http://tinyurl.com/wfv5l

I think we should tax the rich more!

11/29/2006 4:40:38 AM

No one's stopping him from sending more taxes in. In fact, I bet he still has a dilligent accountant making sure he uses all the proper deductions and trusts.

11/29/2006 7:17:18 AM

What about Buffet, who claimed he doesn't do any of that?

11/29/2006 7:44:36 AM

Did he claim that? Well then he's allowed to say he thinks taxes should be higher.

Doesn't mean taxes should be higher, but it means his opinion would hold sway on it.

Although, he is giving away $40B in order to avoid estate tax. Not that I have any problem with it all going to charity, but he probably cares about philanthropy AND taxes when he's thinking of the good he can do.

11/29/2006 7:49:18 AM

Quote :

"Did he claim that?"

Did you read the article?

11/29/2006 7:53:38 AM

No, I expressed blind hate.

Truthfully, I didn't read this because I've seen Ben Stein speak on it about a dozen times. I figured it was same old same old.

AND so it was:
First, off

Quote :

"but they don’t pay a lot of taxes as a percentage of what they can afford to pay"

reeks of "From each according to his ability to each according to his need" which is sickening. I do understand saying the rich should pay a comparable percentage in taxes as the middle class.
Warren's "no tax planning" scenario is not entirely true. Investing such that more of your income comes from dividends taxed at preferential rates IS tax planning, as is purchasing municipal bonds.

Also Ben makes a blanket inference that the tax cuts caused the reduction of tax receipts, which isn't true. Far less people were paying capital gains tax in 2003 than in 2000, when you could pick a stock that had 0 earnings and still make 50% on it a year. He also claims that spending is a runaway train, so why should we try to stop it?

Then he moves into the slippery slope of poor economics with the argument that if deficits don't matter, then that means we can print our own money. He hardly gave modern economic theory a 3 second appearance to say "deficits MIGHT not matter, if they are invested at a proper ROR"

Its truly sickening, because he knows economics (or at least used to) but just doesn't care to exercise it anymore.

All that said, rich should pay a comparable percentage of their income in taxes, but this kind of chicanery isn't the way to go about getting it done.

[Edited on November 29, 2006 at 8:11 AM. Reason : .]

11/29/2006 8:02:41 AM

Quote :

"he is giving away $40B in order to avoid estate tax"

That doesn't make any sense. If you don't like paying taxes, quit your job.

11/29/2006 8:22:47 AM

2 things...1 - Buffet is waiting till he's dead to give it away so he will already have quit his job.
2 - Buffet pays MOST of his taxes in form of capital gains and dividends taxes, not from his employment income. The fact that those are taxed at 15% is why he pays a lower percentage in taxes. Quitting his job would not stop that.


And estate tax doesn't care if you have a job, BTW

[Edited on November 29, 2006 at 8:28 AM. Reason : .]

11/29/2006 8:27:40 AM

I thought Capital Gains were also counted as income (double taxed)?

11/29/2006 10:20:17 AM

Long-Term Capital Gains (for securities held 1 year and 1 day or more) are taxed at a 15% maximum rate. Lower income earners get taxed at 10% or 5%, but the majority of Americans pay it at 15%.

Short-Term Capital Gains are taxed at ordinary income rates.

They do this to encourage an investment mindset rather than a trading, and also to encourage savings.

It is dividend income that is double taxed. That is because it is taxed as the company earns it as corporate income and then again as personal income later (although as the law stands it is also taxed at 15% under most circumstances). Still double taxed, but taxed less.

11/29/2006 10:39:43 AM

11/29/2006 10:45:47 AM

lol I thought you meant Ben Stein was on welfare x.x

11/29/2006 11:43:44 AM

Quote :

"reeks of "From each according to his ability to each according to his need" which is sickening"

"Here is my principle: Taxes shall be levied according to ability to pay. That is the only American principle." - FDR

And essentially this principle is the idea behind progressive income tax.

11/29/2006 12:05:07 PM

Hey Kris, you know how I feel about FDR don't you?

11/29/2006 12:09:53 PM

Quote :

"Gross interest on Treasury debt is approaching $350 billion a year."

11/29/2006 12:11:08 PM

Quote :

"Hey Kris, you know how I feel about FDR don't you?"

Yeah,

But what about progressive income tax?

