Our economic model by dreamtrove

REAL WORLD EVENT DISCUSSIONS

Our economic model

POSTED BY: DREAMTROVE
UPDATED: Monday, June 20, 2011 11:53
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Saturday, June 18, 2011 12:36 PM

I was looking for a graphic that represented the nation's income tax based spending vs. the underlying income structure, so I was going through pie charts and graphs looking for one that capture the concept of what might be wrong with an economy that was spending $3 trillion from an income base of $4 trillion, and I ran across this. Which was returned as a search result. It just explains far better what I want to way than any analysis of the numbers.

This is our problem, in a nutshell.

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Saturday, June 18, 2011 1:21 PM

HARDWARE

Poor DT. You're going to be lambasted for pointing out that the well is not bottomless.

It is a truism that almost any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so, and will follow it by suppressing opposition, subverting all education to seize early the minds of the young, and by killing, locking up, or driving underground all heretics - RAH

...and he that has no sword, let him sell his garment, and buy one. Luke 22:36

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Saturday, June 18, 2011 2:06 PM

DREAMTROVE

Quote:
Originally posted by Hardware:
Poor DT. You're going to be lambasted for pointing out that the well is not bottomless.

It is a truism that almost any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so, and will follow it by suppressing opposition, subverting all education to seize early the minds of the young, and by killing, locking up, or driving underground all heretics - RAH

...and he that has no sword, let him sell his garment, and buy one. Luke 22:36

This made me smile. Heinlein is a frickin' genius. So is the sand castle. I got it off a blog:
http://www.emagill.com/rants/eblog107a.html

Looks like he/she made that in Bryce or something, that picture really is worth 1000 words. Just so completely nailed the situation.

ETA: I just picture the discussions inside the sand castle:

Politician: We can build more, higher spires, expand the wall, and we can do it all with the sand we have right here, under our feet. There is still sand, and I see a brighter future, reaching for the sky. Don't listen to those doubters hawking their doom and gloom: The tide will never roll in. There hasn't been a tide in 10 hours, tides are a thing of the past. The weight of our new spires and walls will not bring our castle down, they will be off set by more walls and spires on the other side, and supported by sand we bring up from underneath. I envision an outer wall, to protect the city, and catch anyone who fell outside the first wall, with towers just as tall, and bridges between the two...

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Saturday, June 18, 2011 2:58 PM

KWICKO

"We'll know our disinformation program is complete when everything the American public believes is false." -- William Casey, Reagan's presidential campaign manager & CIA Director (from first staff meeting in 1981)

The well is not bottomless, but the wars seemingly are.

I think it would behoove us to spend the money we DO spend on BUILDING things, rather than on DESTROYING them.

But I'm a lefty-loon, and obviously that can't be right.

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Saturday, June 18, 2011 3:37 PM

HARDWARE

And don't forget that Guam might tip over if we send too many troops there.

It is a truism that almost any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so, and will follow it by suppressing opposition, subverting all education to seize early the minds of the young, and by killing, locking up, or driving underground all heretics - RAH

...and he that has no sword, let him sell his garment, and buy one. Luke 22:36

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Saturday, June 18, 2011 4:54 PM

DREAMTROVE

Castles in the sky

The sand is the economy, the time, resources, and blood sweat and tears of the people. If left to their own devices, they will build a chaotic world. It's the sapping the world beneath its feet to build which leads to the fall. The basic economic theory is the same: Public works, digging ditches, war has the same effect.

Sure, it's better to build than to destroy, but sometimes you have to let it go. We overbuilt, and we ran out. If you look at the budget, the situation is hopeless:

Right now, the taxbase is 4 trillion of human income. The federal govt. is spending 3.57 trillion. It's getting that by taxing income for 1/2 of it, so about 3/8 of all income, and then borrowing the other half. But then those incomes are drained further by state and local taxes, which then go on to spend another 3.3 trillion, taxing income, and property value, dragging people into debt, seizing their homes, etc.

Total, that's 6.87 trillion, because there's more govt. than just the DC. So, sure, the GDP is 14 trillion, but half of that is the govt. itself, and a big chunk is the real estate bubble and a huge slice is the financial sectors own internal investments which will never see the light of day, and no law can make them, since they control their own regulation and they fund all govt. projects, so no projects can ever be launched against them.

