Forum Thread

My MMT response to President Obama's State of the Union speech

Reply to ThreadDisplaying 7 Posts
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    My MMT RESPONSE to the President's STATE of the UNION speech:

    If people saved as much as Obama wants them to save, we would need much larger government deficits than we do already. Unspent income is known as a demand leakage, and if the private sector doesn't want to spend all or more of its income, it's up to the federal government to spend more than its income, or the amount by which people are attempting to net-save doesn't get sold as output, and incomes fall by that amount, leading to less overall savings. This is known as the "paradox of thrift." And the failure to understand this (known as a "fallacy of composition") drives the erroneous idea that "savings fund investment spending", when its the other way around.

    The federal government has already built-in massive tax incentives to save (especially for rich people) and the Obama "myRA" plan would build on that for lower income groups. But if everybody saves, who spends to keep the system from grinding to a halt? Some agent has got to spend more than their income, but the private sector cannot do that forever. Only the government can, because it has the only legal printing press, and it doesn't tax to collect its own money. It taxes to regulate our spending and compel us to acquire the government currency. U.S. dollars are tax credits, and the currency is a simple public monopoly for public purpose. Involuntary unemployment and excess capacity is the evidence that the economy wants to hold more tax credits than supplied by the issuer.

    And all of this saving means we can have lower taxes per size of government + financial conditions. If people want to save larger proportions of their income, that's not a problem, but that means we need larger government deficits than otherwise. government deficit=non-government surplus.

    Cut taxes for the 99%.
    Stop handouts to rich people.
    Offer a federally funded job to anyone who is able and willing to work serving their country at a living wage, while they look or wait for a job paying higher wages.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    Yes CBB...it works both ways. Refer to this AARP article from June 2013:

    Millions of Near-Retirees Have No Savings

    "As many as 18.3 million households with workers ages 45 to 64 have no retirement savings whatsoever, according to a new report from the National Institute on Retirement Security.

    The median retirement savings balance for two-thirds of households with workers ages 55 to 64 is just $100,000.

    45 percent of 38 million households with workers ages 25 to 64 have no retirement savings.

    $6.8 trillion to $14 trillion is the collective shortfall for what workers need to live comfortably in retirement versus what they’ve saved.

    Millions of workers are headed for poverty in their old age. They’ll need housing assistance, utility bill subsidies, food stamps and help from other government programs."


    We need people to spend to drive the economy. We need people to save so they are not a burden on our society when they becomes senior citizens. It doesn't look like people are inclined to save at a higher rate than they are now.

    The outcome will indeed be even more people living in poverty...and the sad fact is that the young people will not have the means to carry the extra burden.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    If we need to save more, we need higher government budget deficits than otherwise.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    I agree. Right now we're in a race to increase savings for many of the baby boomer generation, because they need to retire with much more savings than they have right now. And that isn't going to happen with this slow recovery. We need a massive government spending program in infrastructure and education to create jobs, income and savings.

    Right now we have about 5 workers for every retiree like me. That ratio will slowly decrease to about 2 workers per retiree in about 20 years. So that alone will put a strain on the younger workers who will have to keep supporting Social Security and Medicare as more and more baby boomers draw benefits. I suppose we could encourage more immigration but that is also not popular.

    On top of that many baby boomers having been burnt in the Great Recession have little savings to augment their Social Security check.

    Of course the government can continue to just spend with deficits, but that is such a political hot potato it likely won't happen. We are on a downward spiral and it is hard to see a solution.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Still a lot of conflicting data out there, but I don't see a component of private credit that is on its way up.

    And with government tightening on the tax side (more taxes) and spending side (less gov't spending), the 8-10% of GDP budget deficits post Obama stimulus have narrowed to around 3% of GDP. So the private credit expansion has got to make that up + get us to where we need to be.
    Right now, Fannie and Freddie are tightening lending conditions.

    Running trade surpluses on the backs of US oil exports is one of the fastest ways to bring about inflation I know, and that's whats on the agenda moving forward because it means GDP growth, but it comes against our terms of trade advantage and real incomes, etc.

    Of course, it would immensely benefit the oil industry, as allowing exports would drive domestic prices higher.

    So if you think letting US oil producers sell all over the world is a good idea (I don't because energy production is always a public-private partnership) well you had better be for letting the government engage in long term futures contracts with domestic and N. American producers to keep prices lower by reducing unknowns, trading activity, overhead for analysts, etc., and you probably need to be prepared to accept the consequences of a higher price level in general, regardless.
  • Independent
    New York, NY
    Are you sure you want to delete this post?
        
    Oh goodie. I was hoping to run into Magic Money Trees sooner or later.

    MyRA doesn't exactly encourage savings, but more consumption. If it was supposed to mean more savings at all, it wouldn't offer a zero penalty for withdrawing your savings before the maturing date. If anything, MyRA is more about gathering votes. Not about investing or helping lower income individuals. Of course, you really don't need the Government in order to save, or to accumulate deficits for that matter. The private sector can save just as much as the government can accumulate surpluses. It's called a sovereign wealth fund.

    But don't worry, the government is really not the only one who is clueless about investing. Most of the general public is just as clueless as well.
  • Other Party
    Nebraska
    Are you sure you want to delete this post?
        
    The biggest problem with MYra is that it encourages young people to invest the wrong way. Young people should take risks, the old are the ones who should play it safe.

    The young just-starting-out investor has the longest timeline for investing so they should take more risks. That's Investing 101. MYra is going to be all about government securities which make almost nothing. Stocks have more risk and more reward, so the younger the investor is, the more risk that should be taken.

    It's just another flowery talking point in another speech which sounds great and does nothing. Well, it does create more government duplication, as if we didn't already have enough of that.

    Correct that no penalty for early withdrawal means it's not serious, just another useless novelty.

    The general public "clueless"? Yes, about investing, also about politics, domestic and world affairs and lots of other things and I fear it's getting worse, not better.