WSJ: Media Bears - Why 1/3 of Americans think we're in recession when the economy is booming.

Wall Street Journal ^ | August 19, 2005 | Editorial

[Eagles Talon IV]

It would be difficult to comment on the airline industry problems as you describe them with first hand knowledge of where they were before 9/11, regarding wages etc. The WTC was a serious blow to the airlines and they have struggled ever since. Unless you are claiming the airlines do not actually require the give backs they are asking then I don't know what else they can do. Besides that is one industry and it is not representative of what is happening across the board in workplace America, imho.

[hubbubhubbub]

This country was the stongest in the world (19th century) when we paid little or no taxes.

[wideawake]

Wait when his radiology job is outsourced (it will happen within couple of years or sooner)

LOL!

Let me see, you're saying that the radiology machines he calibrates will (1) be outsourced to someplace like India presumably and (2) the hospital will consider it cheaper to fly thousands of patients on a 48 hour New Jersey to Bangalore roundtrip flight on a regular monthly basis for radiology treatments?

I will make the rational counterassertion that the hospital will continue to treat patients living in New Jersey at its New Jersey facility.

I'll let him know that you think his hospital will start flying his patients 12,000 miles every month for their treatments.

He'll have a hearty chuckle.

and all his work and sacrifices are set at naught.

Even though your wacky scenario is ridiculous on its face, he continues to look ahead - contemplating a medical career as an oncologist. As I said, he's no slacker. The guy thinks big and works hard.

Just be careful with preaching the Free Market Unholy Gospel to him at that time or you might became unholy martyr.

Don't project your view that economics is religion onto me or him.

We're both adults and we both know that you need to keep learning and striving as long as you live - and the more economic freedom we have to accomplish those goals the better.

Economics is a means, not an end.

[ex-snook]

thanks for your research.

[ex-snook]

"I like my spending the money I earn as I choose, so I say we should either cut taxes or at least not raise them. "

Hey there was no tax cut. Taxes plus interest were deferred to the future. The only way to cut taxes is to cut government. Your use of "I" apparently does not include future generations what are stuck with the credit card bills that the "I's" of today don't want to pay.

[A. Pole]

This country was the strongest in the world (19th century) when we paid little or no taxes.

When the main federal tax was the tax on imports ie tariffs.

[ninenot]

Basically, airlines lose money every year--but the depreciation makes up for it on the income sheet.

The industry's headed for a shakeout--too much competition on the long-haul routes.

[ninenot]

Uhhhnnnhh...

The reference was not to those who treat patients with radiation, but those who READ xrays, etc.--that work is being done offshore.

Further, heart surgery is ALSO moving offshore. An insurer can actually pay 1st-class airfare round trip to India and SAVE about 50% of the cost of bypasses.

[superiorslots]

A college friend is an architect. Archit jobs are being shipped to India as we speak. American arch's design the outside and Indian architects design the inside, structure, plumbing, heating, materials, building codes etc- basically the meat of the project and where all the money is made for arch firms because it is the hardest and most time consuming.
No jobs are safe.

[Ronzo]

"...The bottom 93 percent had experienced a 4 percent drop in real disposable per-capita income between 1923 and 1929.

As for me, I'm not all that impressed with our "booming" economy.

The problem for me personally is the same for those 93% who experienced a drop in disposable income-- no real wage increases to speak of, and a tremendous lack of upper middle-income jobs ($40K & up)...at least where I live here in the Land 'O Lincoln.

All I see is a tremendous growth in retail and restaurants, and all the jobs you like from $7.00 to $9.00 an hour.

Nope, no booming economy here.

[remember]

the deficit is projected to shrink below $100 billion in 2012 only if the Bush tax cuts expire as currently scheduled.

Thanks for the heads up on the update.

Your take seems incomplete-- I get that you don't like things the way they are and the way they're going. Sometimes it seems like everyone has a big list of things they hate, and no ideas as to what they want. I like my spending the money I earn as I choose, so I say we should either cut taxes or at least not raise them. I hear you try to warn me that if I don't let you raise my taxes that the economy will collapse and our kids will starve. I doubt that, but even if it were true, we first need to agree on how much we want to reduce the deficit (please tell me what you want) so the debt is cut to (by how much).