It's only when we get away from concepts like money, taxes, and the rich that we realize that our economy is made up of people doing work. It does not matter if they get paid, what matters is if their individual work benefits others, or the whole, or even themselves. Much work of our society is pitted in direct opposition to the work of others, like investors, lawyers, investors and politicians, like gamblers at a poker table, they each get the illusion of progress by defeating one another, but there's no actual progress.

I'm fond of sandcastles. This particular one is my new favorite. It reminds me of the cat on top of the door, waiting to pounce the balloon. It really doesn't matter what you do next, the result is the same.

So, yes, sure, it would be nice if Obama built a railroad instead of a world war, and more in keeping with his campaign promises... but now we're in a situation where you can't draw anything more out without a collapse.

Think about it. You can't tax "the rich" because we don't have a wealth tax. You can tax the "high income earners" but if that income is over a million, or from anything other than wages, it can easily be slipped into dark pools and never appear on a balance sheet, and will never be recorded, tracked, measured or taxed. Most likely it will wind up in derivatives stored in the cloud on some self-re-encrypting acephalous mesh network. Lots of luck taking those down. I know financial networks are now copying wikileaks structure on the ground "if the govt. could have taken down wikileaks by now, it would have, ergo, they can't."

So, you can tax high wage earners, but that's got major problems:

1) they already pay a mint. I know some who are paying enough to make them actually poor again. Under the current tax schedule, the top bracket will scale up to 50%, +7% AMT, +20% FICA +10% state, not counting local, usually around 5% of income, which gives you 93%. I know people paying very close to this. What exactly should we raise it *to*?

2) Bracket creep. The debt mandates a massive valuation. The very spending/tax data I posted up top gives two quite logical way to get the govt. out of adding to the deficit: a) double taxes, making the price of goods and services move from 75% tax to 150% tax, at which point, the price of everything doubles, putting up back at everything being 75% tax; -OR- b) dilute the money supply to devalue the dollar. Both are going to spike massive inflation. The old rule was a 50% devaluation is followed by a 50% decrease from disinvestiture in the currency, so in either case, we're headed for a 4:1 devaluation on top of the real world 14% inflation we have. That means that by the time Obamacare goes into effect, the border of the effective 90% tax bracket will be 32,000.

BTW, this is why the Fair Tax will fail: Congress will amend the bill with a common sense argument that instead of a "repeal" of the personal income tax, it will be "phased out." This will seem to make sense at the time.

So, the 27% federal sales tax will be added to the 8% state sales tax for a 35% sales tax (+4% card fee, and 1% processing fee, and up to 10% card fees for credit and debit machines) So, 40-50%, yay.

Then, Congress will stall on its phase out repeal plan, saying that it's not fiscally responsible with the budget in the state it's in, and so it should wait until we balance the budget.

Thus the way is paved for SOP at congress: Introduce the new tax, but not repeal the old one it was supposed to replace.

So, here's tax dystopia: Middle class incomes paying 90% in tax, mortgages at 1000% of income, college education debt at 1000% of income, and interest rates on each at more than 5% so all incomes effectively being zero. Meanwhile, all goods are made of 75% embedded tax will go up as wage taxes go up, plus up to 50% tax on top, so it will top 90% of the price of everything is tax, which means 1% of your dubious income will go to actual goods or services, while everyone wallows in infinite debt, and constant financial assistance programs will ensure that the banks always get their share.

In my experience, building sandcastles, you can make ones that sit right on the water's edge and withstand the waves with your most brilliant designs, but you can build it back from the shore and surround it with a six foot wall, it does not matter what you do, nothing can withstand the incoming tide. And the tide is coming.

We might want to look to that eventuality.

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Saturday, June 18, 2011 6:30 PM

SIGNYM

I believe in solving problems, not sharing them.

Quote:
The sand is the economy, the time, resources, and blood sweat and tears of the people [who] If left to their own devices... will build a chaotic world.

So "the people", if "left to their own devices" will build a chaotic world?

Who'da thunk that DY wasn't for "the people"?

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Saturday, June 18, 2011 6:46 PM

FREMDFIRMA

Chaotic World, huh ?

Down here we used to call that Freedom.

