red states rule
09-01-2011, 04:29 AM
Just in time for Obama's peop rally next week
A single number tells us most of what we need to know about the recession and prospects for recovery. That number is gross private domestic investment. It averaged 16% of the GDP in 2006-7, 11% in 2009, 12.4% in 2010. For the first half of 2011, it was 12.6%. This decline is large enough to account for most of the increase in unemployment. It must be reversed; there is no other way of returning to high employment.
Households are doing their duty, spending 95% of their income. Consumption is a dependent variable; it will never pull us out of recession. Consumption stimulus policies have failed and wasted tax revenue. Only more jobs and paychecks can do the job.
The Federal Reserve has maintained a discount rate of one quarter of one percent for 3 years to encourage lending and investment. It has done as much as it dared to raise exports and reduce imports by increasing the money supply and devaluing the dollar.
Government has increased its share of GDP from 19.2% in 2006-7 to 20.9% in 2009 and 20.6% in 2010. The increase in the deficit did not reduce unemployment. Can government increase its expenditures enough to counteract the decline in private investment? Can such an increase stimulate private investment? Is it possible to finance compensatory government spending by taxation?
Government expenditures
Arguments about the size of government are not just ideological; they are economic. At what point does increased taxation reduce growth? At what higher point does it reduce revenues? If the government spends 20% of the GDP, financed by taxes, tax rates on the rest of the economy (business, nonprofits, households) must average 25%. If government were to spend 25% of the GDP, tax rates would have to average 33%. Much depends on how government structures taxes and spends revenues. There is no sure knowledge, but I suspect that the tax rate that begins to reduce economic growth is much closer to 25% than to 33%.
Government has been spending well in excess of its ability to collect revenue with the current tax structure. To compensate for the shortfall in private investment, it would have to spend at least 24% of GDP. Expenditures for social security and various health programs, especially Medicare and Medicaid, are scheduled to escalate. The share spent on interest on the national debt will depend on decisions in the near future, but it will rise. Taxation cannot pay all these bills coming due.
http://www.americanthinker.com/2011/09/recovery_by_the_numbers.html
A single number tells us most of what we need to know about the recession and prospects for recovery. That number is gross private domestic investment. It averaged 16% of the GDP in 2006-7, 11% in 2009, 12.4% in 2010. For the first half of 2011, it was 12.6%. This decline is large enough to account for most of the increase in unemployment. It must be reversed; there is no other way of returning to high employment.
Households are doing their duty, spending 95% of their income. Consumption is a dependent variable; it will never pull us out of recession. Consumption stimulus policies have failed and wasted tax revenue. Only more jobs and paychecks can do the job.
The Federal Reserve has maintained a discount rate of one quarter of one percent for 3 years to encourage lending and investment. It has done as much as it dared to raise exports and reduce imports by increasing the money supply and devaluing the dollar.
Government has increased its share of GDP from 19.2% in 2006-7 to 20.9% in 2009 and 20.6% in 2010. The increase in the deficit did not reduce unemployment. Can government increase its expenditures enough to counteract the decline in private investment? Can such an increase stimulate private investment? Is it possible to finance compensatory government spending by taxation?
Government expenditures
Arguments about the size of government are not just ideological; they are economic. At what point does increased taxation reduce growth? At what higher point does it reduce revenues? If the government spends 20% of the GDP, financed by taxes, tax rates on the rest of the economy (business, nonprofits, households) must average 25%. If government were to spend 25% of the GDP, tax rates would have to average 33%. Much depends on how government structures taxes and spends revenues. There is no sure knowledge, but I suspect that the tax rate that begins to reduce economic growth is much closer to 25% than to 33%.
Government has been spending well in excess of its ability to collect revenue with the current tax structure. To compensate for the shortfall in private investment, it would have to spend at least 24% of GDP. Expenditures for social security and various health programs, especially Medicare and Medicaid, are scheduled to escalate. The share spent on interest on the national debt will depend on decisions in the near future, but it will rise. Taxation cannot pay all these bills coming due.
http://www.americanthinker.com/2011/09/recovery_by_the_numbers.html