I have NEVER said that the economy will collapse and our kids will starve. In fact, my very last response to you at this link concluded as follows:

In any case, I agree that the American economy can likely withstand whatever policies we currently implement. Put another way, our children can likely survive whatever mess we leave them. However, I'm sure that you would agree that that is NOT an argument for purposely leaving them a mess.

As far as reducing the deficit, I believe that we need to look at the present, near-term projections, and long-term projections. The long-term projections from the most recent budget can be seen at http://home.att.net/~rdavis2/pro2006.html. As can be seen, they estimate that the public debt will reach 249% of GDP by 2075. That is obviously an unacceptable burden to put on our children. Much of the long-term burden is due to a Social Security and Medicare system that will definitely require changes.

However, the deficits through 2015 shown in the graph in my prior post have nothing to do with Social Security or Medicare, at least not when taken together. In fact, Social Security is currently running a surplus of about $150 billion, making the deficit look smaller by that amount. In any case, the first goal I think we need to achieve is to bring the deficit to zero so that the gross federal debt will be increasing only by the amount of the Social Security surplus and the other trust funds (currently about $250 billion). The next goal, I think, should be to run a surplus the size of the Social Security surplus so that we can start saving that surplus for its stated purpose. Of course, we're a long, long way from the first goal, not to mention the second. In fact, we're so far from the first goal that nobody is even talking about a balanced budget in the foreseeable future.

I was not in favor of a tax hike when Bush took office. However, I think that the implementation of a large, permanent tax cut is proving itself to be a very grave mistake. As ex-snook said, their was no true tax cut. Taxes plus interest were simply deferred to the future. On that topic, following is a quote from Peter G. Peterson at this link:

I was educated at the U of Chicago where Milton Friedman taught us that a long-term tax cut is not a cut at all if we don't reduce long-term spending. It is really a deferred tax increase on our children and grandchildren. I'm not saying that the public is consciously slipping the check for their/our free lunch to our kids, I'm saying that they hear such soothing fiscal anesthesia that they are led to believe they can have it all. We can spend, we can cut taxes, we can have huge deficits and no one has to pay for it. Alas our actions do have consequences and unfortunately they will fall on our children and grandchildren. A German philosopher said that the ultimate test of a moral society is the kind of world it leaves to its children. I think, therefore, that what we are not doing is at bottom immoral however unintentional.

[expat_panama]

I take it you like a zero deficit.  That is simply not possible.  There will always either be some budget surplus or deficit. See here for details. So the question is whether you want a deficit or a surplus, and how much of it are you willing to be happy with.  You also hint that you want no changes in Social Security.  I still need some help understanding what you want, although I learning a great deal about what you never said and what you don't like.

I hear that you don't like my taxes being cut.   For me, saying "their was no true tax cut...  taxes plus interest were simply deferred to the future" is wrong-- it confuses income with outgo.  A reduction of tax is not an increase of cost.   It is a reduction of cost to me and a reduction of income for the government.  In contrast, a reduction in government spending is a reduction of cost to the government.   One does not pay for saving, one pays for spending.    If government spending is eliminated then no matter how big a percentage the tax-cut is, there's always a surplus.    On the other hand, no matter how big the tax hike, more spending can always present a deficit.

You said "the implementation of a large, permanent tax cut is proving itself to be a very grave mistake   ...our children can likely survive whatever mess we leave them".  It sure sounds like you're saying the human race will probably endure in spite if the grave risk to humanity's survival that the tax-cut presents.   IMHO that's way over the top, but you're in good company.   I grew up hearing about the awful the national debt that WWII gave us.  I have since come to feel gratitude for the sacrifices the war generation suffered for my sake and I now speak of them with respect.   The present generation will inherit a national debt of around $7 trillion, along with around 50 trillion of family wealth.  It rankles me to imagine them calling such a state of affairs a 'mess'.