-F

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Sunday, June 19, 2011 1:47 AM

DREAMTROVE

The people, left to their own devices will build a chaotic world *was* my statement in favor of the people, and, also, chaos.

I refer you back to the above image. There is the order of central planning. I'm sorry, did you think that was an image of a stable society?

This is what I actually said

Quote:
DT:

The sand is the economy, the time, resources, and blood sweat and tears of the people. If left to their own devices, they will build a chaotic world.

ETA: Just making sure I got this right: Sig are you looking for an excuse to attack me? And Frem did you read my post, or just Sig's quoting of me? I just can't see how anyone can come to the conclusion that this thread was in support of the economic model detailed at the top.

ETA2:

The current govt's 2011 and 2012 deficits are 1.4 trillion and 1.6 trillion respectively. Add that to the chart, should look just like 2009 and 2010, respectively.

The problem is that the idea that we can raise revenue to cover this doesn't hold with any kind of logical economic theory. You're pulling off income taxes on $4 trillion in incomes, which not only will crush the economy, but also cause prices to skyrocket, and incomes to plummet.

There are really three major sources of rising prices:

1) Currency devaluation, caused by the increase of money in circulation, which happens every time the federal reserve prints more money, which happens every time the govt. borrows.

2) Taxation. As govt. revenues increase, the percentage of costs inherent in everything in the economy increases. (Currently 75%. It's not just the tax on the item, it's the seller's income tax, the store's property tax, the warehouse's taxes, the truckers various taxes, including gas tax, income, his corporation's income tax, etc. and we haven't even gotten to the taxes paid by everyone involved in making the product or its raw materials.) It's not possibly to push the % of the price which is tax much high, so doubling the tax revenue would simple double the price of everything.

3) Market fluctuations. These always get blamed by politicians because that's an easy way to shift the blame way from themselves, but market prices rarely stray from the mean for very long. The changes in the mean are typically due to the other two, as the long term price changes in absolute terms are basically negligible.

Here's the congressional budget offices analysis of the Bush deficit

I'm dubious of the effect of economic and technical corrections on the US Budget, since it's not speculative stocks, it's a check they write. I assume they mean two things: Bailouts, and the decline of revenue due to the decline of the income base from which taxes are drawing, which would come from:

a) decreased manufacturing base
b) increased personal debt (student loans, mortgages)
c) the burdens on the economy of govt. spending (both debt borrowing and taxation)

And some of this has to be related to the subprime collapse, because, though we know that govt. agencies shouldn't be gambling money on the housing market, we somehow suspect that they were.

The really big chunk that the CBO is omitting is the one Mikey mentioned: The wars.

It would be interesting to see an analysis of the Obama deficits and their source. I suspect we could make a more honest graph here, ourselves, than the CBO would make.

Obama's deficits so far are 1.4, 1.6, 1.4, 1.6 so it's safe to say that's an average of 1.5 trillion a year, so six trillion for his first term. This contrasts with Bush's first term (0.2 average) and second (0.3 average) and Clinton's second term 0.1 surplus average, (clinton 1:-0.2, Bush Sr:-0.3, Reagan 2:-0.2, Reagan 1:-0.1)

Looked at in this light, Bush was economically bad, but we're now in a pretty appalling budget state, each year being in about 6 times the red that we had been for the last 30 years.

Be wary of projections:

Note the date on this, 2009, and how it predicts 2009-2012 look, and what they actually look like now that the 2011 budget has been allocated and the 2012 budget has been written.

This is not a partisan issue, it's a "hey, look, we have a serious problem" issue.

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Sunday, June 19, 2011 7:02 AM

KWICKO

So far, I've heard nobody say anything other than "reduce the deficit"; not one political "leader" has even MENTIONED the idea that at some point, you really do have to start paying down that debt. At the current debt levels, we're paying something close to half a trillion dollars yearly just servicing that debt.

So, if the tea parties got their wet dream, and we stopped ALL government spending - yes, even including a 100% cut to defense spending - and we also offset those cuts with tax cuts in the same amounts, which is what is currently being suggested...

... then you're still sitting there with $14.3 trillion of money owed to other nations.

We were told that government surpluses were evil and wrong, and should be given back to the taxpayers rather than being used to actually pay for things that we'd already gotten. Now we're being led to believe that if we just balanced the budget - spending equals revenue, to the penny - that we somehow magically don't ever have to pay those trillions back.

