Liberals argue about it, but why was there a housing bubble? It wasn't the derivatives themselves--they were designed to spread risk

Without being able to unload the bad mortgages through derivatives the sellers would have held on to the bad risk loans. Would you continue to make loans to people you were fairly certain wouldn't repay you? However, if you could unload them on unsuspecting dupes and move on ....
It was the fundamental reason for the collapse. WIthout the lynchpin of the deregulated derivatives ....the problem would never have grown to the extent it did.

geojanes wrote:I wasn't playing a game, and I'm sorry you thought it was an unfair question. It just seems to me that there is this conservative meme that higher taxes = slower (or no) growth. I was just looking for where that comes from. If you don't know, or care to share, or whatever, no worries.

It is a game. "Prove this" and you give what you want proven. No thanks.

We have seen how well liberal economics works. It began when Democrats took over Congress. From that point forward, we have seen a massive increase in both deficit and debt. How has that gone? To you, apparently, it doesn't matter. I have to prove the opposite works. Why? We can see that the liberal "demand-side" economics is not working.

Doctor Fate wrote:Third, there is nothing more "faith-based" than the notion that the government can and should solve every problem. That is why we are at $15T in debt and counting (not even counting the unfunded liabilities of Social Security, Medicare, and Medicaid). Liberals and Democrats say the debt doesn't matter or that we can solve the problem by taxing the rich. There is no evidence to support that, yet you, apparently believe it. So, don't lecture me about "faith." You've got plenty of it--in government you trust.

I take very little on faith. I do believe in math, however. I personally think the national debt is a serious problem that is only getting worse. One reasonable solution is to cut spending and raise revenues.

The only ones who have proposed anything serious are the President's Debt Commission, Paul Ryan and other Republicans. Obama has proposed nothing like this, dismissed his own commission's recommendations, and has mocked everything the GOP has presented--not even being willing to negotiate.

Finally, I know of only one person who has been recorded seriously saying that deficits don't matter, and that is Dick Cheney. I don't think he would appreciate your characterization that he is a "liberal."

Ah, but who is running around the country, after amassing the biggest deficits in history, and promising more "investments?" While he may not say, "Deficits don't matter," that's exactly how he is governing.

rickyp wrote:

Liberals argue about it, but why was there a housing bubble? It wasn't the derivatives themselves--they were designed to spread risk

Without being able to unload the bad mortgages through derivatives the sellers would have held on to the bad risk loans. Would you continue to make loans to people you were fairly certain wouldn't repay you? However, if you could unload them on unsuspecting dupes and move on ....
It was the fundamental reason for the collapse. WIthout the lynchpin of the deregulated derivatives ....the problem would never have grown to the extent it did.

Which came first CRA and legal pressure from the White House or sub-prime derivatives?

In other words, what was the motivation to create derivatives? It certainly wasn't the idea that mortgages were a sound investment.

This is helpful in understanding derivatives. Again, if all the mortgages were traditional, none of this would have happened.

rickyp wrote:How's this from the departing head of medicare and medicaid

Ray, thats waste as in "spent on useless medical; procedures..."
Its a different number then "medical loss" as a measure of money spent only on medicine.
Another way of saying that is how much is on administration, marketing and profit in private versus medicare.
I think that wasteful use of medical procedures is as prevalent in private as public. Defensive medicine, ordering tests to generate billing etc. (I think we should statrt a new thread.)

Typically after you've been checkmated you cannot keep flailing your pieces about.

Ray Jay wrote:Getting back to the topic at hand, I find the concept that jobs are created through purchasers as opposed to sellers to be disturbing. Certainly every transaction has a buyer and a seller. My problem is with the author's contention that it is the one who demands something who creates the job. It reminds me of this exchange from the movie The Pope of Greenwich Village:

Paulie: Nicky don't go for spit. 'Nose' still shines his own shoes, pop. I don't call that success.
Paulie's Father: Oh yeah? And what do you call it?
Paulie: Knowin' how to spend it. I never ordered a Brandy in my life that wasn't Cordon Bleu... I took two-hundred from shylocks, pop, to see Sinatra at the Garden? Sat two seats away from Tony Bennett. That's success!

In other words we are turning our sensibilities around by applauding consumers vs. producers.

Hmm. But isn't it the 'rich' who are more likely to act like Paulie than the middle-poor, given a tax break? Or even without one.