[A. Pole]

Good tagline

[remember]

I take it you like a zero deficit. That is simply not possible. There will always either be some budget surplus or deficit. See here for details. So the question is whether you want a deficit or a surplus, and how much of it are you willing to be happy with. You also hint that you want no changes in Social Security. I still need some help understanding what you want, although I learning a great deal about what you never said and what you don't like.

I really wish you would stop misstating my position. In my last post I stated:

Much of the long-term burden is due to a Social Security and Medicare system that will definitely require changes.

Somehow you got the idea that this means the opposite, that I "want no changes to Social Security". Regarding the deficit, I said:

In any case, the first goal I think we need to achieve is to bring the deficit to zero so that the gross federal debt will be increasing only by the amount of the Social Security surplus and the other trust funds (currently about $250 billion).

Of course, I mean "about to zero". I am not suggesting that we go through contortions to get it to exactly zero. In addition, this will still leave the government borrowing and spending ALL of surplus from Social Security and other trust funds and the gross federal debt increasing about $250 billion a year.

I could easily misstate your position and say that, as I understand it, you are in favor of continued government spending, cutting taxes whenever we desire a little more personal money to spend, and passing the check for the difference to the next generation.

I hear that you don't like my taxes being cut. For me, saying "their was no true tax cut... taxes plus interest were simply deferred to the future" is wrong-- it confuses income with outgo. A reduction of tax is not an increase of cost. It is a reduction of cost to me and a reduction of income for the government. In contrast, a reduction in government spending is a reduction of cost to the government. One does not pay for saving, one pays for spending. If government spending is eliminated then no matter how big a percentage the tax-cut is, there's always a surplus. On the other hand, no matter how big the tax hike, more spending can always present a deficit.

That simply underlines the fact that a responsible government must undertake the tough work of cutting spending if they wish to do the easy work of cutting taxes. It's takes no courage to simply give the electorate money, either through tax cuts or increased spending. Since such courage does not appear to be a naturally occurring phenomena in Washington, we need to reinstate PAYGO on spending and tax cuts. Otherwise, the government will continue to take the easy way out, simply passing the check for our tax cuts and increased spending to the next generation.

You said "the implementation of a large, permanent tax cut is proving itself to be a very grave mistake ...our children can likely survive whatever mess we leave them". It sure sounds like you're saying the human race will probably endure in spite if the grave risk to humanity's survival that the tax-cut presents. IMHO that's way over the top, but you're in good company. I grew up hearing about the awful the national debt that WWII gave us. I have since come to feel gratitude for the sacrifices the war generation suffered for my sake and I now speak of them with respect. The present generation will inherit a national debt of around $7 trillion, along with around 50 trillion of family wealth. It rankles me to imagine them calling such a state of affairs a 'mess'.

Once again, you appear to be building straw men by misstating my position and then knocking them down. I said that the tax cuts were a "grave mistake" but I NEVER said that they were a "grave risk to humanity's survival". In any case, I likewise feel gratitude for the sacrifices that the World War II generation made for us. Similarly, I suspect that future generations will feel gratitude for the sacrifices made by our military. However, what sacrifice has those of us not in the military made? We have accepted tax cuts because we like "spending the money we earn as we choose" and are planning to leave the additional debt to the next generation. I doubt that they will feel any gratitude toward us as these tax cuts will likely require them to pay higher taxes.

In any case, it may rankle you to call our current fiscal situation a "mess". However, it totally amazes me that anyone could look at the CBO projections of the debt, assuming that the tax cuts are extended, and suggest that it is in any way fiscally responsible. The following graph shows those projections:

The actual numbers and sources can be found at http://home.att.net/~rdavis2/cbobud05.html.