"Although it is not true that all conservatives are stupid people, it is true that most stupid people are conservatives." - John Stuart Mill

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Sunday, June 19, 2011 12:16 PM

DREAMTROVE

Mike,

How?

Look at it this way:

You have 2 trillion in revenue.
You have 3.5 trillion in fed. spending
You have 3.3 trillion in state+local spending

Now, you have a 14 trillion dollar GDP.
1/2 of that is govt.

The govt. cannot solve its financial problems by taxing itself.
The govt cannot print more money because it doesn't own a currency, the FED does.
The govt. cannot tax the FED, or anything that it owns, like big oil, big insurance, big pharm, because the govt. can pass no law without the okay of the FED, and the FED is never going to pass a law that taxes itself.

Consider what happens if you try: The FED freezes the cash flow, the govt. shuts down and the economy collapses.

Okay, now we can accept that ain't gonna happen.

So, DC cannot tax the FED, and it cannot tax itself. So what can it tax? The remainder, which is income.

The US has 4 trillion dollars in income. You can tax that to the hilt, but it's already taxed to the hilt, about 7 times over. Almost no one on a payroll is taking in any serious cash. The elusive "ultra-rich" are inaccessible to the system because their money exists in dark pools and derivatives, and cannot be taxed.

Next, you have corporate income. You are not going to get any money from the FED owned industries, because they'll just block you, buy the politicians, and last ditch, move their money and or operations off shore.

So, you have middle sized corporations, like the local corning glass works. You could tax them to the hilt. If you do, they'll either cut jobs, move offshore, or go under in the face of untaxed international corporation.

But, let's say you ignore all these warnings and tax to the hilt on all wage earners and corporations not exempt (ending those exemptions is the liberal pipe dream that parallels the tea party's actual pipe dream of ending the FED: Since the FED gets to OK the laws, it's not going to OK that, so it's not going to happen.)

So, you tax to the hilt. The economy will collapse, so what, let's ignore that, you want to pay down the debt.

The next problem is there's only about $1 trillion more you have access to. But you're $1.5 trillion in the hole. Now you're $0.5 trillion in the hole.

How in the world are you going to pay down the debt? You don't have any money left. In fact, you're still borrowing.

See, this is why the Chinese can colonize the US, because anyone who owns any of the US debt can make us their bitch as long as they have the ability to call it in, because that will have a chain reaction to collapse the economy, and we can't pay them off because we can't pay anyone off, because we don't have any money.

No one is complaining about surpluses, but there are problems (first, it wasn't 2 trillion, that was the projection. Might have happened if we hadn't had Bush)

But let's look at the Clinton approach. There are some things here I like, and some I don't:

1) Selling off American assets. I don't like this approach, but it works. Just like selling off the ports and the US military bases, we could sell things to someone with an actual working economy like China. We could sell them Idaho. Say, for about 1.4 trillion.

2) Rob the social security trust fund. Everyone does it, and there's still a trillion in there to be stolen, you might have to cut benefits, but it can be done. I'm not fond of this one, but it's probably better than the last.

3) Downsize the military. Overall, I agree with this idea. The only things I really didn't like about it were a) selling off the quartermaster's corps to halliburton, and b) automating warfare.

Anyway, that was the Clinton approach.

Along the same lines, we could rob the war chest. It has a trillion and change in it. Correction: It has $2 trillion in it. This would be a nice way to get rid of part of the debt. Of course, to do this, we'd have to end the war.

Now, to cutting spending:

1) End the war, as you said. This would save us about a half trillion a year, plus, we could then rob the war chest.

2) Restructure social security. It's a huge money eating monster, and 2/3 of all payments go to households with assets over a million dollars. Let's put some serious sensible payout limits. No welfare to the rich. If you have more than a quarter million in assets or income over 50,000, you don't need a check from the govt. That would save about 90%. We could then decentralize this system to the states, and that would let us free up the trust, which would give us a trillion and change, but let's assume we spent the change on the restructure, and we get an extra trillion

3) Renegotiate healthcare. We should be negotiating for drugs, and negotiating for treatment. I had a doctor come see me in the hospital and charge $1,000 for the 15 min. He logged. He spent 23 seconds with me, but he might have actually spent 15 min. on paperwork.