This concept that demand is the key has very dangerous consequences. Our President seems to have little regard for those who innovate or produce

You need both demand and supply. But there is a surfeit of supply of labour at the moment, a surfeit of 'producers' as well. There's a lack of demand for goods and services, and a lack of supply of investment.

Demand is actually very important. I can't see how producing more stuff will help much at all if there aren't more people with the disposable income to buy it. I don't like consumer led demand as a long term policy (fuelling demand is what helped create the asset/credit bubble in the first place), but as a short term way to get out of a hole, I'm not sure what the alternative is

All we have to do is use the government to even out income distribution and encourage consumption and voila we have success. But government encouraging consumption has huge unintended consequences. We have unemployed educated people ; we have overinflated housing prices; we have newer cars to replace our clunkers; we have massive government debt, all in the name of stoking demand.

I don't think the call is for total equality, or even to move straight to a social democracy. It looks to me more like saying "let's reduce the most extreme inequalities, so we are back to the 'good ole days' when the USA was growing, like when that commie Ronald Reagan was around".

I do realize that there is something important about demand. But it is not good enough. We need to create wealth through productivity and through ingenuity; we need government policies that encourage and reward productivity, or at least stop discouraging it.

But who is going to buy the stuff that we produce?

Actually, you need both. It's not an either-or thing. I'd say that what is needed is to stimulate demand in order to help make it more worthwhile to produce, as well as making it easier to encourage productivity. I really don't see why it has to be a binary choice.

Regarding Danivon's specific question. Temporarily cutting payroll taxes is a political gesture but doesn't create wealth. As long as businesses cannot plan on an absolute tax rate reduction in their forecasting, the temporary cut doesn't influence their plans in a positive way. It's fine and helpful for those who need the cash. We may slightly and temporarily increase demand; but we also increase our debt; we don't change our economy in a productive way. By paring a tax cut with a long term permanent increase in tax rates, we do more harm than good.

Surely it helps to reduce the cost of employing people, even in the short term, and to leave more of an employee's wages in their hands to spend.

Yes, if that cut alone were passed, it would likely provide only a temporary boost (but you need one, or have you seen the GDP figures and unemployment rate lately), although whether it would be dire on the budget depends on whether it works as a stimulus.

Did you know that many 'cash for clunkers' schemes around the world actually did not lose money for the governments involved? Certainly Germany and the UK saw a boost because VAT is charged on new cars.

This notion that business people are stupid and that they will focus more on a slight reduction in payroll taxes, but cannot anticipate a higher tax rate next year or the year after is faulty.

The point is they may well think an increase might come along later, but can at least do something with a reduction this year. If they are stupid enough to look a gift horse in the mouth, then that's for them, I guess.

I despair.

Ray Jay wrote:I do realize that there is something important about demand. But it is not good enough. We need to create wealth through productivity and through ingenuity; we need government policies that encourage and reward productivity, or at least stop discouraging it.

This is good. No one knew they needed a digital music player until someone designed a really good one. Same with smart phones, and a hosts of other products. I remember when wireless networks were first introduced, I scoffed at the idea, how could they ever be fast enough? But I didn't know about IEEE 802.11, which made it all possible. Producers do create demand by making better products & services.

But how does the gov't discourage that innovation?

It's a good question.

Primarily through way too much regulation. Yes, some regulation is essential.

I'll add illogical immigration policies. After educating the smartest kids from throughout the world, we force them to leave the country.

It's not only about creating the next Apple or Google. It's also about fostering an environment that's all about "you can be successful through hard work" and not about "it's not fair and we are going to take from the 1% and give to you".

But how does the gov't discourage that innovation?

In the case of the development of the mobile phone and smart phone technologies, it was fundamental to the innovation.
1) the geneisis work on the technology was govenrment funded
2) the development of standards was fundamental to development. No one was guessing on what their devices would be based.
3) regulation of the spectrum allows for optimum use and clarity (without regulation of the spectrum it would be like roads without rules for driving)

It's also about fostering an environment that's all about "you can be successful through hard work" and not about "it's not fair and we are going to take from the 1% and give to you".

