Oregon's Road to Reality Recovery
The goal is to spend enormous amounts of money on public works to forge ahead. Let's break it down and see where reality meets the road.
(1) Where does the money come from? Foreign and domestic investors.
(2) What would they be doing with that money otherwise? Sitting on it.
(3) How are we going to pay it back? By taxing domestic investors.
So let me get this straight. In order to pay off our massive debt, we will someday need to tax people that can afford to be taxed. Why don't we tax those people now and not drench ourselves in debt and put everyone's future at risk? But . . . and it's a huge but, why don't we also tax foreign investors?
Money! Gross Domestic Product! It's one and the same: money supply x velocity = GDP = Money!
(A) Velocity: We want to speed up velocity with public projects. That's fine. It makes sense. Put money in the hands of those that spend it quickly and increase velocity (the rate at which money changes hands). But it's weak willed when you can't just tax those with disposable money up front. It's going to have to come from them eventually. And taxing wealthier individuals now is a better plan because if we tax them later, they will have to pay back all the interest that they have been earning on the debt. So people that can afford higher taxes now should turn the velocity over to benefit everyone . . . including themselves!
(B) Money Supply: But . . . and it's a huge but, we cannot ignore how we are bleeding our money supply. We can't have one-sided trade partnerships even if it does allow corporations to find cheap labor for our cheap Made in China holiday presents. I have nothing against China, but it's an absolute waste of time to increase monetary velocity and bleed out the money supply at the same time. Yet, that's what we're about to do. The state of Oregon needs to charge foreign specific taxes. Either a sales tax specific to foreign products, a tariff paid directly by importers (not sure if that's legal) or investment tax levied on foreign portfolios. We need to get our money supply back! Yes, even the state of Oregon can reel in the money supply.
(C) Reality: China may stop buying our debt someday. I welcome that day. We will get our money supply back. Inflation? Maybe, but that is the economic reality of what we have done. Our banking system was able to spew out so much money supply all at once without kicking off inflation because so much was going overseas. It will someday come back. And we will have to pay off our debt when it happens. Might as well do it now. Whatever the case, we shouldn't expect to attain previous economic highs. Expect higher unemployment. We need to accept moderation in how we live. That might entail turning cheap junk over and seeing where it was made before buying it. Why don't we pass an Oregon law that makes store owners have to highlight stuff made in China? Put it in a special section or put special stickers on it.
In short, tax those that can afford it, tax foreign entities and buy less from one-sided trading partners. In short, higher taxes and mediocre economy. In short, reality!
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January 15, 2009 |
Jenson Hagen | Comments (10 so far)
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Comments
Posted by: Jenson | Jan 16, 2009 10:31:37 AM
#1 - Buying goods from lopsided trading partners - like China and OPEC - sends money overseas; instead of the money coming back when they buy our goods, only some is coming back when they buy our debt.
#2 - List out all the presents that people in your family bought over the holidays and note where the stuff came from. Then note if you could live without such an item.
IT'S MADE IN CHINA CHEAP JUNK!
#3 - No, taxing does not create or destroy money. If you tax a high velocity entity, it will slow the exchange of money. If you tax a low velocity entity, it will increase the exchange of money. Now is the time to tax the wealthy.
#4 - It's not about protectionism. It's about managing the balance of payments. If China and OPEC want to buy our exports, then we need no protectionism. The reality is that mega corporations want the trade imbalance because it translates as cheap labor.
#5 - Yes, I agree. We should have a higher gas tax since so much of it comes from foreign sources. Let's have taxes though that target individuals with disposable income. Most working Oregonians would struggle to afford higher gas taxes at this point.
Posted by: dddave | Jan 16, 2009 11:14:19 AM
Just how does spending on public works help you?
Do you build bridges or roads?
No me, not any of my friends. Please explain again how taking more money in the form of taxes helps me be more prosperous?
Just like Ted thinks he knows mother nature and knows in his heart of hearts that CO2 is bad, bad, bad, dont mess with the free market.
LESS TAXES and LESS GOVT is our only hope longterm.
Posted by: Jiang | Jan 16, 2009 12:28:28 PM
I saw this when it first went up and was going to post, "I don't know what to say. You make an excellent factual point about China, but your November post about the Fed proved that if you cite too many facts not acknowledged by the mainstream, that you're automatically accused of being a conspiracy theorist", but decided it was better to just say nothing. Of course, look at the immediate reaction. Dear readers, there are many topics- most all- on this blog that are more about look, feel, message than facts. Economics is one of the few areas in gov where people can look at the facts in a relatively non-partisan way and plan for common social good. Could we please try to do that with Jenson and Chuck's posts?
Why is it that the same people that don't understand the difference between weather and climate, don't understand the difference between macroeconomics and microeconomics? Let me take a painfully crude stab at pointing toward that other world. Again, simple facts. Forget all the details in the middle that are confusing and used as distractions. Forget quantifying livability and success. Just ask people, "how satisfied are you with your life"? Period. Correlate that with the percentage of GDP that is redistributed. Across time and cultures, there is a very strong correlation. I'm sorry if the details in the middle confuse you, but that's the voodoo in voodoo economics. They always posit laws that have never been seen to work.
ON. A. MACRO. LEVEL. Sorry, but these pseudo-libs don't seem to get that.
