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often the result of policy not always but often policy is the cause of change is the economy different today policy may be the cause consider the changes not only the changes we like not only the changes we want all of the changes any of the changes may be a result of policy consider this things we don t like about our economy may be unintended consequences of economic policy nuff said posted by the arthurian at 6 58 pm 0 comments labels policy monday january 18 2010 apropos of interesting from false economy by alan beattie chapter 7 the telegraph and railroad developed together the lines running alongside one another in 1849 the new york and erie rail road pioneered the use of the telegraph to control running operations five years later it was standard practice among the railroad companies these twin technologies incidentally helped establish their own standardization including one of the most fundamental of all measurements time in the mid nineteenth century there were more than two hundred different local times in the united states towns might be only a few minutes ahead or behind the time in the next town along even the american railroad companies used a total of some eighty different times since journeys took so long that there was plenty of opportunity for people to change their watches as railroad travel quickened and expanded the potential for confusion multiplied and in 1883 the railroads imposed a uniform system of time with the four time zones that persist today eastern central mountain and pacific the railroads imposed it posted by the arthurian at 5 58 am 0 comments sunday january 17 2010 the business income tax the business income tax is a tax on profit suppose we run a business with sales of a million dollars a year say our profit is ten percent of that or 100 000 and say that our tax rate is ten percent applied to our profit so the tax we owe is 10 000 but if we take half our profit and sink it back into the business the tax we owe falls to 5000 and our business grows after a few years of growth our business has sales of two million dollars a year but we re still satisfied to take 100 000 profit now just five percent of gross assuming that congress hasn t meddled with taxes our tax rate is still ten percent and our tax is still ten grand our gross income increases and our total spending increases but our taxes do not increase in proportion and we can reduce our taxes again by sinking more profit back into the business this is the force that the business tax applies to our economy in an effort to stimulate growth this is the reason businesses grow beyond economies of scale but that growth has consequences such as the decline of profits and it has methods like merger and acquisition a business with sales of a million dollars a year paying ten grand in taxes is paying a tax rate of one percent of gross if we threw out the existing tax on business profit and established a one percent tax on gross business income this would be neither a tax cut nor an increase but it would remove economic distortions created by the existing tax it would reduce the downward pressure on profit and it would remove the incentive for merger and acquisition i would phase in such a tax over maybe a ten year transition period for the record these numbers are for example only in particular the tax rates are made up but whatever the actual rates are the analysis stands posted by the arthurian at 6 31 am 0 comments labels taxes saturday january 16 2010 t b t f in an old kiplinger letter from 1982 or so i once read that agribusiness had grown beyond its economies of scale a memorable phrase during the recent fiscal crisis the memorable line was too big to fail i totally buy the tbtf argument to let your biggest firms fail in the midst of the worst recession since the great depression is to invite disaster john maynard keynes asked by a journalist whether there had ever been anything before like the great depression replied yes it was called the dark ages and it lasted four hundred years if you want to break up big businesses do it while the economy is on the up swing don t wait to do it during the worst whatever since whatever a question arises how do businesses get tbtf in particular what makes a business grow beyond its economies of scale what makes a business get so big that it would be more profitable to be smaller and yet continue to grow what makes a business grow larger than its natural economic limits would allow the tax code the tax code makes business grow the tax code says re invest your money or we ll tax it to minimize taxes business must grow what makes a business get too big to fail the tax code that s what posted by the arthurian at 6 21 am 0 comments labels taxes friday january 15 2010 the use of credit used to be we d use credit for growth and for special circumstances now we use credit for everything it s too much that s why there is so much debt after world war ii we had three or four dollars of credit in use for every dollar of spending money sixty years later we have thirty five or forty dollars of credit in use for every dollar of spending money so everybody has to run ten times as fast now just to keep up with the payments other people say debt is the problem i say the use of credit is the problem you say but we need to use credit i say yeah you say so i say debt is the measure of credit in use if debt is a problem then credit use is a problem you can t have it both ways you can t complain about debt and demand increasing credit use at the same time or maybe you can i think i know a way posted by the arthurian at 12 17 pm 0 comments thursday january 14 2010 a simple fact no matter how much or how little we spend if we spend credit then we re gonna have debt and the more credit we use the more debt we have if we never use credit then we never have debt no matter how much or how little we spend conclusion the problem is not excessive spending the problem is what we use for money posted by the arthurian at 6 52 pm 0 comments wednesday january 13 2010 points of agreement most people see differences between republicans and democrats well sure but in some ways the two parties are much the same nobody makes an issue of the points of agreement because everybody agrees that s the way things should be done but what if the way we ve been doing things is the source of our economic troubles democrats and republicans both expect the federal reserve do our inflation fighting for us and both use tax policy to stimulate the economy there is of course a lot of bickering about the best way to stimulate the economy but maybe the bickering is a distraction that keeps us from seeing the problem clearly what if the way we ve been doing things is the cause of our problems that would explain why we ve been unable to solve the economic problems it would explain why the problems keep coming back and getting worse it would explain a lot this reminds me of the hero worship story what if the way we ve been doing things is the source of our troubles posted by the arthurian at 8 06 pm 0 comments labels questions sunday january 10 2010 winter of despair from franklin d roosevelt and the new deal by william e leuchtenburg the persistence of the depression raised questions not merely about business leadership but about capitalism itself when so many knew want amidst so much plenty something seemed to be fundamentally wrong with the way the system distributed