Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (215885)	2/1/2007 8:03:21 PM
From: neolib	Read Replies (1) \| Respond to of 281500

Two points: (a) The theory explicitly states that it is talking about injection at the bottom of the economy WITHOUT matching taxation. Considering how big of a deficit we are running, I'd say that is the easy part <vbg> But then it only applies to the deficit portion which is what, about 20%, not the entire budget $. (b) there is another part to theory that you are ignoring and it becomes obvious when looked at in conjunction with the tax code. And that is this: The further down the food chain the money is injected/retracted, the greater its effect (this is simple math based on MPS). What is more, MPS is not constant through out the chain; the poorer the person, the higher the MPS. Again, this is a fact, not a theory. When you combine this fact with a progressive tax code, what you are doing is to remove money from those with low MPS (the "rich") and give it to those with high MPS (the poor), resulting in a net gain in the multiplier. The net savings rate in the USA is about zero, so I don't think this holds too much anymore, i.e. everyone is fully, or over utilizing their own assets. The government cannot improve on that. I did go over here: ingrimayne.com to learn something useful, and indeed, I do see that the model does claim an important asymmetry. The multiplier for increased government spending is claimed to be higher than the negative multiplier for increased taxation. That I have a very difficult time swallowing, for the previously mentioned thought experiment: Government taxation & spending are simply accounting (+ inefficiency), so why not simply do the accounting more efficiently and keep it with the same organization, or better yet, skip the accounting games? Please note that in the fairly simple discussion given in the link above, there is no recourse to where the money is injected. This is all simple linear equations. What I'm not following right now is the model claims about actual & expected incomes & equilibrium points. It appears that they magically adjust actual income up or down based on expected income, i.e. the model claims that people can adjust their actual economic condition to align with their desires. Unless I'm not understanding that, it is rather bogus. Further, I should note that this entire discussion claims these effects without regard to internal/external fund flows. I.e. it is claiming a positive net benefit to increased taxation and government spending, within a closed economy. Interestingly, it starts out by building the model looking at a company locating in a town, where the entire economic contribution of the company comes from outside the town. So the model starts with an explicit assumption of external flow into a system, then sundenly drops that condition when looking at government & taxation. Not a very good handling of the issues IMO. Well, after looking at it again, I think I see that the asymmetric multipliers for taxation vs. government spending are simply the assumed difference in marginal spending rates between those taxed and the government. So with the current US consumer fully maxed out, I'd say this theory is provides nothing. The multipliers are in fact symmetric, and the government has an inefficency multiplier, so net negative. Am I missing something?