4) Which brings us to education. The cost of education should be pretty close to free, now that we have all the information, we just need facilitators, labs, and someone to make sure that people actually know the information, but we don't need to be charging $100-$250,000 for a bachelors, or $150k for law school or medical school. If the education weren't so expensive, the services wouldn't be because no one would need to pay off the debt, but also, there would be more qualified talent available, lowering the cost.

5) Get rid of homeland security, who has still failed to disclose how much money they actually spend. We don't need feds policing america.

6) Get rid of subsidies. It's a free market. If your business can't make money, do something else that the people will actually pay for.

7) Get rid of corporate welfare contracts. People don't realize this but whenever you put money on the table and say "here's a hundred billion, I want something done," like AIDS research or whatever, everyone will come to take your 100 billion, and the person who can bribe the most crooks will get it. It may sound like a great program, but it's not curing AIDS, it's probably stopping AIDS from being cured, because it's worth money not to cure it. And if that's not something you're willing to cut, there are many far, far, uglier ones.

I could go into state spending, but that's another topic.

The main point here is the Sandcastle at the top. People vote for that sandcastle because it's progress and hope and optimism, and it's not just democrats, republicans vote for it just as readily. No one wants to vote for austerity.

We're spending 3.5 trillion a year, and what are we getting? My mom get's a check for $300/month. If everyone in America did, that would be a trillion. Most americans don't need one. We could give everyone health insurance. Or healthcare. And still be around a trillion. Maybe maintain defense and essential services, we'd be at about a trillion and a half. Why do we have military bases in Japan? Why are we attacking Libya, etc. Why are we bailing out morons who gambled on mortgage derivatives, and then, when they take our money to the caribbean and party, why are we bailing them out again? If someone is going to fail, let them fail. Let them sell their factories, and let someone else start a car company.

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Sunday, June 19, 2011 12:25 PM

DREAMTROVE

Quote:
Originally posted by Kwicko:

... then you're still sitting there with $14.3 trillion of money owed to other nations.

There are two types of debt, internal and external. Internal debt is owed to americans. Some of that are treasury holders (individuals and corporations) and some of that is the federal reserve, and some is IOUs.

Then there's external debt, owed to foreign countries.

Our External debt or Foreign debt is $4.45 trillion.

Internal debt we have is about $5 trillion in IOUs and the rest is treasuries. About 1/2 of the IOUs are internal IIRC, and 1/2 are to the FED. Banks of the FED also hold a fair stack of treasuries.

http://en.wikipedia.org/wiki/United_States_public_debt

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Sunday, June 19, 2011 1:05 PM

KWICKO

Quote:

1) Selling off American assets. I don't like this approach, but it works. Just like selling off the ports and the US military bases, we could sell things to someone with an actual working economy like China. We could sell them Idaho. Say, for about 1.4 trillion.

2) Rob the social security trust fund. Everyone does it, and there's still a trillion in there to be stolen, you might have to cut benefits, but it can be done. I'm not fond of this one, but it's probably better than the last.

3) Downsize the military. Overall, I agree with this idea. The only things I really didn't like about it were a) selling off the quartermaster's corps to halliburton, and b) automating warfare.

Combine number 1 & 3, and look at what you get. Downsize the military BY selling off overseas assets. Have you ever really pondered the worth of bases like ours in Okinawa, Saipan, Guam, Taiwan, the Philippines, France, Germany, Saudi Arabia, Turkey, Italy, Great Britain, Australia, Canada, etc.? Do the same with some of the domestic bases as well. You get a big bump in instant cash, but better still, you get a bigger future bump in the money you DON'T spend maintaining such bases.

"Although it is not true that all conservatives are stupid people, it is true that most stupid people are conservatives." - John Stuart Mill

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Sunday, June 19, 2011 2:42 PM

DREAMTROVE

I agree with selling off those foreign bases, provided we sell them to local powers, and not, say, to someone else's empire, like China.

I thought I gave a good start to spending cuts though, any thoughts on my #s 1-7 on those?

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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Monday, June 20, 2011 11:53 AM

DREAMTROVE

Uh oh. Looks like we're opting for currency devaluation.

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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