11/29/2006 12:14:16 PM

Well, I'm kinda iffy on it. In a perfect world, I think that everyone should be taxed at a flat rate (kinda like Britain) because that way everyone faces the same marginal tax and people aren't discouraged more for being wealthier. On the other hand, I don't have a major problem with upping the tax rate progressive (within very reasonable limits) because I know that the rate would be very high in order for the government to support its ridiculous level of spending.

I guess I'll say, its a necessary evil until we can get the government back into its proper roles and back to a manageable level of spending.

__
And on that quote: Anyone who, when coming up with 1 principle to define America, has anything to say about taxes in the principle, is a scary human being. One of the many reasons FDR was a shitty president (outside his military conduct).

[Edited on November 29, 2006 at 12:47 PM. Reason : .]

11/29/2006 12:46:32 PM

I've never quite understood how a progressive tax is supposed to "discourage people from being wealthier."

"Well if I make more money I'll have to give a higher percentage . . . I mean I'll still have more money than I would otherwise but I just really, really don't like medicare, so I'll stick it to them and keep making less."

11/29/2006 1:12:43 PM

^... on the margin, it holds true.

11/29/2006 1:17:42 PM

Well let's look at it this way.

Two guys are given an opportunity to go above and beyond in their jobs/careers/whatever and make an additional $100. Guy 1 has a marginal tax bracket of 35% whereas guy 2 has a marginal tax bracket of 15%. The opportunity for Guy 1 offers a net gain of $65, while guy 2 has a net gain of $85. Guy 1 has a lower benefit from the opportunity, so if he sees the cost of doing said activity as around $70, he won't do it, although he would if given the same bracket as guy 2.

Similarly, its like me asking you to babysit my kids for $3/hr. You'd probably decline because $3/hr isn't worth your time. It would be like, instead of giving you more money because you feel your time is worth more, I actually give you less because you already have so much.

__

Crede said it much better:

Quote :

"on the margin, it holds true."

[Edited on November 29, 2006 at 1:18 PM. Reason : .]

11/29/2006 1:18:09 PM

Quote :

"reeks of "From each according to his ability to each according to his need" which is sickening"

IT TURNS MY STOMACH!!!

11/29/2006 1:27:32 PM

It should. You know, if you want to give everything you are possibly able to charity, you are free to do it.

11/29/2006 1:31:44 PM

^"If men were angels..."

11/29/2006 1:32:29 PM

Quote :

"I think that everyone should be taxed at a flat rate (kinda like Britain)"

The UK has a progressive income tax system like every other civilized country.

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"Anyone who, when coming up with 1 principle to define America"

I think you misunderstood it. There are many american principles. There are many tax principles, there is however, only one american tax principle. The tax part was implied on the end of the sentence.

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"One of the many reasons FDR was a shitty president"

Well we certainly know you can't try to cite the economy as one of those.

11/29/2006 1:39:46 PM

Quote :

"Although, he is giving away $40B in order to avoid estate tax. Not that I have any problem with it all going to charity, but he probably cares about philanthropy AND taxes when he's thinking of the good he can do."

Actually, he claims that he's against inherited wealth. He made all of his money, feels everyone else should have to do the same.

11/29/2006 1:42:00 PM

Quote :

"Well we certainly know you can't try to cite the economy as one of those."

I can't? The economy hummed along with much mediocrity until WWII. FDR managed to enact Social Security, which is likely to rape the U.S. economy, as well as many other welfare state programs that I see as the root cause of much of our current problems.

Quote :

"The UK has a progressive income tax system like every other civilized country. "

There system is flat compared to ours. They have 3 brackets, with the highest bracket set fairly low. They have a super poor/"starting" bracket that only lasts to ~2100 lbs. Then a bracket until ~33,000 lbs and then the highest bracket.

11/29/2006 2:28:49 PM

Quote :

"I've never quite understood how a progressive tax is supposed to "discourage people from being wealthier.""

Grumpy, it does more than just reduce your incentive to work harder, it also changes what you work hard doing. As marginal tax rates rise an individual will spend less time working to produce for society (which pays less and less) and spend more time working to avoid the tax (which pays more and more). Back when marginal tax rates were high, industrialists which were very good at building factories gave up that behavior, because it faced taxation. Instead, they concentrated on public construction projects (building stadiums) because these were tax exempt. Investors gave up investing in productive companies and bought government bonds which, again, are tax exempt. Finally, some business activities would be shunned because it would be difficult to launder the profits and avoid taxation.

