdf http://www.bls.gov/opub/mlr/2008/08/art1full.pdf Consider this: If "real" inflation was 7%/year, in 10 years, the price of everything would be 100% higher than it was previously. How many things in your life are twice as expensive as they were in 2004? Now how many things aren't twice as expensive?
        AnimalMuppet 12y ago
        Food? Gas? I don't have hard numbers, but it sure feels like they're twice as expensive.
- s0uthPaw88 12y ago
  Monetary policy has very limited effect when you are up against the zero lower bound of interest rates as the US has been for quite some time. http://krugman.blogs.nytimes.com/2013/10/15/five-on-the-floor/ http://krugman.blogs.nytimes.com/2013/10/15/five-on-the-floo...
  - jqm 12y ago
    Exactly. They have a limited supply of tools in their arsenal. And short of negative rates they can't drop the rate any lower. The economy is complex. Entities can influence it, but not even the Fed controls everything. However, they were instrumental in the last economic crisis by fueling the housing bubble. It seems fueling bubble after bubble is something they do well. Maybe they have to to prevent the music from stopping. Or... who knows.... Count me among those who is inherently suspicious of bankers. But that could be as much bias and ignorance as anything else and I am well aware of it.
- Retric 12y ago
  The US has huge structural problems and the Fed is just a useful band-aid. It's value is stabilizing the banking system not the economy. Systemic Corruption, Terrible primary education system, Ridiculous Military Spending, Unsustainable Debt Levels, Minimal Infrastructure Spending, Huge undocumented Immigrant population, Ridicules Sentencing Laws, Anti Middle Class / Start-up Tax Code, Legislation Requiring Middle Men (Cars, Healthcare, etc), Pro Lawyer legal system, etc. We even get basic things wrong like promoting home ownership and heavily subsidizing farming. What people forget is the US's primary advantage was simply abundant natural resources and getting though WWII without loss of infrastructure.
  - kaonashi 12y ago
    > Unsustainable Debt Levels There's no such thing as unsustainable debt levels in the thing you are the monopoly issuer of.
    - tinco 12y ago
      Sure there is if those debt levels devalue the thing that you use to trade for the goods and resources your country depends on.
      - kaonashi 12y ago
        _Deficit_ levels can reduce the exchange rate; but that's not something the U.S. is having problems with at the moment.
        tinco 12y ago
        It's not? You mean to say debt is not growing any longer? (deficit is growth of debt is it not?) (genuinely curious, I'm only on page 30 of piketty :P)
        kaonashi 12y ago
        In nominal terms, yes. The point is that it never becomes unsustainable because the interest rates paid are determined by the issuer, and inflation is a product of net spending (deficit). (not really Piketty, more Fullweiler)
- javert 12y ago
  Long run, the fed is just a way to transfer wealth from the poor and lower middle class to everyone else.
- javert 12y ago
  Long run, the fed is just a way to transfer wealth from the poor and lower middle class to everyone else.
- pbreit 12y ago
  The concept if "the fed creating jobs" is rather hard to swallow. But I do dort of agree that it looks like consumption is more important than investment at this juncture (always?).
- pbreit 12y ago
  The concept if "the fed creating jobs" is rather hard to swallow. But I do dort of agree that it looks like consumption is more important than investment at this juncture (always?).
- kaonashi 12y ago
  The Fed doesn't control money quantity, it controls price.
- Shivetya 12y ago
  Well they might be effective if not for an over sized Federal Government which is consuming so much of the economy through taxation and borrowing. The US has one of the least business friendly tax systems in the world, so blind Washington is to their own actions they want to fine companies for leaving instead of getting the hint. The Fed is too prop up people who support Washington, K-Street, and Wall Street, not Main Street.
