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economy 101 for dummies

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posted on Sep, 26 2018 @ 01:53 AM
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Economics 101 is correct. As in really basic simplified understanding that is quickly superseded by more advanced understanding.

The economy under Tump is doing well but it is just carrying on trends that started under Obama. That is a good thing and if it continues Trump will be a successful president on the economy. However juvenile claims of some economic miracle or that Trump is responsible for the current economy are false.




posted on Sep, 26 2018 @ 02:08 AM
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originally posted by: TheRedneck
The simple fact is that Obama's economic policies were Keynesian based. He apparently didn't understand the nature of Keynesian economics.

Keynes states in his theory that the government has a inherent role to play in stabilizing the economy. He further states that when an economy is growing too fast, the most effective way to slow growth is through taxation. When the economy is growing too slowly, the most effective way to stimulate the economy is through government spending. All that is true, to a point.

Keynesian economics only works while taxation/spending is within a certain range. Outside of that range, Keynesian economics fails, for obvious reasons. Every economy changes; every economy has ups and downs. If every time the economy moves down, government spending increases, and every time the economy moves up, taxation increases, there will come a point where taxation is so great that individual contributions to the economy are negligent and government spending is the sole source of economic stimulus. That leads to a stagnant economy, because even the financial might of the US government pales in comparison to the economic might of 300+ million enterprising Americans.

Another aspect of Keynesian economics is that the spending effects are assumed to be beneficial to the country's economy where the spending takes place. Excessive regulation destroys this assumption, since larger companies have the financial means to move their operations to other countries. When this happens, the stimulus provided by government spending is diluted because the benefits are going to other economies.

The recession Bush created was a direct result of a semi-crash, colloquially referred to as a "bubble." Bubbles are a direct consequence of Keynesian theory being applied along the boundary of applicability. They result from too many individuals competing too tightly in an industry that cannot sustain them all. In the "dot com" bubble, Internet companies became too appealing for the average person to ignore; the low overhead, low investment, and potential high returns sounded too good to be true. It was. So many companies were started online that the market was stretched too thin to support them, and the resulting competition, combined with poor business practices (I remember getting a ton of free stuff back then just for visiting websites I had no intention of ordering from) resulted in most of these online businesses failing along a short time frame. That is the definition of a bubble burst.

The 2008 recession was the result of a similar bubble bursting, but this particular bubble was actually created by the use of Keynesian theory outside applicable boundaries. Government increased spending by proxy via guarantees and incentives to banks to loan money to people who were incapable of repaying the loans. The first hurdle these people encountered then resulted in home foreclosures. These home foreclosures then over-saturated the housing market and drove prices down. At the same time, the lenders, saddled with these bad debts, tried to move them out of their inventory through bundling, leading to many investors losing their investment as well. It didn't take long until an entire industry, housing, ground to a standstill. The bubble burst, and as so many people were affected by either the loss of a home and credit rating or suffering losses due to housing investments, the rest of the economy began to tank as well.

At that point, we had two options: use Keynesian theory and try to stimulate the economy through direct government spending (which was Obama's approach) or revert to classical economic theory and stimulate via lower taxation and regulation. Had we reverted to classical theory, the recovery would have been fairly swift, but continuing to depend solely on Keynesian theory did not allow the economy to grow. Instead, combined with the regulation overload, companies moved out of the US economy and took the benefits that were intended for the American economy with them.

I will give Obama this: he was trapped. Bush created the recession and Obama inherited it. There was going to be a short period of economic pain no matter what he did. He could have passed a tax cut and suffered through the short term to become an economic hero to the American public, but he chose to continue using Keynesian theory and supplement it with social programs (which the US could not afford) for political gain.

Trump came along after the economy had stabilized at much lower levels than it should have. As a businessman, Trump understood the problem and immediately went to work trying to promote the US as a business-friendly environment. He used the regulation cuts to entice businesses to open inside the US, and used promises of future benefits to try and lure others back home. As soon as he could get Congress to act, he implemented tax cuts to stimulate the economy... the most important cuts were indeed to business, but individuals got a tax cut as well. That gave the economy a dual boost: a weekly bonus for individuals to use and an enhanced ability for businesses to expand to meet that new demand. The result was that US businesses were able to do what they should have been able to do within two years of Obama's administration.

That's what happened. Partisan identity politics be damned. Obama dropped the ball and kept the US in a stagnant state for 8 years, when he could have reversed the trend in two. Trump made the hard decisions and took the political heat, turning the economy around. There is still much to be done, but we now have an expanding base with which to work from... because of Donald Trump and in spite of Barrack Obama.

