Economic Fairness and the Obama Economic Policies

Discussion in 'Economics & Trade' started by AFM, Dec 9, 2015.

  1. AFM

    AFM Well-Known Member Past Donor

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    One of the stated principles of the Obama administration is that of economic fairness (sometimes incorrectly judged by inequality measurements). However the well documented failure of the Obama economy to deliver typical economic growth and resulting increases to the standard of living and household income increases indicates failure to achieve this economic fairness. GDP growth of ~ 1% per capita is less that 50% of normal and much less than every other recovery after a recession since the Great Depression. Median household income has declined by ~ $1500 since the recession ended in 2009. The beneficiaries of the Obama economic policies have not been the low and middle class families whose standard of living has not improved. What is fair about that ?? The Obama economic policies have worked to constrain the free market system (the US is now 12th in the world on the economic freedom index - we were 2nd in 2002). This hobbling of the free market system has reduced the true measure of economic success which is wealth creation/increase in the standard of living - thus true economic fairness which depends on wealth creation has not been achieved.


    Source - "Commanding Heights - The Battle for the World Economy" - Yergin & Stanislaw - 2002 - page 410


    Democrats (progressives and socialists) in the US have a slightly different choice than Deng: to distribute less wealth or more wealth. By focusing on fairness instead of wealth creation the policies of the Obama D's have hamstrung economic growth. And by so doing reduced the amount of wealth creation which would accrue directly to the low and middle income earners and as well could be redistributed via economic transfer mechanisms. The fairest economic policies are those that produce the greatest economic growth. When it was pointed out that reducing the capital gains tax rate would actually result in increased tax revenues (as it did in the Clinton presidency) Barack Obama famously stated that he was against that policy because of "fairness". It's a puzzling display of economic ignorance.
     
  2. SMDBill

    SMDBill Well-Known Member

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    There are many more factors at work than who is seated in the White House at any given period of time. Yes, their policies have tax and regulatory impacts, but most important is the health of the private sector. We have a cancer that is never discussed widely. Household debt is now massive and eats a large chunk of the middle and lower class' income just to service the interest. When that happens, they're left with less and less available to buy other stuff, directly reducing economic demand on a very large scale. And there's no way out until that debt load is reduced. With stagnant wages and a workforce that is transitioning still from production to a services economy, with wages that are relatively flat since the 1970s, wealthier people and higher income folks do better over time, but the majority does not.

    I think focusing on how to redistribute other people's money is a bit too narrow. We need more of everyone's money if we were to truly afford the government each year without deficits. The only way that'll happen is higher wages for all, with respective tax payments from the additional income, from bottom to at least within 10% of the top earners, and a time delay so they can focus a lot of that higher income on paying off debt before demand could truly pick up. But you can't put higher pay before higher demand, and you can't get higher demand without higher income to reduce the debt. So we're in a giant catch-22. The government has spent unimaginable sums propping up the economy, but relatively little helping those who can have the highest, and fastest, impact on the economy, which is the lower and middle class. Enable them to pay off debt, or figure out a massive debt forgiveness, and our economy would skyrocket again with available money for consumers....but we'd also face inflation as all that new money competed for goods that couldn't be produced fast enough until jobs were filled and production expanded again.

    It's not a presidential issue, as much as I'd like to blame it on a single person just to make me feel better. It's a global one, and western countries with huge consumer debt can only watch and hope something gives without bringing down the house of cards. The elephant in the room is credit card debt, car loans, student loans, mortgages, etc.
     
  3. AFM

    AFM Well-Known Member Past Donor

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    Interest rates are at record lows. And household debt service payments as a percentage of disposable income are also at a 40 year low.

    [​IMG]


    This is an economic policy issue. And the policies in place for the last 7 years are those of Obama. In short these policies result in increasing costs of production which inhibit economic growth. Companies are unwilling to increase production because of these high costs. As a result there is unusually slow growth in the economy. Production must always precede consumption. Corporations and small businesses are not expanding because of this. Economic growth results in increased employment, higher employment rates, and increased capability of consumers to consume. But businesses are reluctant to invest in expansion due to the higher costs of production. The best way increase the standard of living is to grow the economy. The Obama economic policies are limiting this growth. I only bring up the redistribution issue because the D's profess income equality while at the same time limiting economic growth resulting in less tax revenues to redistribute.
     
  4. SMDBill

    SMDBill Well-Known Member

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    FRED and OECD, the international Organisation for Economic Co-operation and Development, disagree by a large margin on this indicator, with the Fed appearing to show large improvement over a short period (2010-2015). Where would that decline have come from unless it was written off debt by mortgage companies during the large numbers of foreclosures? I also can't see how household debt could be only ~10% of net disposable income. Unless I'm misunderstanding the data inputs to the Fred chart, something is missing or I need clarification.

    household-debt.png That chart is household debt total [by country, 2012], % of net disposable income. Source: https://data.oecd.org/hha/household-debt.htm
     
  5. AFM

    AFM Well-Known Member Past Donor

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    The chart I have posted shows debt payment service, i.e. how much households are paying per annum to service their debt. This drop is due to low interest rates but it also reflects Americans uncertainty in the Obama economy manifested in paying down consumer debt. Here is the link which I forgot to include.

    https://research.stlouisfed.org/fred2/series/TDSP

    Your chart shows that the US is right at the median. There is nothing unusual about that. The link below has some additional information on the debt service and total debt. Both show decreases.