It would be nice to look at China as simply another major world player that coincidentally owns a lot of US debt. Unfortunately, anyone that is aware of what's really happening in their world from pet owners to small software developers have to deal with the day on day reality that the Chinese doesn't play by the same rules. I don't mean China. China may or may not be benign to US interests. I like many of their Fed-level laws much better than ours. I would love to see family planning here, too bad it's on the wane there. There's an alternate reality in the day to day world, though, which only gets attention when negative attention is focused on the central government. One thinks that this has to change, and would be in their own best interest, but over time it just isn't happening. Who would have thought that even 5 years after Hong Kong becoming Chinese again that we would have so little progress on the day to day business front? If letting them finance our debt turns out to have been a useful expedient, it will a happy surprise. On the near term you have to worry about adjustable mortgages and what we're going to have to do to make that debt attractive. Rates will have to come up. There are really two major bail-outs going on; the cash from Congress and the artificially low interest rates. The meter is running on those rates as well. You say China isn't a concern? Great. If you can keep rates anywhere near where they need to be throughout Obama's term I will happily agree. They won't though, and most that pressure is coming from the aforementioned. For brevity and avoiding conspiracy labels, I'll only mention that it's an interesting coincidence that the only G8 country harder hit by the banking crisis than the US just happens to also be a major US debt holder. The Chinese system has been more impervious to our subtle manipulation than the British one.
Blame Al-Qaeda. We've failed to co-opt in the past. We go to war. We were pretty set with Taiwan and the captured spy plane, but Al-Qaeda distracted everyone. Now, we've got a serious player at the table.
Posted by: obama bin laden | Jan 16, 2009 2:29:46 PM
"Why don't we tax those people now and not drench ourselves in debt and put everyone's future at risk? " ~ Comrade Hagen
We need to learn to live within our means. That's the only real answer. But that's why we have Democrats, to create class warfare and prevent people from dealing with reality.
Posted by: LT | Jan 16, 2009 9:14:52 PM
"We need to learn to live within our means. "
Of course we do. But that means not giving tax breaks without paying for them, and it means not paying public administrators (school districts or elsewhere) more than the Gov. of Oregon makes with little or no discussion of where the money for those salaries comes from.
Posted by: Tom Vail | Jan 16, 2009 10:27:49 PM
Jenson, you said, " Let's break it down and see where reality meets the road.
(1) Where does the money come from? Foreign and domestic investors.
(2) What would they be doing with that money otherwise? Sitting on it.
(3) How are we going to pay it back? By taxing domestic investors."
If you are correct (and I believe you are) in #1, then I believe you are wrong in #2. By definition, investors keep their money working, not "sitting on it."
I also disagree with your #3. In my opinion, the correct answer is, "All those who pay taxes to the U.S. government and all those who deal in a dollar society." All tax payers will pay the bill. All of us in the USA will pay through inflation and the devaluation of the dollar.
The inevitable result of printing billions of dollars is to create inflation. That inflation will allow the US government to pay back the huge debt with cheaper dollars and will take value from all of us living on fixed dollar incomes or who have dollar based investments (like T-Bills).
Posted by: Steve | Jan 17, 2009 8:47:11 AM
Dear god, what happened to BlueOregon? They let someone post who can actually address an issue on the merits?
Realize most of our debt is bought here. I know everyone talks about China, but they hold something like 5%. I guess my counter to issuing debt is that we can get it at such cheap rates right now, so why not?
As far as buying stuff from China. I guess I can see putting a tax on Chinese products. The Chinese would eat most of the tax rather than raise prices and lose market share here and we can generate some income.
As far as more taxes, I'd feel better if we knew how to spend it appropriately. TARP was a waste and the next stimulus program will probably be also. In Oregon, we got the gift of a lifetime in the form of a tobacco settlement of $750M that just vanished into the general fund.
Once politicians realize that when things are good you start saving instead of taking on more programs than you have money when things crash we'd be ahead.
Than again, this is Ted Kulongosaki and the clueless Oregon legislature. So letting taxpayers keep it and spend it instead of having the state spend is much better.
Posted by: Ted | Jan 17, 2009 10:11:37 AM
The equation is actually M x V = GNP, which is different than GDP, because it includes U.S. returns from foreign investment.
Posted by: squeezed | Jan 19, 2009 5:45:14 PM
" Why don't we tax those people now and not drench ourselves in debt and put everyone's future at risk?"
Given Obama's selection of corporatist whores like Geithner, Summers, and Rohmer I doubt a redistributionist option will be considered.
Instead of repackaged neo-liberal republican bull shit ("bad banks") the obama administration should declare a holiday and nationalize our entire banking system.
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Posted by: Dave Porter | Jan 16, 2009 10:06:13 AM
(1) I’m not sure what you mean by “bleeding our money supply.” Do you mean borrowing from foreigners? Or what? The stimulus is debt financed, that’s what makes it a stimulus. Otherwise we are just moving funding from one purpose to another. Don’t we either need to borrow from foreigners or print money?
(2) Stop the China bashing. Avoid phrases like “cheap junk” and “cheap Made in China holiday presents.” They do not below in a serious economic argument.
(3) On taxing high incomes now: doesn’t any tax increase tax money out of circulation now when we need it in circulation? I am certainly for increasing taxes on the rich, but now may not be a good time.
(4) I do not think our long term interests are served by become more protectionists, whatever the short term appeal may be, with the following exception:
(5) We should have a national, substantial, revenue-neutral gas tax. Much of our payments for gas and oil end up supporting hostile petro-states around the globe. And much of our trade balance deficit comes from sending money abroad for oil. We need to tax gas to bring those funds home to circulate and to put incentives in place to shift off of a petro-economy.