TheRedneck



Keynesians argue for increased deficit spending in recessions. Cutting taxes during economic downturns is every bit as much a Keynesian concept as increasing government spending. The fundamental concept is deficits should be counter cyclical.

Classical economics on the other hand would advocate raising taxes or cutting spending during a down turn.

There is a good argument to be made that taxes should have been cut more in 2008/09 but that would have been more of a Keynesian response not less.

It's also demonstrably not true that the economy was stagnant. The Obama terms has one of the longest periods of economic growth and unemployment decreasing in US history. Could the growth have been faster, absolutely but claims that the economy was terrible under Obama do not reconcile with the facts.

So far Trumps economy has been good but it is a continuation of trends of the Obama economy.



posted on Sep, 26 2018 @ 02:17 AM
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Not exactly.

Neo-Keynesian economics thought was dominant post ww2 however that is quite a different animal from Keynesian thought and it is doubtful that Keynes would even recognise it as has economic philosophy.

Current mainstream economic thought is a blend of Neo- Keynesian and Neo-classical thought.



posted on Sep, 26 2018 @ 02:24 AM
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originally posted by: TheRedneck
a reply to: toysforadults

The very fact that Trump spearheaded a tax cut means he is not utilizing Keynesian economics. Keynes states the proper way to stimulate the economy is via government spending, not through tax cuts. Your statement seems to imply you are not familiar with the basics of the various economic theories.

You also seem to miss my points above. Keynesian theory is not good or bad... it is more efficient than classical theory in a certain range of variables. The problem is that it has been applied outside those boundaries and in conjunction with social policies that dilute its effectiveness. It has been used since FDR, on and off, but never so far outside its effective range.

TheRedneck


Again not true. Keynes argued for greater deficit spending which can be tax cuts or increased government spending.

The argument about if Trumps tax cuts being Keynesian or not would based on if they are pro or counter cyclical. Basically does the economy have room to grow at a faster rate without overheating.



posted on Sep, 26 2018 @ 03:36 AM
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As a Canadian I wish I had American tax problems. What a fantastic problem to have lol.



posted on Sep, 26 2018 @ 06:20 AM
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a reply to: ScepticScot

I'm sorry; that description is completely false.

Classical economic theory holds that the economy is self-correcting and the government's role in stabilizing it is unneeded. Keynesian economic theory took root with FDR's administration after the Great Depression, when popular thought was that the economy was obviously not inherently self-correcting. In truth, both approaches are correct, but applicable to different economic realities and conditions.

Keynes used mathematical deductive reasoning to determine the greatest return for moneys injected into the economy, whether those moneys be in the form of a tax cut or increased spending. According to the equations developed by Keynes, spending is a more efficient method of stimulating the economy than decreased taxation. In a similar manner, he calculated that increasing taxation is a more effective way of slowing economic growth than cutting spending. I'm not going into the mathematical details here, as it would simply cause confusion; if anyone is interested, they are readily available.

TheRedneck

edit on 9/26/2018 by TheRedneck because: (no reason given)



posted on Sep, 26 2018 @ 06:35 AM
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a reply to: TheRedneck

Well, that actually IS what I was implying.

I was just framing it in a more sarcastic tone.

It's not that the concepts themselves aren't based on real world market functions, it's that people intentionally manipulate these markets for their benefit all while painting the illusion to the masses that it was these market functions which caused the result and not their own greed and lust for power.

I could point you to thousands of examples of this. Case in point, (just a simple one) prices of gasoline spiked across the nation after Hurricane Harvey struck...the DAY after Hurricane Harvey struck. Prices of airline tickets spiked the next day too (owing to alleged higher fuel costs). In reality, all of this fuel had been purchased months if not years (in the case of airlines, something I know a 'little bit' about) BEFORE the hurricane at a fixed market price. This wasn't supply and demand at work at all, it was pure corporate greed, plain and simple. Sure, the hurricane might have been justification for shortages (which there weren't actually) due to delivery delays, but it should have had zero effect on prices. It's the same thing with fuel prices rising before a big holiday. Now, fuel prices are low hanging fruit, and a hot button for many, in my example. However, there are far more sinister examples of these same concepts. I chose an easy one for illustrative purposes here.