    https://fredblog.stlouisfed.org/2015/01/on-household-debt/
     
  6. SMDBill

    SMDBill Well-Known Member

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    A lot of that decline may be due to higher earners paying down debt out of fear of the next financial crisis and the position they may have been when the last one hit. Those who spend the majority of their money also are those who have little chance of paying their way out of debt. Those who can pay down debt aren't necessarily, and by many instances simply aren't, those who spend back into the economy as demand for goods and services. Wealthier Americans can afford the debt and also afford to pay it back, even early, but with such low rates many didn't mind carrying a debt load for a car or mortgage. At 0%, I carry a car loan to its full term because I borrowed at today's dollars to pay back at tomorrows less valuable dollar. But that's not the case for many, and often times people are unaware of exactly how different rates or terms directly impact them when they instead just target a cheap monthly payment. Sorry...digressed there.

    Anyway, the pay down of debt would be a boom to the economy if it happened from bottom to top. When the top 10% pays down debt, they are probably diverting that debt servicing income to investments rather than goods/services, which has much less economic impact. The poor seem to just keep trying to find ways to keep up with the latest electronics, clothes or whatever, but at a heavy debt cost to them.

    More on it.. http://www.wmur.com/money/americas-poor-are-still-heavily-in-debt/36732444
     
  7. AFM

    AFM Well-Known Member Past Donor

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    From your link:

    And incomes are not rising because of the anemic growth rate of the Obama economy. The Obama economic policies have resulted in an asset bubble in the stock market which benefits those holding stocks but the anemic rates on savings accounts hurt low and middle income earners who are not in the market. There is a large majority of the US population who still believe that we are in a recession. That is not true - the recession ended in 2009 - but it feels like a recession to them. From a Jan '15 poll:

    A
    http://www.foxnews.com/politics/201...cession-yet-58-optimistic-about-economy.html#

    The unemployment number of ~ 5% is misleading. The real underemployment metric (U6) is ~ 10% which is a very large and not typical difference. And the labor force participation rate is very low (~ 62.5%) at levels last seen in the late 70's. It's hard to service debt much less pay down debt when un or under employed. This is the paradox of D economic policy - the policies designed to address fairness (all based on noble intentions) limit economic growth and have the unintended consequences of adversely affecting most those that the policies were intended to help. What is Obama's economic growth goal/target ?? He doesn't have one. What is, for example, Jeb's economic growth goal - 4%. And that is possible. There is a book outlining the economic reforms which will lead to this - "The 4% Solution." Interesting read. It does come out of the W Institute but each chapter is written by a different economist including the liberal economist Robert Litan who was recently dropped by the Brookings Institute after Elizabeth Warren complained about his telling the truth.

    Actually it is business spending and investment which make up the majority of the US Gross National Output (as opposed to the Gross National Product - GDP). In the former Business Expenditure are ~ 55%, Consumer Spending is ~ 35%, and Gov Spending is ~ 10%. In the later Business Expenditure are ~ 15%, Consumer Spending is ~ 65%, and Gov Spending is ~ 20%. In actuality it is business spending that drives the economy and it is business spending which is the indicator of economic growth.

    Source for this ^ : "The Structure of Production" - Mark Skousen - 2007.
     
  8. SMDBill

    SMDBill Well-Known Member

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    We don't disagree on much. Consumer spending has to follow business spending, but there's little hope of either without business able to predict consumer behavior that will result in higher (or new) demand for what they are producing. Flat wages, high debt and erosion of the middle class is a horrible place, especially with low inflation (also caused by low demand), for the federal reserve to be stuck in. They're salivating to raise interest rates, but scared to with their real fear of deflation that they never mention. They keep talking about raising rates, yet not acting, to help keep a prop under investment markets, knowing full well if rates increase too steeply or quickly, they'll put a fragile economy into a tailspin. I'm just not convinced the R's have any better ideas than the D's for regaining economic growth. Trickle down doesn't work but neither does the income distribution strategy so many would like to see on the D side.
     
  9. AFM

    AFM Well-Known Member Past Donor

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    But that is what market surveys and business plans are for. And of course there is always risk involved but with risk comes reward if execution is good, the public is willing to purchase the product, and the product can be manufactured at a cost such that the target profit can be realized. Gov policies and tax rates act to increase the cost of production and ultimately the price required to cover the cost of production. Reduce those costs and more products can be made available at lower prices. And that is what the R's are proposing - grow the economy by reducing the cost of production by reducing tax rates, regulation compliance costs, and gov policy costs (such as ObamaCare requirements). That is basically what supply side economics is. Also included is sound money policy to keep inflation low, free trade to take advantage of comparative advantage, and reduced gov spending but maintaining the social safety net. Trickle down is a derisive term used for supply side economic policies. If you want less of something - tax it meaning both actual taxes and economic taxes. If the economy was growing at 4% instead of 2% tax revenues would cover gov spending (reduced to a growth rate of inflation + population growth). Wages would also increase because there would be competition for labor. Raising interest rates would not be as risky in a robustly growing economy. The reason that rates have not gone up is due to fear of what that would do to our barely growing Obama economy. Winding down the trillions of dollars in bank reserves from all the qualitative easing will be tricky. As the economy improves it will be tempting for the banks to lend those funds out which would increase inflation. We've seen the Obama economy in action for the last 7 years. It's not pretty and I don't hear anything about economic growth coming from Clinton, Saunders, of O'Malley. Their debates seem to be a contest on who can give away the most stuff.
     

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