The degree to which taxes are high, shifts the tendency of America's entreprenours away from increasing productivity and towards tax avoidance.

"Meanwhile, at a tax rate of 91% the "rich" were only paying an effective tax rate (the percentage of income actually paid in taxes) of around 10 percent thanks to clever accounting and tax shelters. The reason the top rate was lowered to 70% was because 91% was not collecting any money; and it worked, the effective rate increased to just below 15%."

"As a side note, today the situation is completely reversed: the top marginal tax rate has been reduced to 35% (starting at 70% at the end of the Keynesian Era in 1980) yet the top-income effective tax rate has increased to almost 30%, more than twice the percentage collected in previous eras."
http://www.thewolfweb.com/message_topic.aspx?topic=438347

11/29/2006 3:08:27 PM

Quote :

"I can't? The economy hummed along with much mediocrity until WWII."

FDR's new deal helped us recover from the great depression, although I'm sure there will be debate about this.

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"FDR managed to enact Social Security, which is likely to rape the U.S. economy, as well as many other welfare state programs that I see as the root cause of much of our current problems."

Keynesian economics can explain why these systems can be good for our economy.

Quote :

"There system is flat compared to ours."

How so? They just have fewer brackets. It's still a progressive income tax system.

11/29/2006 4:16:42 PM

Looking at your graph it looks like GDP was lower in 1938 than it was in 1936, a shocking result when you recognize that the economy was coming from a ridiculously low point in 1933. It is easy to get economic growth after a recession and FDR even managed to fowl up any recovery.

If FDR wanted to end the recession he needed to scrap the tax hikes of 1932, scrap the tariff hikes of 1930, cut spending, and make the Federal Reserve halt the collapse of the money supply (reduce short-term rates to 1% as was done in 2001 and have it buy up every treasury bond it could find from anyone willing to sell, be they Member Banks, non-Member Banks, Companies, John Doe from the street, foreigners; hell, buy up state bonds too; this is what we call "running the presses").

He did none of these things. Hell, he did the exact opposite in some circumstances. Income taxes soared from 25% to 70% and then 91%. He even hiked tariffs again, further disrupting activity and worsening rural shortages. His banking holiday followed by the forced closure of banks only reduced the money supply even more as people's savings were locked up. Any greater confidence provided could have less disruptively come from Federal Reserve loans.

11/29/2006 5:49:48 PM

C'mon L-Snark... he did have that great smile and that funny elitist-looking cigarette holder thing.

The problem with progressive tax system is that it hits the younger person who is in his peak-earning years...making the most money. Once you're rich, you're paying capital gains rates which don't change as you make more on your investments.

But the young couple trying to raise kids and pay off a house and cars are paying through the nose. The system puts a major drag on their ability to pull themselves up.

11/29/2006 7:44:16 PM

why cant we just like take everyone who has more than like 10 million dollars and take as much money as it takes to get them all to 10 million dollars cause i mean who cant live on 10 million dollars

11/29/2006 7:57:50 PM

Quote :

"Keynesian economics can explain why these systems can be good for our economy. "

But correct economics won't. Keynes was a great economist, but he was not correct on everything. Please don't try to pass off Social Security as a good economic program rather than a social program. Without continued population increases or progressively higher productivity rises, it is impossible to support such a system.

Also,

Quote :

"How so? They just have fewer brackets. It's still a progressive income tax system."

Let me show you a system with two brackets.
Lowest: $0 -$1 income - Tax rate 5%
Highest: $1 - infinity - Tax rate at 25%

Does that look a little flatter to you?

11/29/2006 8:29:59 PM

Quote :

"Looking at your graph it looks like GDP was lower in 1938 than it was in 1936"

There was a small recession in 1937 which was a latent part of the great depression itself. Come on, you should know that.

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"If FDR wanted to end the recession he needed to scrap the tax hikes of 1932, scrap the tariff hikes of 1930, cut spending, and make the Federal Reserve halt the collapse of the money supply"

The way he handled it worked perfectly. I find it hillarious that people like you want to try to make coup into a disaster. Try as you may, you can't change reality, no matter how much you dislike it.

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"The problem with progressive tax system is that it hits the younger person who is in his peak-earning years"

WRONG.
http://www.nber.org/~taxsim/byage/
unless of course you consider 45-65 'young'.

Do you just make this stuff up? I mean where the hell did you come up with that? No one is in their peak earning years in their 20's and 30's, it takes time to get promoted.

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"Keynes was a great economist, but he was not correct on everything."