Derivatives, short selling and hedge funds in the stock market are another example of mass deception. Derivatives in particular create the perception of 'value' where none exists. They wrap a nugget of S# in pretty wrapping paper, put a bow on it, and package it with 50 other things (some of these being nuggets of S# also) and trade these things in the open market, over and over, like these things were the best thing since sliced bread. It's an illusion. And, it's this same illusion which led to the financial crisis of 2008. Toxic debt from the out of control sub-prime market was being sold off, hidden in things like derivatives, as if they were good investments. So these same toxic investments saturated the market, burrowing their way into people's retirement portfolios, bank holdings, and countless other investments.

Now, here is an example where the illusion of "supply and demand" gets REALLY evil, and it can be found in what happened next. Supply and demand sure worked when there was suddenly no demand (in other words, it worked when the masses where on the losing end), but it sure didn't work when Wall St. was letting hedge funds short sell all of these toxic investments. No, they took their profits and ran...BEFORE the crash. But, can you or I participate in these shady back room deals??? Nope, us peons aren't allowed! That is a country club only the super rich, elite and powerful are allowed be members of. You see, they created the illusion of demand so they could (knowingly) bet on you and me losing (because that's what shorting really is at it's core, betting on someone else losing) once the 'market' figured out what was happening. And, they laughed all the way to the bank!

The words "Too big to fail" make me want to become violently ill and start projectile vomiting!!! If people only knew! Did hundreds go to jail??? Nope, they slithered back into their corporate jets complete with solid gold bathroom fixtures and jetted off to their super-yachts anchored in Monte Carlo. All the while the rest of the World suffered and lost trillions when the laws of supply and demand actually saw the light of day.

So, in summary...that is what I meant with my earlier post.

I could go on, but I think I want to go throw up!

ETA - I should probably also add the evil little detail of how derivatives are sub-divided and then re-packaged each time. This allows the men behind the proverbial curtain to maintain the illusion of value. Otherwise, the 'market' would catch on faster and the true laws of supply and demand would prevail, but for the shorting market which allows these guys to cut an run before anyone figures out what they're doing. It's a sham, and I have long advocated that if people want a REAL market, which functions on REAL market principles, that these practices should be OUTLAWED!
edit on 9/26/2018 by Flyingclaydisk because: (no reason given)



posted on Sep, 26 2018 @ 06:46 AM
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a reply to: Flyingclaydisk

Ah, I missed the sarcasm... you hid it pretty good in that post. I do agree that we have much manipulation of the drivers of the economy. I'm not convinced we can remove all such interference, but the less the better.

I believe I mentioned the housing bubble collapse that led to the most recent recession, and the fact that it was driven by governmental social welfare programs.


The words "Too big to fail" make me want to become violently ill and start projectile vomiting!!!

I agree... the very concept removes the necessity of realistic business practice from the equation and creates the equivalent of another "dot com" bubble. "Too big to fail" actually means "too big to exist." One of the two major problems with capitalism centers around businesses which grow so large as to be able to manipulate the markets unchecked, which is why we have anti-trust laws.

Now, if we can get the government to use them...

TheRedneck



posted on Sep, 26 2018 @ 07:22 AM
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a reply to: TheRedneck

The sarcasm wasn't veiled too deeply, at least I didn't think.

Anti-trust laws, like SEC enforcement on Wall St., are a JOKE! Just another illusion. An illusion of a safety net where none exists. By the time anti-trust laws kick in the corporations involved are already WAY beyond "too big". It's just window dressing, to give people confidence there really is a check and balance system.

I could cite an example I (unfortunately) have personal, first hand, experience with! I'll just cover the highlights without going into specifics...

Two mega-behemoths in the engineering world are out there doing business. Both are public companies and of approximately equal size. Both company's are competitors Both company's have heavy debt. One of the company's sells their soul to the Devil and accepts "activist investor" money from Wall St. (read - hedge fund). The other company doesn't, and they're on the rocks financially. The hedge fund, through numerous trickery, winds up with a controlling interest in company 'A' (i.e. 51%). The hedge fund then makes the following demands:
"We're either going to split this company up into about 3 pieces and sell two of them (not going to happen ever), OR, you need to merge with another company. We want our investment back in 6 months. Period!"
Doesn't seem to make sense, right? Oh, but wait, yes it does...to them! But ONLY to them!

How could forcing a merger between two behemoth's ever help a hedge get their money quicker?? Wouldn't it take years for the business to develop and so forth??? Nope, that's not their plan!

On the contrary, their plan is to merge the two behemoth's, then cut the duplication of staff, take the profits and walk away. They don't have even one calorie of care what happens afterwards, not a single calorie! What duplication of staff you might ask? Well, who needs two accounting departments, two payroll departments, two HR departments, two marketing departments (and the list goes on)? Voila! Instant profits! Buh-bye!! Nice knowin' ya!! See ya...wouldn't want to BE ya!!

