Is the US on the decline?

**Shek** · 28 Jan 08,, 02:19

Zinja,

Once again, I think everyone is talking past each other here and there are some strawmen getting bet up.

Originally Posted by Zinja

Firstly, gunnut's arguement is not what you talking about here. My arguement was his notion that somehow economies chiefly revolve around people's salaries.

If you check his post again, his theme was consumers (households/people). Since they own all the factors of production, all salaries accumulate to them in the form of wages and rent (although governments have to siphon off their salaries to fund their expenditures).

Originally Posted by Zinja

Now, the diagram you produced is hardly relavent to this discussion considering its elementary academic value, it hardly reflects the real world. It is a simple diagram to explain economics in simple terms not real terms. I will give you just a few points from the top of my head

1. It asumes a totally closed economy(imports/exports), hardly fitting the scenarios we are talking bout with gunnut.

2. It takes no account of investments

3. It has no public expenditure effect (i realise that you mention this in your further explanation)

4. It has no measure of inventory change

5. It does not reflect velocity of money

I could go on and on. Strictly speaking, the salaries and capital you are talking about are remunerations of production factors, and the services/products are part of the effective demands in GDP equations. You cant talk about them at the same time as forming the total of GDP as this would be double counting. Economist use effective demand measurements of GDP as this is the generally accepted method rather than remuneration of production factors. (This is why i was arguing with gunnut that he can not use 'salaries' to determine economies - but i realise that i probably was talking over his/her head). Trying to use remuneration of production factors will be like trying to determine how you look like by examining your DNA(can't think of a better example to explain this)

In short, the diagram is just a simplified microeconomic system. It is a flow chart not a GDP function, and it certainly does not show salaries as a function of it.

You're missing the entire point. The macroeconomic system is a closed system within the earth, unless there are some extraterrestrial transactions that I am unaware of. Firms (owned by people) are simply entities that coordinate the actions of people. Goverments use revenue derived from people or firms (which are made up of people). Whether you look at $1 spent by a person on a cheeseburger at McDonalds or a $1 of revenue brought into McDonalds, they are both just two sides of the same coin.

The exact same revelation can be made from either the circular flow diagram of a microeconomic market or you can add in the other entities of the macroeconomy and arrive at the exact same revelation. Sure, in measuring GDP you need the additional complexity that the microeconomic circular flow doesn't provide, but that's an accounting issue and doesn't detract from the fact that people own and provide all the factors of production. Being as simple as possible, if not simpler, is always the best way to go if it's enough to get the point across. The micro circular flow fits just nicely.

You're getting into the weeds on how to measure GDP, which is not the same thing as how to grow GDP, which gunnut touched on as well.

Originally Posted by Zinja

... and by and large coperates as well.

. . . owned by people

Originally Posted by Zinja

Never said it was. i said "Whilst individual consumers have a part to play, to view economics in terms of employee salaries is certainly misinformed."

From my reading of gunnut's posts, that's not his entire theme.

Originally Posted by Zinja

That is not the issue. The issue is government's role in social matters which the corporates would otherwise not cater for. Organ compensation might be a specific issue in the US, im talking about wider issues which are relevant in any society world wide not specifics case scenarios.

But this is a case where government intervention denies opportunity, whereas a freer market could provide an opportunity to save his life. What better way to illustrate the proper role of government than to get specific. In the case of organ transplants, the US government kills!

Originally Posted by Zinja

It took government intervention to discover the contaminations in the first place, thats the point im making. No Bill Gates or Paris Hilton goes about checking if products are contaminated or not. The Markets reacted to discoveries reaveled by check systems set up by the government. Without such government interventions vulnerable american children would be swallowing lead now as we speak.

Maybe there are cases of government checks that I'm not aware of, but to my knowledge, it was private industry that identified the issue (their process was flawed since it happened in some cases after toys went to market - the loss of profit due to faulty process and the threat of potential future litigation is the incentive that will improve their QA/QC process next time). I'm not against a government role as a secondary backup, but don't confuse CPSC recalls as being the first line of defense.

ABC News: Off the Rails: 1.5M Train Toys Recalled
http://www.nytimes.com/2007/08/02/business/02toy.html

**Zinja** · 28 Jan 08,, 02:21

Originally Posted by Kansas Bear

Were Major Shek and I debating?? In most areas of academics, the Major has me beat.

