October 31st, 2013 — Economics and Investing
Government spending is what our two political parties are fighting over. At the heart of this dispute is something called a “multiplier effect”. Here’s an example from the October 2013 AARP Bulletin. The sidebar for “Social Security’s Impact,” claims:
- $2.00 is added to the U.S. economy for every dollar of Social Security benefit paid out
- 9 million jobs are supported by the combined spending of Social Security recipients and businesses.
- $1.5 trillion was added to the total economic output by Social Security in 2012.
These statistics in favor of Social Security are based on the multiplier effect.
What is a multiplier?
Here’s the simplest definition I could find:
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. For example, if a corporation builds a factory, it will employ construction workers and their suppliers as well as those who work in the factory. Indirectly, the new factory will stimulate employment in laundries, restaurants, and service industries in the factory’s vicinity.
But note that this definition of the investment multiplier effect leaves out three other ways of launching a positive fiscal multiplier effect. The first is by government spending. Two other ways are through tax reductions and growth of exports.
Where did the idea of a multiplier effect come from?
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October 14th, 2013 — Government, Taxes
House Republicans have said they just want a “little something” from the Democrats in order to sign a clean debt limit bill. They want some kind of spending cuts to help them save face. Well, how about a tax cut – a tax cut that will also be a stimulus helping to restore jobs and raise revenue?
Most of us agree that consumer demand is a major sticking point to growing our economy. Corporations have more than enough money to expand production of goods and services, but there aren’t enough people out there able to buy their products.
In particular, those Americans with the least amount of money now have even less money to spend. Years of steadily declining wages and now, as a result of the financial crisis, loss of interest income, and for some, their homes and jobs, have led the descent into belt-tightening just to pay the bills. This contributes to a sluggish economy on the one hand, and a lessening of tax revenue on the other.
The Republicans’ answer seems to be trim the national budget by taking more away from those on entitlements. The Democrats point out that this will reduce the amount of spending American citizens do.
What if we could increase the spending by workers who collect entitlements? Continue reading →
October 14th, 2013 — Government
Rent-seeking is a technical term few people understand. Put simply, rent-seeking is the effort to gain a privilege from government intended to increase the seekers’ incomes.
You’ll note I used the plurals for the words “seeker” and “income”. That’s because rent-seeking these days is being driven by lobbyists paid to promote the incomes of whole industry sectors or even areas of the world.
It’s no longer individuals or individual corporations seeking privileges from government: it’s groups of big corporations working together through their industry trade associations to use governments for their own self-interest, regardless of the impact or costs to others.
Rent-seeking by whole industries
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