Our Current Economic Malady Explained

[MSimon]

dy/dg < 0.

http://classicalvalues.com/2013/03/its-the-technicals/

[chrismb]

dy/dg < 0.

http://classicalvalues.com/2013/03/its-the-technicals/

What's g? If y is a sample of Y (GDP) and g is a sample of G (Gov spending) this would look wrong.

Otherwise, if rate of Gov spending was dropping and rate of GDP growth was positive then dy/dg would still be < 0 ? What would be the problem with that?!?

[MSimon]

dy/dg < 0.

http://classicalvalues.com/2013/03/its-the-technicals/

What's g? If y is a sample of Y (GDP) and g is a sample of G (Gov spending) this would look wrong.

Otherwise, if rate of Gov spending was dropping and rate of GDP growth was positive then dy/dg would still be < 0 ? What would be the problem with that?!?

It is explained better at the link. What it amounts to is that dy/dg is the multiplier from Government spending.

if dy/dg > 0 Government spending improves the economy (there is a profit)
if dy/dg < 0 Government spending makes things worse (there is a loss)

What you would like to see is a multiplier greater than 1 i.e (1 + dy/dg) > 1 so the spending multiplies output.

[choff]

Is the government spending inspired growth greater than private sector growth inspired growth would be without it? What is the long term impact on growth if the government assumes long term debt obligations to create it?

[MSimon]

Is the government spending inspired growth greater than private sector growth inspired growth would be without it? What is the long term impact on growth if the government assumes long term debt obligations to create it?

You will like the punch line from here: http://www.ecnmag.com/blogs/2013/03/gre ... gy-pirates

and the mstrong1 comment.

[MSimon]

Is the government spending inspired growth greater than private sector growth inspired growth would be without it? What is the long term impact on growth if the government assumes long term debt obligations to create it?

What is the long term impact on growth if the government assumes long term debt obligations to create it?

If the multiplier is < 1 eventually the government owns the economy if the spending is debt based.

[hanelyp]

What is the long term impact on growth if the government assumes long term debt obligations to create it?

Whether the government gets money by taxes, borrowing, or printing, Money spent by government is taking goods and services produced by the private sector economy. In a few cases the value produced is worth the expense, in many cases not.

[chrismb]

if dy/dg > 0 Government spending improves the economy (there is a profit)

This condition would also be satisfied if both the rate of change of GDP and of Government spend were both falling.
If both GDP and Government spend were falling, but GDP was falling faster than Gov spending, then this would be a 'loss', yet dy/dg>0 still.

if dy/dg < 0 Government spending makes things worse (there is a loss)

There would be a gain if the condition was achieved by a negative dg (reducing Gov spend) and a positive dy (increasing GDP) but this is 'profit' .. and yet dy/dg<0

Inequalities are tricky beasts when one starts moving negative signs from one side to the other - the sign reverses each time a 'negative' gets exported from one side to the other, and it is not possible to say aforehand if dy or dg are negative. They could be either, so the inequality here to say what is intended is a little monster to get right.

It might be that the inference is always that 'Government Spend rate', dg, is always positive. So what MSimon is meaning could be written as;

"dy/dg>0 {for dg>=0}'

...but, then, defining dg as always positive is, in a humble opinion, THE problem, not the route to understanding a solution!!

[MSimon]

chris,

Yes. I was quoting from the text I ultimately linked to. And as you point out there are unstated assumptions.

But I think his general point - given current conditions - is correct.

[choff]

The other possible outcome is that the banks end up owning everything, since they hold the government debt, a good example would be what's happening on Cyprus this weekend.

[Teahive]

The world could be a better place if macro-economists (and many other people, frankly) were less obsessed with GDP.

the government has to take resources from either a current productive area of the economy, or, issue bonds and take it from future productivity.

The government has to take resources, period. Whether those resources are currently productively used or not is another matter, but they're taken from the present in any case.

[KitemanSA]

For folks that hate drugs, some seem to love the nastiest drug of all, government spending.

[Diogenes]

For folks that hate drugs, some seem to love the nastiest drug of all, government spending.

No, I hate that one most of all.

[ladajo]

This has been true of most of recorded history. Tytler offers some evidence in his "Universal History". I think the best bit in summary is maybe his view of why Greece collapsed.

From the Boston, Fetridge and Company publishing of 1854, page 222, Book II, Chapt VI;

Such was the situation of Greece, when, extending her conquests and importing both the wealth and the manners of foreign nations, she lost with her ancient poverty her ancient virtue. Venality and corruption pervaded every department of her states, and became the spring of all public measures, which, instead of tending to the national welfare, had for their only object the gratification of the selfish passions of individuals. Under these circumstances, it was no wonder that she should become an easy prey to a foreign power, which in fact rather purchased her in the market, than subdued her by force of arms.

[Stubby]

US Marginal tax rate since permanent collection of income tax (from 1913)



Interesting graph.
During your most prosperous years as a nation right after WWII, the richest paid a high rate.
You want to be as prosperous again? You should probably go back to what was working post WWII.