Ooops, sorry! My apologies Kansas, that was a wrong assertion. (Man, there must be about 3 parallel threads running in this thread:P )

**Shek** · 28 Jan 08,, 02:29

Originally Posted by Zinja

Shek, this is the problem with american consumers; they don't save!!! American debt is ballooning because america is not saving enough. America is consuming goods they are not producing. In other words, America is spending money they do not have thats why the government is borrowing so much. 20% of tresure budget is gobbled up by servicing debts, and at this rate if the government does not do something by 2020 it is forecasted at 50%!!! This is an issue of high national security which the US government needs to consider seriously.

The stimulus package unveiled is just a quick fix for short term benefits. It does not address these baseline fundamental problems with the US economy. An economy based on ramping up consumer spending is sure to face dire consequences in the long run. This is why i personally was not happy with this package as it only encouraged more spending by the consumer. However, i checked with other professionals in the circles and explained to me that other issues (the 'R' word) took precedence over long term stabilisation plans. But still, the next administration really needs to tighten up its budget to fix these issues for good.

Im not predicting doom for the US yet, it is still recoverable. But is urgent attention is not paid to these fundamental issues, America will crash out spectacularly.

NB: Im love America, i have no ill feelings towards her. But if you ask any honest economist im sure they will say the same things.

Zinja,

I am against any fiscal stimulus package, as it's simply robbing Peter to pay Paul.

You are conflating consumer consumption with government consumption. Government consumption is the cause of government debt, not consumer consumption. This is a political issue and is based on government trying to do too much. It's too easy to spend others' money, and that's what's been going on. The other problem is that it's much easier to create government agencies than it is to destroy them.

As far as the US savings rate, I do agree that we would be better off if it were higher. However, on the flip side, it looks lower than it really is for two reasons - historically low mortgage rates, which incentivized folks to dissave and instead invest in a home, and because the baby boomers are now retiring, meaning that they are dissaving as well (i.e., there is a demographic bubble that is starting where they should be dissaving in retirement). Combine this with the fact that foreigners are more than happy to send their capital into the US, you will see consumer spending that seems abnormally high but is affordable. If capital inflows slow down, then market forces will incentivize Americans to save more.

Finally, no worries - I didn't have any impression of you hating America - just someone who likes debating over issues

**Shek** · 28 Jan 08,, 02:30

Originally Posted by Kansas Bear

Were Major Shek and I debating?? In most areas of academics, the Major has me beat.

But you put me in my place when I get too uppity

**~~Feanor~~** · 28 Jan 08,, 03:08

Originally Posted by marklv

I'm not anti-capitalist, but capitalism should work in the interest of the nation, not of a few individuals who control industries etc.

The nature of capitalism is such that it only works for the individual. Individual profit is the one and only motive.

Originally Posted by Shek

Ask yourself why this is? You want to equate monopoly (which PayPal isn't) with being bad, but that is quite often not the case. The reason that people require PayPal is that it reduces the risk of bounced checks, fees associated with that, and it speeds up the transaction process, i.e., you know within minutes if you've got payment or not, versus waiting for checks to arrive.

Monopolies are bad because they begin to have too much influence on public wellbeing, and even government, while acting purely in the interest of the owners.

Originally Posted by marklv

I'm not anti-Paypal, but I don't know of any other company that offers a service like Paypal's. In my book this makes Paypal a monopoly. And one that imposes high charges on transactions, nearly 4%. Visa and Mastercard charge a lot less, so why is Paypal for what is essentially a similar type of transaction processing?

Because they're a monopoly of course.

Originally Posted by Shek

The macroeconomic system is a closed system within the earth, unless there are some extraterrestrial transactions that I am unaware of.

I'm buying some Klingon Disruptor Rifles to help when the world revolution breaks out, so you have to take into account a siphoning off of capital, and import of dangerous weapon that are destabilizing factors, when predicting stock market revenues

.

**lwarmonger** · 28 Jan 08,, 03:10

Originally Posted by Feanor

Monopolies are bad because they begin to have too much influence on public wellbeing, and even government, while acting purely in the interest of the owners.

What about monopolies run by the state?

I'm buying some Klingon Disruptor Rifles to help when the world revolution breaks out, so you have to take into account a siphoning off of capital, and import of dangerous weapon that are destabilizing factors, when predicting stock market revenues

.

You can get more effective weapons at a gun show. God bless America!

)

**~~Feanor~~** · 28 Jan 08,, 03:12

Originally Posted by lwarmonger

What about monopolies run by the state?

Which is why I always say that extreme left and extreme right are one and the same

You can get more effective weapons at a gun show. God bless America!