His concepts were correct, even Friedman will admit that.

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"Please don't try to pass off Social Security as a good economic program rather than a social program."

I've explained it here before. The idea is to have people pay for their own welfare and unemployment checks they'd get later in life.

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"Let me show you a system with two brackets."

Flatter != flat

11/29/2006 10:07:41 PM

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"unless of course you consider 45-65 'young'."

35-55 That's your peak earning years. And even on your chart, that's when you're hit hardest with income taxes.

11/30/2006 1:27:12 AM

you must not have read it

it's 45-65

11/30/2006 1:41:55 AM

^looks like the earnings are close, but yes, 45-64 are the years w/ the higher taxes there. You are right here.

[Edited on November 30, 2006 at 1:45 AM. Reason : .]

11/30/2006 1:44:59 AM

Quote :

"There was a small recession in 1937 which was a latent part of the great depression itself."

Says who? Come on, this statement is not obviously true, it doesn't even make sense to reason that it is true. The real causes of this recession include retrenchment caused by tax hikes, soaring interest rates due to heavy government borrowing, a currency crises caused by tariff induced trade collapse, and yet another unwise rate hike by the Federal Reserve causing yet another round of monetary decline, all years after FDR supposedly fixed everything.

The fact is, most of what FDR did was just more of the same stuff Hoover did: raise taxes, raise tariffs, increase borrowing, prevent competition, secure high wages and prices, and permit a monetary collapse.

And no, while Milton Friedman appreciated most of Keynes earlier works, he has laid out very clearly the glaring flaws in Keynes General Theory. Not just that he disagrees with the conclusions, but that the mathematical basis is flawed.
http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/spring1997/friedman.pdf

[Edited on November 30, 2006 at 3:36 AM. Reason : .,.]

11/30/2006 3:27:50 AM

Quote :

"The idea is to have people pay for their own welfare and unemployment checks they'd get later in life. "

Right, but instead we got a system whereby we pay for the generations ahead of us' unemployment and welfare. And what do you get in that kind of a system? A system unsustainable without continuous population growth and/or progressively higher productivity growth. Otherwise known as a financial timebomb that very well may drive us into socialism. I guess you don't have a problem with that though, because it'll be natural progress. Then we can all put up big pictures of FDR in every town square and paint the town red.

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"Flatter != flat"

Really? Maybe that's why I said "flat compared to ours." When you get around to learning English at the commune, let me know.

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"His concepts were correct, even Friedman will admit that."

Fucking self-pwnt up in here.

11/30/2006 7:36:38 AM

Quote :

"Grumpy, it does more than just reduce your incentive to work harder, it also changes what you work hard doing. As marginal tax rates rise an individual will spend less time working to produce for society (which pays less and less) and spend more time working to avoid the tax (which pays more and more). Back when marginal tax rates were high, industrialists which were very good at building factories gave up that behavior, because it faced taxation. Instead, they concentrated on public construction projects (building stadiums) because these were tax exempt. Investors gave up investing in productive companies and bought government bonds which, again, are tax exempt. Finally, some business activities would be shunned because it would be difficult to launder the profits and avoid taxation. The degree to which taxes are high, shifts the tendency of America's entreprenours away from increasing productivity and towards tax avoidance. "Meanwhile, at a tax rate of 91% the "rich" were only paying an effective tax rate (the percentage of income actually paid in taxes) of around 10 percent thanks to clever accounting and tax shelters. The reason the top rate was lowered to 70% was because 91% was not collecting any money; and it worked, the effective rate increased to just below 15%." "As a side note, today the situation is completely reversed: the top marginal tax rate has been reduced to 35% (starting at 70% at the end of the Keynesian Era in 1980) yet the top-income effective tax rate has increased to almost 30%, more than twice the percentage collected in previous eras.""

All of what you just said about the lack of investment and the tax avoidance strategies mostly hinges on the fact that there were indeed loopholes in the system where taking Path B (the avoidance path) results in a better bottom line than taking Path A (the non-avoidance path). This isn't pure cause and effect.

You have a much greater grasp of this than I do, so let me pose this question. If all the loopholes are eliminated such that there isn't anything in the system to legally avoid getting taxed higher, what would happen?

11/30/2006 8:01:55 AM

Then, at the margin, people would not partake in activities that are a net gain to society because the taxes reduced their gain to below their opportunity cost.