goods while the jobless wore threadbare clothing farmers could not market thirteen million bales of cotton in 1932 while children trudged to school in shoes soled with cardboard shoe factories in lynn and brockton massachusetts had to close down six months of the year with ten billion dollars in bank vaults hundreds of cities felt compelled to issue scrip because there was not enough currency in the town some groups even resorted to barter the savage irony of want amidst plenty drove farmers to violent action as farm income dipped sharply while taxes and mortgage obligations remained constant thousands of farmers lost their land for failure to pay taxes or meet payments one account reported that on a single day in april 1932 one fourth of the entire area of the state of mississippi went under the hammer of auctioneers it was frequently remarked in later years that roosevelt saved the country from revolution yet the mood of the country during the winter of 1932 33 was not revolutionary there was less an active demand for change than a disillusionment with parliamentary politics so often the prelude to totalitarianism in europe many americans came to despair of the whole political process a contempt for congress for parties for democratic institutions there is no doubt in the world wrote william dodd that both political parties have been bankrupted many believed that the long era of economic growth in the western world had come to an end posted by the arthurian at 12 23 pm 0 comments instability i m still trying to decipher a recent krugman post this bit of it in particular caught my eye john cochrane on the other hand says that it s all because george w bush gave a scary speech the it in that sentence is the financial crisis cochrane says we had a financial crisis because president bush created a panic i m looking for cochrane s version of what cochrane said have not found it yet but for me the panic began with hank paulson s speech of 19 september 2008 references this youtube video may be the president s scary speech here is the text of paulson s speech wikipedia describes paulson s 19 sept 08 speech krugman rejects cochrane s view as the argument from authority thing source w says crisis source w is authoritative therefore crisis is true no krugman has to be wrong about this anything can create a panic president bush s scary speech or treasury secretary paulson s scary speech or both of em together in a one two punch that could create a panic it wouldn t work every day it wouldn t work in a strong healthy economy but in an economy that s been going downhill for 40 years an economy with irreparable problems yeah scary talk could push us over the edge point cochrane posted by the arthurian at 7 43 am 2 comments saturday january 9 2010 it s not that complicated back in february 2009 almost a year ago now bloomberg did an article on james tobin s influence on obama s 787b stimulus the story included john cochrane s thoughts on the subject cochrane s view as the article has it is the idea that spending can spur the economy was discredited decades ago john cochrane a finance professor at the booth school of business at the university of chicago said that while tobin made contributions to investing theory the idea that spending can spur the economy was discredited decades ago it s not part of what anybody has taught graduate students since the 1960s cochrane said they are fairy tales that have been proved false it is very comforting in times of stress to go back to the fairy tales we heard as children but it doesn t make them less false to borrow money to pay for the spending the government will issue bonds which means investors will be buying u s treasuries instead of investing in equities or products negating the stimulative effect cochrane said it also will do nothing to unlock frozen credit he said from yale s tobin guides obama from grave as friedman is eclipsed by oliver staley and michael mckee feb 27 2009 bloomberg i m no economist as i ve said before but one thing is obvious to me spending is the economy work and getting paid and shopping and paying this is what the economy is add to that producing stuff and developing stuff if you want but i count that in with work add leisure time and vacations and such if you want but i count that with shopping add owning stuff if you want but that s just how we keep score that s what the economy is that s all it is there s no magic to it and how would you measure the economy the only way is to measure the spending and how would you describe the economy you could list all the various kinds of work people do and all the various things they produce and the various ways they spend their money and i suppose you could expand upon that i use one word transaction the economy is transaction the economy is spending spending is the economy a dollar of spending is a dollar of spur that s the whole idea behind economic stimulus it s not that complicated posted by the arthurian at 11 22 am 0 comments labels stimulus the economy is transaction friday january 8 2010 exponential force the purpose of policy is to change the economy the economy changes in response to policy the economy changes but policy doesn t the economy changes and after a while policy starts to fail because policy has not changed we don t change policy because we think our policy is the right solution to the economic problems when policymakers realize their solutions are failing they don t change them they strengthen them as time goes by strengthened policies reinforce the economic changes changes created by policy the strengthening makes things worse we think we know what must be done to fix the economy we think that if we make our policy strong enough we can make things better but it turns out we must strengthen policy again every few years it becomes a trend policy grows stronger as time goes by the strengthening of policy in this manner is a driving force that can create exponential trends in economic data the exponential growth of debt is a consequence of economic policy posted by the arthurian at 6 38 pm 0 comments labels policy tuesday january 5 2010 to tie up a loose end from last time debt has been growing exponentially since the end of world war ii the growth of debt is not under control but since the end of world war ii it has been regular and predictable it depends on mathematical forces or let s say on the mathematical consequences of economic forces it does not depend on who wins the election i hold that economic forces are directed by economic policy you might point out that economic policy is created by politicians that puts politicians at the head of the line of causation so then says you the growth of debt does depend on who wins the election very nice but who wins the election is subject to change sometimes one party wins and sometimes the other those different outcomes do not show up on the debt per dollar graph the graph does not wiggle one way when democrats win and wiggle the other way when republicans win in fact it hardly wiggles at all the graph doesn t show political trends it shows exponential increase it shows the mathematical consequences of economic forces posted by the arthurian at 7 53 pm 0 comments sunday january 3 2010 exponential growth if you ask most people would probably say exponential growth is out of control growth that s not what it means technically it means that growth is regular predictable and under control well maybe not under control but defin...