)

Yeah, well when I can get cooler weapons at a gun show, point me in the right direction. Until then, I'll stick with the Klingons. :P

**astralis** · 28 Jan 08,, 03:25

zinja,

American debt is ballooning because america is not saving enough. America is consuming goods they are not producing

the second sentence does not follow the other. singapore doesn't produce all the goods it consumes by a long shot, yet it is doing fine. regarding the american savings rate, yes, it is a (middle-term) problem, but not one that is eminently solvable by the government.

in fact, the one (sort of) solution the government can impose here involves moving taxes away from income towards sales- that increases the incentive for people to save money.

in any case, i personally think this is a self-correcting problem. as the developing world (including china and india) grow richer, they will buy more and more american products. at the same time, global prices for various goods will probably increase in the middle-term as the current manufacturing countries go up on the development scale and as their consumers begin to suck up goods formerly left for the rich westerners. thus, americans will begin to sell more and buy less, correcting the savings rate problem somewhat.

**Shek** · 28 Jan 08,, 03:32

Here's a great paper on the US savings rate and what holds for the future:
Foreign Affairs - The Return of Saving - Martin Feldstein

**Shek** · 28 Jan 08,, 03:51

Originally Posted by Feanor

Monopolies are bad because they begin to have too much influence on public wellbeing, and even government, while acting purely in the interest of the owners.

If the US government didn't grant limited life patents on pharmaceuticals (i.e., a government sanctioned monopoly), please explain to me how the US would be the worlds #1 innovator of life saving and life enhancing drugs? Feel free to give me lines about publically funded university research, but then tell me how that research is turned into pills and put into the market. Without these government approved monopolies, there wouldn't even be a market for the vast majority of these pharmaceuticals.

Originally Posted by Feanor

Because they're a monopoly of course.

Is it an absolute requirement to use PayPal on eBay? If not (it isn't), then it isn't a monopoly. If a seller requires it, then it's simply a condition to the contract of sale, plain and simple (and you don't pay a penny as the buyer). If I sold stuff, I'd use it because PayPal assumes the risk of bad payments, not me. If you don't want to use PayPal as a seller, then you don't have to.

**~~brokensickle~~** · 28 Jan 08,, 04:43

Originally Posted by Zinja

Shek, this is the problem with american consumers; they don't save!!! American debt is ballooning because america is not saving enough. America is consuming goods they are not producing. In other words, America is spending money they do not have thats why the government is borrowing so much. 20% of treasury budget is gobbled up servicing debts, and at this rate if the government does not do something by 2020 it is forecasted at 50%!!! This is an issue of high national security which the US government needs to consider seriously.

The stimulus package unveiled is just a quick fix for short term benefits. It does not address these baseline fundamental problems with the US economy. An economy based on ramping up consumer spending is sure to face dire consequences in the long run. This is why i personally was not happy with this package as it only encouraged more spending by the consumer. However, i checked with other professionals in the circles and explained to me that other issues (the 'R' word) took precedence over long term stabilisation plans. But still, the next administration really needs to tighten up its budget to fix these issues for good.

Im not predicting doom for the US yet, it is still recoverable. But if urgent attention is not paid to these fundamental issues, America will crash out spectacularly.

NB: I love America, i have no ill feelings towards her. But if you ask any honest economist im sure they will say the same things.

I agree, might I add....The bureaucrats need to quit finding new ways to spend the tax dollars. We should just pay for the basics that it takes to run the country and forget about the 'free ride', 'buy a vote' political favors. All the while pay the debt down. Say no to lobbies, bureaucrat fat cats, get rid of unneeded services, etc. To many people want a free ride at someone else's expense.

Regards,
Ivan

**lwarmonger** · 28 Jan 08,, 05:03

Originally Posted by Feanor

Which is why I always say that extreme left and extreme right are one and the same

While I agree, that is not answering the question.

**lwarmonger** · 28 Jan 08,, 05:04

Originally Posted by lwarmonger

While I agree, that is not answering the question.

What the hell?! Did I just say that?

**~~Feanor~~** · 28 Jan 08,, 05:12

Originally Posted by lwarmonger

While I agree, that is not answering the question.

There have to be mechanisms for holding the state accountable. The mechanisms of holding private monopolies accountable are far harder to enact.

Originally Posted by lwarmonger

What the hell?! Did I just say that?

Of course. The taint spreads to everyone who comes into contact.

**lwarmonger** · 28 Jan 08,, 05:30

Originally Posted by Feanor

There have to be mechanisms for holding the state accountable. The mechanisms of holding private monopolies accountable are far harder to enact.

I'd argue that it is actually more difficult to hold public monopolies accountable than private ones. Look at how much difficulty Europe has with their state companies... and the Soviets never could force their factories to be efficient.