In english, it means at some point it would be worth $100 to society if Person A took some action. To him, it is worth $90, but if his marginal tax rate is more than 10%, he won't take part in the activity.

11/30/2006 8:40:35 AM

These events aren't mutually exclusive? Why does person A not want the additional $90?

11/30/2006 8:50:22 AM

Maybe I wasn't clear. Person A would partake in the activity so long as he netted $90 or more. With a tax rate greater than 10%, he won't partake in the $100 activity, because it isn't worth his time.

Let me ask you this: Would you watch my car for three hours while I went downtown? What if I paid you $3? Do you not want $3?

Of course you want $3 (its free pie and chips), but your time is more valuable than $1/hr.
There is some point at which you will engage in the activity of watching my car, my guess is somewhere around $10/hr or so, but I don't know you. Well if I was willing to pay you $12/hr and you'd be willing to do it for $10/hr, then we have a net gain here from you watching my car. Unfortunately, Uncle Sam steps in and says he wants 25% of it from you in taxes. Well at the tax rate of 25%, you don't want to watch my car (you'd only net $9/hr, under the $10 you require) and so we don't engage in this beneficial transaction because of your marginal tax bracket.

Now that's a silly example, but you can replace watching my car with working on some productive output.

11/30/2006 9:19:12 AM

Yea, thats all well and good, but assuming there are no legal alternatives to my opportunity cost, at some point I have to eat, and whether I like it or not (that is, whether I like getting taxed through the nose), I'll eventually do the work to eat. And we are talking about taxes here. If the tax rate is the tax rate, then I have to deal with it.

Given everything being equal, that is, no legal way to "scheme" the system, everyone still attempts to make as much money as they can for their time. I mean, we aren't talking about tax rates so exorbitant here that people give up on life (especially those that are already rich and making fat sums of money off of fat sums of money where they don't actually have to do work, they just get rich by having the money already). And quoting a 91% tax rate as some sort of statement that the rate could get to be exorbitant is pretty absurd when in the same sentence it was shown to really be 15%.

11/30/2006 9:49:40 AM

Blind, you're right, people will continue to work so they can eat. But the people we need out there investing their time and effort into starting businesses aren't worried about eating. They're worried about their 5th ferrari. Does that piss off poor people, absolutely, but if through their insatiable greed, they also create thousands of jobs for others, then it is still a net gain to society.

With a progressive system, the wealthier you get (and this, the more likely you are to be able to create jobs for others) the less reward you receive for each dollars worth of your work. Eventually you decide that 4 ferraris are plenty and you don't need the extra yacht and you just decide to relax. That's a net loss to society.

11/30/2006 10:01:30 AM

Quote :

"The real causes of this recession include retrenchment caused by tax hikes, soaring interest rates due to heavy government borrowing, a currency crises caused by tariff induced trade collapse, and yet another unwise rate hike by the Federal Reserve causing yet another round of monetary decline, all years after FDR supposedly fixed everything."

Or so says are lord and savior Milton Friedman. Don't act as this is actually the truth. But the point is there was a recession at that point, and I think anyone looking at that graph would have been expected to know that.

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"The fact is, most of what FDR did was just more of the same stuff Hoover did: raise taxes, raise tariffs, increase borrowing, prevent competition, secure high wages and prices, and permit a monetary collapse."

First off, FDR allowed inflation to happen. Secondly, FDR took measures agianst unemployement. Third, raising taxes on the wealthy is a very neccesary step to battling a depression. Taxing the wealthy encourages consumption, which helps to fuel our economy. He wasn't in power in 1930, he had nothing to do with the money supply problem, he did address what needed to be which was raising taxes and government spending to increase aggregate demand to battle unemployment.

The recession in 1937 was a latent effect of the great depression which was due to the market power given to both corporations and labor unions causing them to go head-to-head.

Quote :

"Not just that he disagrees with the conclusions, but that the mathematical basis is flawed."

Quote :

"Not just that he disagrees with the conclusions, but that the mathematical basis is flawed."

Where? I didn't see anywhere where friedman said anything to the effect of the basis is flawed, merely that Keynes' General Theory is too simple. Did you read this article?

Friedman disagrees with Keynes' details, not his concepts.

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"Right, but instead we got a system whereby we pay for the generations ahead of us' unemployment and welfare."

That's the method of implementation for the solution, not the solution itself, which I described.

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"A system unsustainable without continuous population growth and/or progressively higher productivity growth."