- opendais 12y ago
  The Fed is a tool for managing inflation and monetary supply and it does its best with that tool to sustain job creation and the economy in general. The real problem is the US's structural problems have become a systemic cancer that is choking off growth: 1) We have a tax code that incentives capital when capital isn't an economic constraint. We are demand constrained as far as I can tell, which means more people need to have an income to spend it. 2) We have a fundamentally broken political system that incentives things like invading other countries, the war on drugs, and a bunch of destructive spending over constructive spending on things like infrastructure that would act as an economic multiplier. The net result is we basically need to equalize taxes on Labor v. Capital and shift the income into reducing taxes on the poorest people in the country who also pay taxes + infrastructure spending. It really is the only solution I can see that is truly going to fix anything. Tbh, I'd settle for the taxation equalization with all of the gain on the Capital side going to the poorest income earners. That might be politically viable without the Republicans fighting it [after all, they are reducing taxes for everyone and only raising them on capital]. [e.g. Raise capital gains, raise the standard deduction for everyone] I don't really see this happening while the US still frequently has good years. It is going to happen when we get hit with another great recession or other calamity.
  - aliston 12y ago
    In principle, this is what the Fed should be. But, in 1977 the Fed became tasked with managing "maximum employment, stable prices and moderate long-term interest rates." This is one of the fundamental problems with the Fed's dual mandate -- its conceivable that those levers may be at odds with one-another.
    - opendais 12y ago
      Fair enough, I was focusing more on the fact the problem with the Fed isn't the Fed. The Fed is doing its job as best as any human can really expect it to function. The problem is Congress+Presidents repeatedly passing the buck and pandering, rather than being productive.
- pash 12y ago
  > If the goal is to prime the economic pump with an influx of new money, put that money in the hands of people who will actually go out and buy something. ... [from nostromo's grandchild comment] My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash to citizens? Because when the Fed buys bonds, it temporarily puts cash into the economy, but sending people checks would permanently increase the money supply. If inflation gets too high, the Fed can sell off its bonds, destroying the money it created to buy them. And even if it doesn't sell its bonds before they mature, the income on those bonds—the payments of interest and principal—is a cash flow that represents a slow, steady destruction of the money the Fed created to buy them. In this passive way, the Fed is already gradually undoing its quantitative easing, and has been doing since it scaled back its bond purchases. (The Fed's profits—i.e., money beyond what it created to buy the bonds—go to shareholders and the federal treasury, so exactly as much money is destroyed as is created by the time the bond reaches maturity, by the way.) A permanent increase in the money supply, on the other hand, would almost certainly show up as inflation at some point.
- jgamman 12y ago
  Australia did this back in 2011 or so. last time i looked, i think it was still there and chugging along...
Paul_Dessert 12y ago
The chart in the articles below paints the picture. I've never really been overly involved in economics up until last year. When I started reading and exploring I was shocked at what I found. I kept struggling, because I knew something wasn't right, I just couldn't put my finger on it. I still can't. All indicators that I can find show the economy slipping into another recession (or simply continuing the previously interrupted "Great Recession") http://www.zerohedge.com/news/2014-06-25/unforgettable-winter-bank-americas-explanation-17th-worst-gdp-print-us-history http://www.zerohedge.com/news/2014-06-25/unforgettable-winte... http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-q1-gdp-crashes-29-worst-2009-far-below-worst-expectations http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-...
- mikeyouse 12y ago
  I sincerely hope Zerohedge isn't your source for economics information, they are desperately alarmist and wrong nearly constantly. The source of your unease might just be your source of news. The world isn't falling apart, there is no 'great lie', poor homebuyers in Topeka aren't to blame for the GFC, and you shouldn't be stockpiling bullets and gold. The world entered a debt-driven recession and we're still climbing out of the aftermath. Everyone tried to deleverage at once, which left nobody to drive the economy toward previous growth levels. Monetary policy is ineffective since the Western World is bouncing off the Zero Lower Bound, and fiscal policy is ineffective since politicians don't have the will to take on new debt to stimulate their respective economies. The historically low interest rates combined with new capital requirements are preventing financial institutions from lending money. Inflation will eventually return but not before many Western countries see several quarters of strong (4%+) growth. Hopefully the following will help brighten your outlook; * There are more Americans working today than at any point in US history: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=Ef0 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=E... * There are 9 million more Americans working today than at the bottom of the recession -- even with nearly 800k fewer government employees: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=Ef1 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=E... * Americans are now spending the lowest percentage of their disposable income on debt payments in the 40-year history of the data series: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=DS6 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=D... * US government debt interest payments as a percentage of federal outlays are as low as they've ever been: http://www.pewresearch.org/files/2013/10/debt_interest2.png http://www.pewresearch.org/files/2013/10/debt_interest2.png
karlkatzke 12y ago
Two of my consulting clients have seen this show up in their Q2 sales to date; one is missing their Q2 revenue goal by a whopping 50%. Admittedly, they are a small business, but they have a great B2B recurring revenue model. The goal miss is driven completely by customers who had missed their own goals in Q1, and tightened their belts as a reaction.

