Dems vs. Repub

#76
#76
In the last year of Clinton's presidency, the NASDAQ crashed. People invested there lost half their wealth.

Therefore Clinton caused the NASDAQ crash. Does that make sense to you Kicker?
 
#77
#77
thekicker33 said:
I never said unemployment is the only factor when analyzing a president. But to me, it's the most important. If unemployment is low, the economy will be strong due to more people having more money. With the economy strong more businesses pop up, more millionaires are made and less is spent on social programs trying to help the unemployed. The dominos simply fall into place.
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I understand why you would think this is cut and dry, but you aren't looking deep enough into the problems of inflation. At the onset, increasing inflation improves the position of borrows at the expense of lenders (i.e., the borrower may actually be paying less than the principal amount of the debt due to inflation). In the long-run, lenders compensate for this sudden fluctuation and losses, by increasing the interest rate on borrowing. Thus, a high interest rate will ultimately discourage savings and investment, because both are more costly (think net present value here). Businesses, in turn, have less access to capital and are not able to "pop up" as you say. Also, inflation causes uncertainty regarding net present values which make planning difficult and this may have an adverse effect on the level of planned capital investment. Together, these problems result in businesses not starting - and sometimes cancelling - projects until economic conditions stabilize. As any economist will tell you, the primary driver of a country's standard of living is its productivity. Reducing incentives for investment and savings stifle increases in standard of living.

Moreover, if the US were to have an inflation rate that exceeded that of the rest of the world, it loses price competitiveness in the market. This leads to an ever-increasing trade imbalance (that is already shaky at best). Because our prices will rise, other countries will not import our goods. However, because the prices of other countries remain relatively constant, we will import their products. In time, this leads to decreasing economic growth and unemployment.

As prices increase, workers demand higher wages. These higher wages increase costs of production. To maintain profit margins, companies must further increase costs - further contributing to inflation. If left unfettered, the inflation could turn into hyperinflation. This is commonly referred to as the wage-price spiral.

Finally, inflation has a negative effect on tax revenues. In most tax systems, there is a delay between the time a tax is levied and the time the tax is paid to the government (i.e., estimated income tax payment have as much as a three month delay). Short delays do not matter too much under low inflation, but as inflation increases, these delays dramatically decrease the value of the tax revenues collected. As a result, governments face the dilemma of raising taxes or cutting social programs due to lack of adequate funding. Ultimately, as unemployment rises due to wage changes, less money is available for social programs to cover those in need.

As you can see, there are significant negative long-term effects of inflations. Please understand, I am not trying to be one-sided. There are significant negative long-term effects from reducing inflation at the expense of employment, but you indicated you already have a grasp on those concepts.

thekicker33 said:
I'd rather have high inflation than low unemployment due to reasons stated above. Inflation has never been so high in this country to make a job worthless, and I doubt it's gonna all of a sudden happen now.

So again, I ask, how am I wrong with the fact that 80 percent of the time in the last 50 years unemployment has been lower under a democratic president?? That can't be disputed. The reasons, however, can be. Paul 1454 is the only one that gave a reasonable argument to refute it.
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Again, I don't see anyone refuting your statistics. Facts are facts. However, the benevolence of low unemployment may not be the final determinative factor in the success of a president's economic policy. As I suggested in my prior post, the differences reflect a differing opinion on policy between the parties and disagreement will continue to exist as to whether one is better than the other.
 
#78
#78
Also note, the above is only dealing with the idea that low unemployment is ultimate measure of presidential policy. As others have pointed out in this thread, causation and correlation is a whole other can of worms.

I also forgot to point out the deadweight loss to the economy if the low unemployment is a byproduct of increased spending facilitated by higher taxes (a deadweight loss essentially means that - if you think of the economy as a pie - the pie gets smaller). This also stifles productivity and, thus, standard of living.
 
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#79
#79
Paul 1454, just to keep this going because I truly like to learn about this kind of stuff. You seem to know what you're talking about.
Ideally, what would the ratio of inflation to unemployment be?? At the same time, what is a realistic ratio??
 
#80
#80
thekicker33 said:
Paul 1454, just to keep this going because I truly like to learn about this kind of stuff. You seem to know what you're talking about.
Ideally, what would the ratio of inflation to unemployment be?? At the same time, what is a realistic ratio??
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Even though I respectively disagree with some of his beliefs, he seems to be very knowledgeable in economics.
 
#82
#82
thekicker33 said:
Paul 1454, just to keep this going because I truly like to learn about this kind of stuff. You seem to know what you're talking about.
Ideally, what would the ratio of inflation to unemployment be?? At the same time, what is a realistic ratio??
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Ah, that is the million dollar question. If I could give you that answer, I would be the defacto Nobel Prize winner in economics for the next ten years. At one point, economists generally agreed that each market had a "natural rate of unemployment." This rate could change over time due to certain economic and government activity (mainly through increases in production and changes in population), but generally remained the same in the long-run. They argued that monetary policy that kept real unemployment in the realm of natural unemployment would generally result in sound economic growth and, thus, good monetary policy. This model is the one on which the Phillips curve was based and has since been cast into doubt. Many people still adhere to this notion and look at the opposing evidence as outliers caused by unforeseen forces than cannot be accounted for in any modeling. Others are trying to find new theories, but none have gained any sort of consensus (the most well-respected theory seems to be that monetary policy should not concern itself with either inflation or unemployment and that the focus should be aggregate demand). At this point, your question is one of the most contentious issues in macroeconomics and no one really knows the answer. I wish I could help.
 
#83
#83
bam15 said:
Even though I respectively disagree with some of his beliefs, he seems to be very knowledgeable in economics.
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Thanks for the compliment bam. Even though we tend to disagree on certain issues, I certainly enjoy the debate.
 
#85
#85
paul1454 said:
Ah, that is the million dollar question. If I could give you that answer, I would be the defacto Nobel Prize winner in economics for the next ten years. At one point, economists generally agreed that each market had a "natural rate of unemployment." This rate could change over time due to certain economic and government activity (mainly through increases in production and changes in population), but generally remained the same in the long-run. They argued that monetary policy that kept real unemployment in the realm of natural unemployment would generally result in sound economic growth and, thus, good monetary policy. This model is the one on which the Phillips curve was based and has since been cast into doubt. Many people still adhere to this notion and look at the opposing evidence as outliers caused by unforeseen forces than cannot be accounted for in any modeling. Others are trying to find new theories, but none have gained any sort of consensus (the most well-respected theory seems to be that monetary policy should not concern itself with either inflation or unemployment and that the focus should be aggregate demand). At this point, your question is one of the most contentious issues in macroeconomics and no one really knows the answer. I wish I could help.
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Economics, monetary policy and fiscal policy are all at the mercy of unintended consequences because they all try to impound psychology yet are always wrong in doing so.
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#86
#86
aren't those unintended consequences referred too as the "invisible hand of economics"
 
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