That's not neccesarily true. You assume that the system can't adjust for population growth or productivity growth, which isn't neccesarily true. There's nothing that says SS must be fixed at some level.

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"that very well may drive us into socialism"

That's a slippery slope.

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"Really? Maybe that's why I said "flat compared to ours." When you get around to learning English at the commune, let me know."

Intially you stated they had a "flat" system, not a "flatter" or "flat compared to ours" system.

Quote :

"Then, at the margin, people would not partake in activities that are a net gain to society because the taxes reduced their gain to below their opportunity cost."

That's not neccesarily true. At the margin they will not partake in activities which of would be a net gain to themselves without taxes. This does not neccesitate a missed pareto improvement.
The tax money that falls within that margin could very well account for the disparity.

11/30/2006 10:03:57 AM

In the liberal world, jobs just appear out of nowhere and money simply falls randomly from the sky onto the lucky ones. Hard work, sacrifice, intelligence, risk-taking are just tools of the evil rich.

11/30/2006 10:09:18 AM

well keynes and marx must have really drawn out their explainations of how jobs fall out of the sky to get such long books

11/30/2006 10:11:04 AM

Quote :

"That's not neccesarily true. At the margin they will not partake in activities which of would be a net gain to themselves without taxes."

Sure, we can come up with examples where it isn't a net gain to society, but the fact that the opportunity exists damn near necessitates it's gainfulness.

Quote :

"That's a slippery slope."

Sure, but its a slope we're standing on. How are we going to fix Social Security. If you take privatization off the table you get the answer "Tax more and cut benefits." That is a temporary solution that will come back again in a few generations. Then, you end up with such chokingly high taxes you're in defacto socialism whether or not the party has been declared the majority.

[Edited on November 30, 2006 at 10:51 AM. Reason : .]

11/30/2006 10:49:29 AM

Quote :

"First off, FDR allowed inflation to happen."

No he didn't, the inflation rate between 1936 and 1938 was decidedly negative. Specifically, monetary deflation continued unchallenged.

Quote :

"Secondly, FDR took measures agianst unemployement."

No he didn't, he took measures against falling wages which, basic supply and demand, produces higher unemployment. Not to mention the various government programs designed to stiffle production, everything from paying farmers to stop growing crops to his NRA designed to prevent business competition to his labor regulations to encourage unionization and prevent falling wages. All while a monetary collapse continues: there was not enough cash in the economy to justify high wages and high prices, so all his behavior did was prevent retrenchment and prolong the depression.

Quote :

"Third, raising taxes on the wealthy is a very neccesary step to battling a depression. Taxing the wealthy encourages consumption, which helps to fuel our economy."

This can be considered a tool to battle a transitory monetary reduction (there is plenty of money but people are not spending it), but that was not the case after banks started failing. There was not enough money in circulation so retrenchment was necessary, government spending cannot bridge this gap. What heavy taxation (91%) will do is prevent corrective investments from being made, dramatically slowing recovery and explains the widespread shortages of many goods in the economy.

Quote :

"Where? I didn't see anywhere where friedman said anything to the effect of the basis is flawed, merely that Keynes' General Theory is too simple. Did you read this article?"

Yes I did, Keynes believed he had discovered a classical equillibrium during which employment and production were low, this was not the case, however, as prices and wages would continue to fall at this equillibrium, thus it was not an equillbrium but just another point on the path back to full employment.

11/30/2006 10:53:49 AM

Quote :

"No he didn't, the inflation rate between 1936 and 1938 was decidedly negative."

wrong
http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=5

Quote :

"basic supply and demand, produces higher unemployment"

I've explained before why this logic is not neccesarily correct, it assumes perfect competition, which rarely happens due to the monopsonistic nature of the labor market.

Quote :

"This can be considered a tool to battle a transitory monetary reduction (there is plenty of money but people are not spending it), but that was not the case after banks started failing."

That is the case with any depression. Market supply and demand are lower than aggregate, thus the government must subsidize the poor by taxing the rich in order to take advantage of the differences in the marginal propensity to consume, thereby feeding consumption and fueling the economy.

Quote :

"Keynes believed he had discovered a classical equillibrium during which employment and production were low, this was not the case, however, as prices and wages would continue to fall at this equillibrium, thus it was not an equillbrium but just another point on the path back to full employment"

This was friedman talking about dead-ends keynes ran into in developing his concepts, I guess you didn't read the article, just like I thought.

11/30/2006 11:28:40 AM