I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. After years of propping up the economy and expanding the supply of money, we have very little to show for it on "main street." We have booming real-estate prices in some cities, a growing stock market, and lots of cheap money flowing into the hands of the wealthy -- but most regular folks have been completely shut out of this recovery. Imagine if in 2009, instead of using the traditional means to expand monetary supply, we just started sending checks to all citizens. It seems we're still waiting for the trickle down effect to kick in from the Fed's stimulus. Why are we waiting for banks to lend and businesses to hire? If the goal is to prime the economic pump with an influx of new money, put that money in the hands of people who will actually go out and buy something.

jacobolus 12y ago
Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. But to answer your question: yes, we’d increase liquidity, reduce unemployment and dramatically improve the lives of basically everyone in the society if we taxed capital gains as income, restored inheritance taxes to historical levels, raised the top marginal income tax rates, and closed various corporate tax loopholes, and then just took the resulting pool of cash and distributed it equally among citizens. In the long term, the great-great grandchildren of today’s billionaires would probably end up richer, too, since the whole society would be richer.
- nostromo 12y ago
  Let's put aside the Federal Government (and taxes and spending) for a moment and focus on the Federal Reserve. The Federal Reserve printed a large amount of money in response to the crisis. (That was a silent tax on anyone holding cash.) To inject this money into the economy, they bought a bunch of securities. My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash to citizens? Cash to citizens seems more fair than picking winners and losers and propping up assets that would otherwise be worth much less. It seems the Federal Reserve's strategy of the past 5 years has done very little to reboot the economy, and has worsened wealth inequality dramatically.
  - jacobolus 12y ago
    That would help too (the effects are somewhat similar: inflation is sort of a flat tax on wealth, and wealth distribution is extremely unequal in this country; debtors would greatly benefit), but again, you’re going to get cries of “socialism”.
  - maxxxxx 12y ago
    I think the 2008 events have shown that the Fed's purpose is to keep the "financial system" happy. Regular citizens don't really count anymore.
    - waps 12y ago
      But don't you think that if the financial system gets unhappy, you'll quickly follow in that unhappiness ? 2008 was really bad for the financial system. 2009 was really, really bad for everyone else. One was the direct cause of the other.
  - dragonwriter 12y ago
    > The Federal Reserve printed a large amount of money in response to the crisis. (That was a silent tax on anyone holding cash.) To inject this money into the economy, they bought a bunch of securities. My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash to citizens? Because that's all that the Federal Reserve can do. If you want someone to do something else, you'll need to talk to the government, not the Fed (even if that is just talking to the government about changing the rules on what the Fed can do.) Of course, the more you give flexibility to the Fed to do more of the things that otherwise would be within the domain of the government, the more you undercut the whole point of an independent central bank (while simultaneously undercutting democratic accountability.) > It seems the Federal Reserve's strategy of the past 5 years has done very little to reboot the economy, and has worsened wealth inequality dramatically. The Federal Reserve, by design, does not have a general set of tools for dealing with the economy, but a very limited set of tools for managing the money supply.
    - 001sky 12y ago
- oldmanjay 12y ago
  What I like about wealth redistribution scenarios is how they're so much easier to sell when you ignore the potential negative effects.
  - iammyIP 12y ago
    What potential negative effects would that be?
    - arg01 12y ago
      Depends on the type of redistribution. It's not hard to imagine inflation as an effect for a lot of them (though the inflation could have a net positive effect depending on the redistribution scheme). At the very least people may quit horrible jobs for low pay if they can feed themselves without doing them (you can at least nominally call that bad from one point of view).