[expat_panama]

You said "we need to reinstate PAYGO on spending and tax cuts".  Please continue--  if you're referring to The Budget Enforcement Act (BEA) of 1990 (title XIII of P.L. 101-508), I thought the rules already did apply to the FY 2006 budget.    I'm foggy as to how they make a fiscal policy where I can earn money to feed my kids.   The rules were easy to set aside, and even with them they didn't bring the deficit to zero (or plus or minus a percent); all I saw is that they made available more excuses for raising taxes.     I understand that you advocate some changes in Social Security-- I'm still uncertain as to whether you're in favor of changes in Social Social Security taxes (FICA) or in spending, or both.  

There really is a lot of this 'straw man' crap on these threads.  It usually comes from people who never say clearly what they want so then they can sit back and ridicule others with no fear of retaliation.  People who don't do anything and never say anything never make mistakes --they tend to escape ridicule.   Productive people get ridiculed.  I've get ridiculed so much every day that I've become inured, although I usually tend to move on from the name callers to others with more useful info.

I vaguely remember our agreeing that fiscal policy was good only inasmuch as it served higher goals (i.e. sustained increases of wealth, security, and income).  What I see working (for the better part of a century) is a budget deficit in the 6% neighborhood and a debt in the 60-70% range.   I see flexibility needed-- increased debt during a crisis and returning to previous debt levels amid prosperity.   I'd be willing to change the status quo, mostly along the lines of cutting farm subsidies and social security spending --also by further reductions in taxes.   I'm only stating this to so you can see what I mean by fiscal policy goals.  I love to share my thoughts, but I have to hear them all day long.   I'd really rather hear what you like.

[expat_panama]

 You've got a great 'about' page- clear, lot's of punch and you say what you like.   I got the wrong impression from your post 185 --thinking that you hate everything and everyone.   I find that spending to much time mulling over what I hate to be hard on the 'gastro-intestinal'. 

So let's say we're all in favor of small government, for both us and future generations.   Sure, everyone likes cutting both taxes and spending, but more often than not we usually have to do first one and then the other.  I get real suspicious of people who want to raise taxes now and they promise to cut spending later.  I've seen it happen time and again that temporary tax increases become permanent even while temporary tax-cuts expire.  I can give other examples of what happens to temporary spending cuts and increases.  

Maybe it's time we just drew the line on any new taxing or spending.

[remember]

You said "we need to reinstate PAYGO on spending and tax cuts". Please continue-- if you're referring to The Budget Enforcement Act (BEA) of 1990 (title XIII of P.L. 101-508), I thought the rules already did apply to the FY 2006 budget.

I notice that your reference is pretty old, being dated December 28, 1998. In any case, you can see stated on the bottom of the right-hand side of this page on the White House web site, that "Paygo rules expired on September 30, 2002". You may be thinking of the "PAYGO-lite" rules mentioned in a recent (March 16, 2005) editorial by Senators Lincoln Chafee (R-R.I.) and Russ Feingold (D-Wis.). Following is an excerpt:

When PAYGO was on the books during the 1990s, it worked. While it was not perfect, it worked well enough to help lower the deficit and, eventually, balance the federal budget.

PAYGO expired in 2002. It is no coincidence that in that same year, the budget plunged back into the red.

While PAYGO has a proven track record, it will only work if it can be fully enforced. In the past few years, the Senate has been operating under a deeply flawed mutation of the PAYGO rule — the same rule proposed in the budget currently being considered.

Under “PAYGO-lite,” Congress can include any tax cuts or spending increases it wants in the annual budget resolution. Members must find offsets only if the tax cuts or spending being proposed would exceed the limits set in the budget resolution!

As a result, we did not have the PAYGO discipline for crucial debates on the Medicare drug benefit and the tax measures of the past few years. “PAYGO-lite” now has a proven track record, and its effect on the federal budget’s bottom line has been devastating.

I understand that you advocate some changes in Social Security-- I'm still uncertain as to whether you're in favor of changes in Social Social Security taxes (FICA) or in spending, or both.

I don't want to get off the subject here but I can say that I am only in favor of spending cuts in Social Security, not FICA tax increases. FICA taxes are the only major tax whose rate has never been cut. Somehow, it's been overlooked in every one of our tax cut frenzies. The benefits formula, on the other hand, is irrational in that it makes absolutely no adjustment for life-expectancy. One way or another, that has to change.