Actually I think thats partly the despair that OWS gives voice That no matter how hard a working class or middle class person works they can't get ahead. Certainly the information on true income increases and wealth since the 1980s back up the general feeling that the sytem hasn't worked fairly for most. That hard work doesn't guarantee any kind of success. That its more about where you started in life and who you know.

geojanes wrote:

Ray Jay wrote:I do realize that there is something important about demand. But it is not good enough. We need to create wealth through productivity and through ingenuity; we need government policies that encourage and reward productivity, or at least stop discouraging it.

This is good. No one knew they needed a digital music player until someone designed a really good one. Same with smart phones, and a hosts of other products. I remember when wireless networks were first introduced, I scoffed at the idea, how could they ever be fast enough? But I didn't know about IEEE 802.11, which made it all possible. Producers do create demand by making better products & services.

Great paragraph! You get it. I didn't use an exclamation point on that because I'm sure this isn't a breakthrough for you; it's not "new" info for you. That said, if you think through the vast number of innovations that seemed "unnecessary," you begin to realize how backwards the notion of "demand first" becomes.

Were families sitting around their living rooms thinking, "If only someone would invent radio and then develop dramas we could listen to, then we would want TV's so we could see them. Of course, not color TV's at first because everyone knows life is more dramatic in black and white?"

Of course, none of those things happened. It's rarely been, "If you demand it, we will build it." It's pretty much been, "If you build it, they will come." Disneyland? Professional sports? Cable TV?

On an on the list goes. Of course, we are a product-hungry, consumer-driven economy. But, it's not because the demand for those products existed before the products themselves did. And, the vast majority of those products had zero government involvement or tangential involvement (meaning the government supported some part of the technology that later was spun off into unimagined areas).

But how does the gov't discourage that innovation?

I'll tell you what. I can't get over the complications sprouting from the Clean Water Act. In MA, there really is no such thing as private property. Anything you do is subject to a mass (no pun intended) of government regulations. Do you have wetlands? Where exactly are they? You want to build a bridge over a stream? That's going to be expensive. Want to spray for ticks? Are you licensed? I'm talking about puddles and swampland. I'm not talking about wantonly polluting anything. I'm just talking about wanting to build anything. It's crazy--and all from one well-intentioned law.

The other way, other than regulation, the government discourages innovation is via uncertainty and its attendant costs. With Obamacare, a hyper-aggressive EPA and NLRB, and promises of higher taxes if he's reelected (that is the clear subtext of all the "fairness" talk), President Obama is discouraging any fledgling business from even starting. They might but it won't be because they see the environment as "business-friendly." It is difficult to project costs when you have a moving target and that is what the President and his team have created.

rickyp wrote:

But how does the gov't discourage that innovation?

In the case of the development of the mobile phone and smart phone technologies, it was fundamental to the innovation.
1) the geneisis work on the technology was govenrment funded
2) the development of standards was fundamental to development. No one was guessing on what their devices would be based.
3) regulation of the spectrum allows for optimum use and clarity (without regulation of the spectrum it would be like roads without rules for driving)

No, really? Read the Wikipedia mobile phone entry. I did. I see a lot of innovation. I don't see much of the government being involved on evolving it to what it has become. Blackberry? iPhone? Droid?

I would love to see you demonstrate the government invested more money than the private sector in terms of R & D.

It's also about fostering an environment that's all about "you can be successful through hard work" and not about "it's not fair and we are going to take from the 1% and give to you".

Actually I think thats partly the despair that OWS gives voice That no matter how hard a working class or middle class person works they can't get ahead.

Absolute garbage. I grew up in a single-parent household on the low end of the middle class. I started working for $2.85 an hour. OWS, as we are seeing, represents the more radical elements of society. To give their message credence is something Democrats will regret if they don't back off soon. Most Americans do not view this country the way OWS does. If you think I'm wrong, I would love to have a wager with you (since you chicken out on everything, I know you won't). I say there will either be no polling specifically on OWS within 60 days of the election (because it's become toxic) or it will be polling below 20% approval.

Certainly the information on true income increases and wealth since the 1980s back up the general feeling that the sytem hasn't worked fairly for most. That hard work doesn't guarantee any kind of success. That its more about where you started in life and who you know.

Here's a stunner: if you took the same info, say in 1979, and compared it to a more favorable economic time, you could draw all manner of erroneous conclusions. That's what you are doing. The economy is down now. That does not mean the system is rigged. If you looked at the same figures in 2005 and compared them to 1979 you might draw radically different conclusions. Economics runs in cycles. To look at this cycle and try to say it proves anything about microeconomics, I suspect you'd have a difficult time making your case. Macroeconomically, it is proof of many things, none of which the OWS has anything intelligent to say about.