  - jqm 12y ago
    Redistributing some wealth would be a positive for the economy at this point and time. It's like playing monopoly and someone wins all the money. The game is over at that point. Now sure... some people try to keep it going by lending money. But when the winner gets all that as well and the other party eventually has mortgaged and sold everything there is no more money for the winner to get. Getting money out of the hands of accumulators and hoarders (oh, I mean, "investors") and back into the hands of consumers would be the best thing that could happen to everyone at this point in time. It would re-energize the system. But... give that the hoarders have much more political clout this is difficult to do. Even if it is ultimately in their best interest.
    - crazy1van 12y ago
      > Getting money out of the hands of accumulators and hoarders (oh, I mean, "investors") and back into the hands of consumers The banking system may be seriously flawed, but I'm not following your critique of accumulators / hoarders / investors. When people acquire excess money, they rarely put in under a mattress. They don't need it right now so they enter into a transaction with someone who does need it in return for more money later. For example, when a "hoarder" puts money into a bank account, the bank doesn't just stare at it. It lends it to someone who needs money now. The bank gets paid back interest and some of that goes to pay interest to the "hoarder". Obviously, this is a simplification, but the idea is the bank is an intermediary that matches people who want more money later with people who want money now.
- mullingitover 12y ago
  > Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. I seem to recall a round of stimulus checks that were sent out in 2008, before things went to hell. Even better than a one-time stimulus, I think the permanent removal of payroll taxes would be best, possibly even replacing them with permanent (albeit small) subsidies. The idea of taxing the socially beneficial act of working and hiring workers is pretty repugnant anyway.
  - jqm 12y ago
    "The idea of taxing the socially beneficial act of working and hiring workers is pretty repugnant anyway." HEAR! HEAR! Payroll taxes are essentially a form of slavery. Every week you work X number of hours for the government. Almost like you were hauling pyramind blocks under a whip. And, on this point, conservatives (who are often wrong) are exactly right. Taxing innovation and labor are hardly incentives to provide more of it. Tax something else. Tax emissions. Tax fuel. Tax aluminum. Tax land. This would encourage efficiency and conservation anyway. Encourage innovation and productivity. Discourage waste and trashing of common resources. It's more fair and would lead to much better outcomes.
    - mikeyouse 12y ago
      Payroll taxes are nothing like slavery. You do yourself no favors with such ridiculous comparisons.
      - jqm 12y ago
        I didn't say "payroll taxes are LIKE slavery" (which would be a comparison). I said "payroll taxes are a FORM" of slavery. (along with being a form of theft). Just because we have been doing it and you are used to it doesn't negate this. If one WERE to compare payroll taxes and slavery, I would say the common element is involuntary appropriation of the fruits of labor. So they are not "nothing" alike. They do share at least one very strong common trait. If you find the phrase "slavery" inflammatory or "ridiculous" as you put it... fine. I think you are wrong, but it's irrelevant to the larger point I was making anyway. And that point is... it is better to tax resource usage than to tax labor for a number of reasons. Justice being a primary one, and conservation and improved productivity being others. I'd love to hear your opinion on the actual point being raised if you have one.
- TacticalCoder 12y ago
  OK but France has crazy high taxes: capital gain taxes, income tax of more than 50% for not that well paying jobs and up to 75% income tax for rich people, a yearly tax on your belongings if you're "rich", 21% VAT, up to 70% inheritance taxes, etc. The private sector is suffocating and closing SMEs left and right, leading to more and more unemployment. So it is not working for France. Unemployment is as crazy high as their taxes are and the situation is overall very, very bad (it's a non-democratic party who won the recent european election in France). I'm not saying I know which level of taxation is correct but once you start hammering people so much that they leave the country or that they simply decide to live of wellfare instead of trying to be entrepreneurs, then it's reasonably safe to ask the question as to whether or not you're too far right on the Laffer curve. Now I'm not saying there aren't country which are socialists and which do better than France: what I'm saying it's that it's not as easy as "tax everything" (which is what you suggest: capital gain taxes, inheritance taxes, more income taxes, etc.). On my own anecdoctical level: my brother left France to go work in Switzerland and I'm personally considering throwing the towel in and moving to a country which doesn't hate his entrepreneurs as much as the country I'm in...