And that's just exactly what happened!

Now, let's examine what the "market" saw from their perspective (ie. the illusion). They saw two giants merge and suddenly start showing huge profits. Wow, this is a great investment, right? Let's put our money there!

To put it in an analogy, they knew that everyone likes Cadillac's and everyone likes Lincoln's, so they created the illusion that cutting a Cadillac and a Lincoln in half and then welding the two different halves back together as one was a good thing, the best of both worlds, right? (oh, and they took the other two halves and sold them at the scrap yard when no one was looking, and took the proceeds). What was left was a completely non-functional Frankenstein of a car, the Cadi-Lincoln.

But "she's a beauty!", right?

edit on 9/26/2018 by Flyingclaydisk because: (no reason given)



posted on Sep, 26 2018 @ 07:37 AM
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It's a sinister world of smoke and mirrors.

But as long as there is the illusion of things like value, supply and demand, safety nets, and checks and balances life is good, right?

Or, is it?

Who would have ever 'thunk' that a Magician would be the highest paying profession on Earth????



ETA - Ah, but alas, we've gone a little beyond "Economy 101 for Dummies" now, haven't we? We've strayed into the Rubicon of reality.
edit on 9/26/2018 by Flyingclaydisk because: (no reason given)



posted on Sep, 26 2018 @ 08:34 AM
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originally posted by: TheRedneck
a reply to: ScepticScot

I'm sorry; that description is completely false.

Classical economic theory holds that the economy is self-correcting and the government's role in stabilizing it is unneeded. Keynesian economic theory took root with FDR's administration after the Great Depression, when popular thought was that the economy was obviously not inherently self-correcting. In truth, both approaches are correct, but applicable to different economic realities and conditions.

Keynes used mathematical deductive reasoning to determine the greatest return for moneys injected into the economy, whether those moneys be in the form of a tax cut or increased spending. According to the equations developed by Keynes, spending is a more efficient method of stimulating the economy than decreased taxation. In a similar manner, he calculated that increasing taxation is a more effective way of slowing economic growth than cutting spending. I'm not going into the mathematical details here, as it would simply cause confusion; if anyone is interested, they are readily available.

TheRedneck


Keynes argued for counter cyclical economic policies. By fiscal policy that means increasing or decreasing the deficit. That can be accomplished by changing spending or changing taxation.

While he did describe increasing spending as more effective when the propensity to save is too high ( generally when confidence is low) he certainly didn't advocate only increasing spending or increasing taxes ( the reasons should be fairly obvious).

Keynes was a classical liberal and certainly not a proponent of big government. However he did did recognise that government was they only party in the economy big enough, and with low enough financial constraint, to move against the business cycle.

Classical offers no policy prescription for recessions as it believes they are inherently self correcting. Problem is that there is little or no evidence that in the real world economies do return to an equilibrium state or that there are not multiple equilibrium states.

Keynes also used very little mathematics in his books. Certainly in comparisons to later economists who expanded on his work. Criticisms of his use of equations usually comes from Austrians (AKA economists who can't count).



posted on Sep, 27 2018 @ 02:18 PM
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originally posted by: Lumenari

originally posted by: Subaeruginosa
a reply to: notsure1

But the tax cuts are only temporary... you fools.

It's seriously no different to a person taking out a 2nd mortgage on their house, for short term relief... Even though theirs no way they can afford the repayments in the long run.

Thankfully, for Trump...when it comes time to pay up, he'll be long gone and it'll be someone else's issue to deal with.

My company was drowning under stupid impossible regulations before Trump showed up.

Now I can't keep up and I am considered a green industry.


Yeah, I've heard your story before.

The way you portray it, is as if you didn't know where your next meal was coming from, when Obama was in charge... But then Trump came along and now your just magically drowning in wealth... right?

A real rags to riches story, yeah?

Obviously its a complete fabrication of the truth... but it's a good story, none the less.



posted on Sep, 30 2018 @ 12:53 PM
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a reply to: olaru12

What does any of that have to do with the topic of this thread...literally nothing about economics just you explaining how whatever the case you don't like trump because x, y, z...



posted on Sep, 30 2018 @ 02:47 PM
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originally posted by: sligtlyskeptical
Trump gave you a small tax cut for 3 years, he gave the very rich a huge tax cut forever. FACT


Trump gave us nothing. He just decided to take less. When you quantify by percentages those who pay more save more.

Everything else that you said is male cow fecees.



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