<Interesting Economics The Oil Drum DrumBeat: July 3, 2006>
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158 comments on DrumBeat: July 2, 2006

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odograph on July 2, 2006 - 2:56pm Permalink | Subthread | Parent | Comments top
Come on, our congress spends no matter what.  The last few years have proven that "starve the beast" is empty fanatasy.

So you gotta get the money somewhere, getting it while creating proper disincentives sounds like a good idea.

... or are going to cut taxes until the spending is 100% deficit?  Maybe the way the congress is heading.

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TechGuy on July 2, 2006 - 4:43pm Permalink | Subthread | Parent | Comments top
>Come on, our congress spends no matter what.  The last few years have proven that "starve the beast" is empty fanatasy.

US Federal reserve is not directly controlled by congress. To accomplish a goal of global conservation, all that is required is to convince 12 people to raise interest rates. Congress is powerless to stop them from raising rates. If you think about, these 12 people have more power than the president, the congress and the senate to influence conservation. The policies enacted by the Fed are the only ones that broadly affect the global economy.

Raising rates would also force Congress to cut spending any move to a balanced/sustainable budget.

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odograph on July 2, 2006 - 8:59pm Permalink | Subthread | Parent | Comments top
I was picking up on item "2" above:

Higher Taxes translate into more wasteful spending (more taxes mean more money for Washingtion Buracrats) This leads to higher inflation and further erosion of the US savings rate. (Why save when inflation will steal your savings). This exacerbates retirment issues since more americans give up saving for retirement, and become more dependant on SS and other gov't entitlement programs. Those that are already retired and live on fixed income suffer more because the are unable to keep up with rising costs!

That assumes a couple things.  First it assumes that the earlier poster was recommending higher taxes, and not a revenue-neutral shift in their source.  Second, it states the connection I was referring to:  "Higher Taxes translate into more wasteful spending"

I think our governemtn leads to wasteful spending, and they have proven that they don't need higher taxes to do it!!!

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TechGuy on July 3, 2006 - 6:22pm Permalink | Subthread | Parent | Comments top
>I think our governemtn leads to wasteful spending, and they have proven that they don't need higher taxes to do it!!!

Higher taxes prove additional capital for increase wasteful spending. Wasteful spending also creates inflation as the gov't overpays for goods and services (aka the $500 hammer).

>That assumes a couple things.  First it assumes that the earlier poster was recommending higher taxes, and not a revenue-neutral shift in their source.

Taxing energy will lead to inflation even if taxes for other items are reduced. Plus it still does not address consumption outside of the US. The only way that the US can curb global consumption is through interest rates.

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odograph on July 3, 2006 - 6:30pm Permalink | Subthread | Parent | Comments top
Higher taxes prove additional capital for increase wasteful spending. Wasteful spending also creates inflation as the gov't overpays for goods and services (aka the $500 hammer).

You are ignoring a couple of us, who are asking you: why we keep spending ourselves further into debt even as we cut taxes.  It's an interesting question.  Indeed, I might not have become the "lapsed Republican" that I am if the taxation and spending connection had worked the way you are describing.

I'm sorry, but I think too many of my Republican brethren got lazy and or greedy.  They got to where all they care about is cutting taxes, and they don't give a darn about what spending does or does not follow.

Taxing energy will lead to inflation even if taxes for other items are reduced. Plus it still does not address consumption outside of the US. The only way that the US can curb global consumption is through interest rates.

Pronouncements like that are always fun.

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Vintermann on July 3, 2006 - 9:40am Permalink | Subthread | Parent | Comments top
12 people? I suppose you mean central bankers, or something?

Sure, they are not supposed to make political judgements, just set the interest rate according to economical principles, to seek pre-defined goals ... usually controlled inflation, isn't it? But they are few, they really do have a lot of power, and their perception of the economy decides everything. Right?

Or do you disagree? Do you think it strictly speaking matters whether the central bankers are doomers or cornucopians?

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TechGuy on July 3, 2006 - 6:39pm Permalink | Subthread | Parent | Comments top
>12 people? I suppose you mean central bankers, or something?

By 12 people I am refering the 12 voting members of the Federal reserve board members. In my opinion it would be far easier to convince them that we are facing an immenent danger that we need a way to curb global consumption of fossil fuels to avert a civilization disaster. Its virtually impossible to get Congress to agree on anything (except perhaps raising entitlements and the debt ceiling)

>But they are few, they really do have a lot of power, and their perception of the economy decides everything. Right?

The Federal reserve board is probably the most powerful organization when it comes to economics since US interest rates affect the global economy. But they don't have the power over much else.

>Do you think it strictly speaking matters whether the central bankers are doomers or cornucopians?

I believe that f they full understood the systematic risks that they would take action that would be the best. I don't subscribe that they are bent on world domination or some other bizarre conspiracy theory. Unlike most politians Central bankers are analytical and reasonably well-educated.

Overall, I believe Fed reserve is pessmistic about our future fiscal prospects. Over the last few years the turn over has been well above this historic average and a lot of senior members have choosen early retirement or have gone to work in the private sector. Considering that working at the Fed is a prized career, I think its points to pessimism in the Fed. Although I don't believe the concept of "Peak Oil" has been the leading issue. I think it has a lot to do with the massive debt levels (consumer, corporate, and gov't).

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Vintermann on July 5, 2006 - 3:11am Permalink | Subthread | Parent | Comments top
I, too, believe that the central bankers in question are basically decent, in other words that they try to set the interest rate according to the goals they have been told (by government) to pursue. But as a non-economist, I wonder just how much their expectations of the future affects their decisions.
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Don Sailorman on July 5, 2006 - 3:46pm Permalink | Subthread | Parent | Comments top
A great deal.

IMO, the best book ever written on what really goes on at the Fed is "Managing the Dollar" by my old and favorite prof, Sherman Maisel. The book is thirty years old, maybe, but little has changed.

When Sherm was appointed by LBJ to be on the Board of Goverenors of the Federal Reserve System, his colleagues chipped in to get him a little toy printing press as an emblem of his office.

Every time a new book comes out, read or reread an old one.

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158 comments on DrumBeat: July 2, 2006

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