  - opendais 12y ago
    > OK but France has crazy high taxes: capital gain taxes, income tax of more than 50% for not that well paying jobs and up to 75% income tax for rich people, a yearly tax on your belongings if you're "rich", 21% VAT, up to 70% inheritance taxes, etc. Comparing France [44.6% of GDP in tax revenue] vs. US [26.9% of GDP in tax revenue] is a bit disingenuous. The historic norm for the US [c. 1950] taxes he is talking is about 3 to 3.5% of our total GDP higher. France would still be a good 15% GDP ahead in taxes. Ideally, the US would shift burdens and lower destructive spending. France, on the other hand, should be lowering taxes and restructuring its spending. http://www.outsidethebeltway.com/federal-taxes-at-lowest-rate-since-1950/ http://www.outsidethebeltway.com/federal-taxes-at-lowest-rat...
dragonwriter 12y ago
> I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. The principle purpose of independent central banking is to put government debt on a secure footing by minimizing the risk of the government acting to monetize the debt by separating direct, day-to-day control of the money supply from the government organs responsible for borrowing and repaying debt, setting spending, etc.; it also seeks to avoid harming the economy through policies that inhibit economic activity, but actually actively promoting job growth is more about fiscal (and specific program) policy of government than monetary policy of the central bank.
- wpietri 12y ago
  The Federal Reserve has, according to them, three objectives for monetary policy: "maximum employment, stable prices, and moderate long-term interest rates". [1] So actively promoting job growth is indeed part of their remit. [1] http://www.federalreserve.gov/faqs/money_12848.htm http://www.federalreserve.gov/faqs/money_12848.htm
  - dragonwriter 12y ago
    Actively promoting job growth is part of the goal of their monetary policy. The tools they have at their disposal are limited, however, to very narrow monetary policy tools chosen based on the idea of the purpose of having a central bank. While they are intended to seek those objectives in setting monetary policy, monetary policy isn't the principal, or most effective, method available for acheiving those objectives -- fiscal/program policy, which remains in the hands of the government and can't be combined with monetary policy in the same actor without defeating the fundamental purpose of independent central banking -- remains the principal tool there. The fact that the government -- and mostly this means Congress -- pursues no coherent policy leaves the Fed as the main actor, but they are by design not equipped to do more than extremely limited action in this domain (notwithstanding that they are tasked with prioritizing it in the actions they do take.)
fidotron 12y ago
Wouldn't your proposal cause massive inflation? My understanding is the fed are somewhat obsessed with keeping inflation down, possibly to a fault.
- valas 12y ago
  Feds are obsessed with keeping inflation at a certain level, not at zero. I think the target is 3%, while current inflation is around ~2%.
  - shirkey 12y ago
    Government stated inflation based on chained CPI and other new measures to reduce inflation may be at around 2%, but previous formulas used in the past to calculate inflation would show a much higher rate (6-10%)[1]. For those actually buying or consuming anything, that official number is a farce. [1] http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
    - mikeyouse 12y ago
      Shadow stats isn't credible in any way. They can't even be bothered to take the raw data and apply the 'old' weights to them, so they just arbitrarily add a few percentage points to the CPI. The BLS has dedicated far too much effort into showing why they are an asinine source for 'data': http://www.bls.gov/opub/mlr/2008/08/art1full.pdf http://www.bls.gov/opub/mlr/2008/08/art1full.pdf Consider this: If "real" inflation was 7%/year, in 10 years, the price of everything would be 100% higher than it was previously. How many things in your life are twice as expensive as they were in 2004? Now how many things aren't twice as expensive?
      - AnimalMuppet 12y ago
        Food? Gas? I don't have hard numbers, but it sure feels like they're twice as expensive.
s0uthPaw88 12y ago
Monetary policy has very limited effect when you are up against the zero lower bound of interest rates as the US has been for quite some time. http://krugman.blogs.nytimes.com/2013/10/15/five-on-the-floor/ http://krugman.blogs.nytimes.com/2013/10/15/five-on-the-floo...