What I see working (for the better part of a century) is a budget deficit in the 6% neighborhood and a debt in the 60-70% range.

You're very much mistaken about your 6% figure. That is, in fact, the largest deficit since the Second World War (in 1983), not the typical deficit. The largest deficits in the 50s, 60s, 70s, 80s, and 90s were 2.6, 2.9, 4.2, 6.0, and 4.7, respectively (see http://home.att.net/~rdavis2/def06.html. In addition, the gross debt has been above 60% in 1943 to 1958, 1991 to 1999, and 2004 to present (see http://home.att.net/~rdavis2/debt06.html. That's just about 30 years in the past century.

Finally, the 6% deficit and 60-70% debt figures don't match. Points 4 and 5 at http://home.att.net/~rdavis2/def06.html describe the relationship between deficits and debts. That relationship is that the debt will trend toward the following value:

100 * (deficit as a percent of GDP) / (GDP growth rate)

The most recent budget projected that the GDP growth rate from 2005 to 2010 would be about 5.4 percent. Given that estimate, a deficit of 6% of GDP will cause the debt to move toward 111 percent (100 * 6 / 5.4) of GDP. In the case of the gross debt, we would actually have to look at the "gross deficit" (the annual change in the gross debt). In 2004, the "unified deficit" was 3.6% of GDP but the "gross deficit" was 5.1% of GDP. If the gross deficit continues at 5.1% of GDP and the GDP grows at 5.4%, the gross debt will trend toward 94% of GDP (100 * 5.1 / 5.4). That's why it's currently headed up, just in time for the Boomer retirement.

Well, I'm sure that's enough math for anyone who's read this far. Do problems 1 to 10 on page 124 for homework and prepare for a quiz on Monday!

[expat_panama]

PAYGO expired in 2002. It is no coincidence that in that same year, the budget plunged back into the red...

When you say "no coincidence", I understand you're inferring that a causal relationship exists and is confirmed by a statistical correlation.  

Given the fact that PAYGO's start in 1990 preceded an even bigger surge in public debt, I can see why PAYGO is favored by the big government tax raising crowd.  Not that PAYGO  makes debt grow.   I haven't seen any causality proven at all other than the fact that PAYGO makes words as a substitute for action.   

STOP!!!!   There I go again inviting ideas and then simply attacking them.  (Deep breath here, count to 10-- OK, I feel better now.)   Let me say that PAYGO is good, in that it's better to at least have words alone instead of neither words nor action.  

Let's move on to action.  I'd say a better place to find causality is to focus on the relationship between debt and economic growth.  IMHO that's where we're supposed to have an inverse correlation.   I say that (in general) economic growth, beyond having the intrinsic benefit of increased wealth creation, reduces the negative legacies of public and private debt.

[expat_panama]

...100 * (deficit as a percent of GDP) / (GDP growth rate)...

That makes a lot of sense now that I look at it-- thanks. 

So if we decide that long term growth is say, 4%, then a 70% debt should be sustainable with a deficit at 2.8%.  OK, I find that reasonable and in line with observable reality. 

It also seems to be in line with current fiscal policy --isn't this what you want?.

[remember]

...100 * (deficit as a percent of GDP) / (GDP growth rate)...

That makes a lot of sense now that I look at it-- thanks.

So if we decide that long term growth is say, 4%, then a 70% debt should be sustainable with a deficit at 2.8%. OK, I find that reasonable and in line with observable reality.

It also seems to be in line with current fiscal policy --isn't this what you want?.

If you look at the second table at http://home.att.net/~rdavis2/def06.html, you'll see that the gross deficit was 5.1% of GDP in 2004, a full 1.5 percent above the unified deficit of 3.6% of GDP. As explained at the end of post #197, that is why the gross debt as a percentage of GDP is currently headed UP and, as shown in the graph in post #194, is projected by the latest CBO report to rise to 81% of GDP by 2015 (assuming that the tax cuts and the fix to the Alternate Minimum Tax are extended).