If the system is rigged, there should be virtually no chance to escape your class and move up. That is not the case.

We live in an aspirational country. We believe anyone can succeed given the hard work, talent, desire, and opportunity. OWS says there is no opportunity. There are many like me who are the living proof they are lying.

Look at it this way: if an average worker makes $40K over his/her 45 year career, that's a lot of money in aggregate. If one saved 10% of that and invested it in mutual funds, I suspect one would not be impoverished. Furthermore, while it is possible that many start their careers at less than $40K, I doubt many will end that way. It is not impossible for anyone to end better than they started. They have to do certain things: not use credit cards, spend less than they earn, save, pass on expensive vacations, but it can be done. Most Americans could retire in style if they would exercise common sense. If you have to have everything and have it now, you can expect to scrape by and be dependent upon the largesse of the government.

I don't see much of the government being involved on evolving it to what it has become.

Try reading it again. You'll see that the first commercial phones were in Scandinavia and Japan and their national govnerments were heavilly involved. And the largest company in the world today is actually state owned.
But I wasn't refering to that so much as the important role government has in implementing standardization. Ray refered to the ieee standards. (see link where you'll notice how impoortant government relations is to this key standards organization. http://www.ieee.org/documents/organization_summary.pdf
This organization was brought about when the government invovled interested parties in developing industry standardization in order to facilitate innovation. Without that standardization, and the force of law behind it, developers would have no idea how to bring their innovations to market. How would competing systems operate in the general spectrum?
Beyond that, smart phones are bulit upon the original work done on the development f the internet which began as a govenrment project... (AARPNET)
Government involvment in standardization, forcing railways in the US to operate on the same guage for instance, is usually crucial to speeding innovation....
Govenrment financing has been important in the early development as well. That some can't remember the foundations of an industry is not surprising.

Here's Obama's speech from two days ago. Our discussion is all around it.

http://www.washingtonpost.com/politics/ ... story.html

rickyp wrote:

I don't see much of the government being involved on evolving it to what it has become.

Try reading it again. You'll see that the first commercial phones were in Scandinavia and Japan and their national govnerments were heavilly involved. And the largest company in the world today is actually state owned.

Um, we are talking about the United States here. Do try to confine yourself to a single conversation.

Furthermore, the article does not specify innovation and invention by the socialized companies and I don't know that you've made a compelling case even if all of it is granted to you.

But I wasn't refering to that so much as the important role government has in implementing standardization. Ray refered to the ieee standards. (see link where you'll notice how impoortant government relations is to this key standards organization. http://www.ieee.org/documents/organization_summary.pdf
This organization was brought about when the government invovled interested parties in developing industry standardization in order to facilitate innovation. Without that standardization, and the force of law behind it, developers would have no idea how to bring their innovations to market. How would competing systems operate in the general spectrum?
Beyond that, smart phones are bulit upon the original work done on the development f the internet which began as a govenrment project... (AARPNET)
Government involvment in standardization, forcing railways in the US to operate on the same guage for instance, is usually crucial to speeding innovation....
Govenrment financing has been important in the early development as well. That some can't remember the foundations of an industry is not surprising.

That you don't understand the conversation is not surprising.

Consider other standards: Beta or VHS? Which did the government choose?

Laser Disc? DVD?

When it comes to communication, government sets standards. Great. What does that have to do with innovation, invention, risking capital? While true it provides a clear path forward, it does not create a market in and of itself. If the invention blows chunks, I don't care how many standards the government sets, it won't succeed.

The discussion is about whether demand brings about production or whether innovation brings about demand. If you want to argue Government is the Father of innovation and thus demand, feel free. If you want to argue about arcane standards and their impact on the market, that is really outside the scope of the conversation.

Demand does not precede or cause innovation. Innovation and marketing lead to demand. Period.

To Ray: my plan, eventually, is to start a forum on that speech and dissect it. I think it is profoundly un-American.

Ray Jay wrote:Here's Obama's speech from two days ago. Our discussion is all around it.

http://www.washingtonpost.com/politics/ ... story.html

The guy can sure turn a phrase. Thanks.