- jqm 12y ago
  Exactly. They have a limited supply of tools in their arsenal. And short of negative rates they can't drop the rate any lower. The economy is complex. Entities can influence it, but not even the Fed controls everything. However, they were instrumental in the last economic crisis by fueling the housing bubble. It seems fueling bubble after bubble is something they do well. Maybe they have to to prevent the music from stopping. Or... who knows.... Count me among those who is inherently suspicious of bankers. But that could be as much bias and ignorance as anything else and I am well aware of it.
Retric 12y ago
The US has huge structural problems and the Fed is just a useful band-aid. It's value is stabilizing the banking system not the economy. Systemic Corruption, Terrible primary education system, Ridiculous Military Spending, Unsustainable Debt Levels, Minimal Infrastructure Spending, Huge undocumented Immigrant population, Ridicules Sentencing Laws, Anti Middle Class / Start-up Tax Code, Legislation Requiring Middle Men (Cars, Healthcare, etc), Pro Lawyer legal system, etc. We even get basic things wrong like promoting home ownership and heavily subsidizing farming. What people forget is the US's primary advantage was simply abundant natural resources and getting though WWII without loss of infrastructure.
- kaonashi 12y ago
  > Unsustainable Debt Levels There's no such thing as unsustainable debt levels in the thing you are the monopoly issuer of.
  - tinco 12y ago
    Sure there is if those debt levels devalue the thing that you use to trade for the goods and resources your country depends on.
    - kaonashi 12y ago
      _Deficit_ levels can reduce the exchange rate; but that's not something the U.S. is having problems with at the moment.
      - tinco 12y ago
        It's not? You mean to say debt is not growing any longer? (deficit is growth of debt is it not?) (genuinely curious, I'm only on page 30 of piketty :P)
        kaonashi 12y ago
        In nominal terms, yes. The point is that it never becomes unsustainable because the interest rates paid are determined by the issuer, and inflation is a product of net spending (deficit). (not really Piketty, more Fullweiler)
javert 12y ago
Long run, the fed is just a way to transfer wealth from the poor and lower middle class to everyone else.
javert 12y ago
Long run, the fed is just a way to transfer wealth from the poor and lower middle class to everyone else.
pbreit 12y ago
The concept if "the fed creating jobs" is rather hard to swallow. But I do dort of agree that it looks like consumption is more important than investment at this juncture (always?).
pbreit 12y ago
The concept if "the fed creating jobs" is rather hard to swallow. But I do dort of agree that it looks like consumption is more important than investment at this juncture (always?).
kaonashi 12y ago
The Fed doesn't control money quantity, it controls price.
Shivetya 12y ago
Well they might be effective if not for an over sized Federal Government which is consuming so much of the economy through taxation and borrowing. The US has one of the least business friendly tax systems in the world, so blind Washington is to their own actions they want to fine companies for leaving instead of getting the hint. The Fed is too prop up people who support Washington, K-Street, and Wall Street, not Main Street.
opendais 12y ago
The Fed is a tool for managing inflation and monetary supply and it does its best with that tool to sustain job creation and the economy in general. The real problem is the US's structural problems have become a systemic cancer that is choking off growth: 1) We have a tax code that incentives capital when capital isn't an economic constraint. We are demand constrained as far as I can tell, which means more people need to have an income to spend it. 2) We have a fundamentally broken political system that incentives things like invading other countries, the war on drugs, and a bunch of destructive spending over constructive spending on things like infrastructure that would act as an economic multiplier. The net result is we basically need to equalize taxes on Labor v. Capital and shift the income into reducing taxes on the poorest people in the country who also pay taxes + infrastructure spending. It really is the only solution I can see that is truly going to fix anything. Tbh, I'd settle for the taxation equalization with all of the gain on the Capital side going to the poorest income earners. That might be politically viable without the Republicans fighting it [after all, they are reducing taxes for everyone and only raising them on capital]. [e.g. Raise capital gains, raise the standard deduction for everyone] I don't really see this happening while the US still frequently has good years. It is going to happen when we get hit with another great recession or other calamity.
- aliston 12y ago
  In principle, this is what the Fed should be. But, in 1977 the Fed became tasked with managing "maximum employment, stable prices and moderate long-term interest rates." This is one of the fundamental problems with the Fed's dual mandate -- its conceivable that those levers may be at odds with one-another.
  - opendais 12y ago
    Fair enough, I was focusing more on the fact the problem with the Fed isn't the Fed. The Fed is doing its job as best as any human can really expect it to function. The problem is Congress+Presidents repeatedly passing the buck and pandering, rather than being productive.
pash 12y ago
> If the goal is to prime the economic pump with an influx of new money, put that money in the hands of people who will actually go out and buy something. ... [from nostromo's grandchild comment] My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash to citizens? Because when the Fed buys bonds, it temporarily puts cash into the economy, but sending people checks would permanently increase the money supply. If inflation gets too high, the Fed can sell off its bonds, destroying the money it created to buy them. And even if it doesn't sell its bonds before they mature, the income on those bonds—the payments of interest and principal—is a cash flow that represents a slow, steady destruction of the money the Fed created to buy them. In this passive way, the Fed is already gradually undoing its quantitative easing, and has been doing since it scaled back its bond purchases. (The Fed's profits—i.e., money beyond what it created to buy the bonds—go to shareholders and the federal treasury, so exactly as much money is destroyed as is created by the time the bond reaches maturity, by the way.) A permanent increase in the money supply, on the other hand, would almost certainly show up as inflation at some point.
jgamman 12y ago
Australia did this back in 2011 or so. last time i looked, i think it was still there and chugging along...

Paul_Dessert 12y ago

The chart in the articles below paints the picture. I've never really been overly involved in economics up until last year. When I started reading and exploring I was shocked at what I found. I kept struggling, because I knew something wasn't right, I just couldn't put my finger on it. I still can't. All indicators that I can find show the economy slipping into another recession (or simply continuing the previously interrupted "Great Recession") http://www.zerohedge.com/news/2014-06-25/unforgettable-winter-bank-americas-explanation-17th-worst-gdp-print-us-history http://www.zerohedge.com/news/2014-06-25/unforgettable-winte... http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-q1-gdp-crashes-29-worst-2009-far-below-worst-expectations http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-...

mikeyouse 12y ago
I sincerely hope Zerohedge isn't your source for economics information, they are desperately alarmist and wrong nearly constantly. The source of your unease might just be your source of news. The world isn't falling apart, there is no 'great lie', poor homebuyers in Topeka aren't to blame for the GFC, and you shouldn't be stockpiling bullets and gold. The world entered a debt-driven recession and we're still climbing out of the aftermath. Everyone tried to deleverage at once, which left nobody to drive the economy toward previous growth levels. Monetary policy is ineffective since the Western World is bouncing off the Zero Lower Bound, and fiscal policy is ineffective since politicians don't have the will to take on new debt to stimulate their respective economies. The historically low interest rates combined with new capital requirements are preventing financial institutions from lending money. Inflation will eventually return but not before many Western countries see several quarters of strong (4%+) growth. Hopefully the following will help brighten your outlook; * There are more Americans working today than at any point in US history: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=Ef0 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=E... * There are 9 million more Americans working today than at the bottom of the recession -- even with nearly 800k fewer government employees: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=Ef1 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=E... * Americans are now spending the lowest percentage of their disposable income on debt payments in the 40-year history of the data series: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=DS6 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=D... * US government debt interest payments as a percentage of federal outlays are as low as they've ever been: http://www.pewresearch.org/files/2013/10/debt_interest2.png http://www.pewresearch.org/files/2013/10/debt_interest2.png

karlkatzke 12y ago

Two of my consulting clients have seen this show up in their Q2 sales to date; one is missing their Q2 revenue goal by a whopping 50%. Admittedly, they are a small business, but they have a great B2B recurring revenue model. The goal miss is driven completely by customers who had missed their own goals in Q1, and tightened their belts as a reaction.