Medicaid Stimulates Economy More than Tax Cuts

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sardia
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Medicaid Stimulates Economy More than Tax Cuts

Postby sardia » Wed Jan 14, 2015 5:41 am UTC

http://www.nytimes.com/2015/01/14/busin ... f=business
Spoiler:
Republicans’ underlying assumption is that tax cuts amount to a tonic for economic growth, encouraging investment and toil. Many analyses by the budget office, they argue, misjudge the effect of tax cuts on the budget by underestimating their role as economic stimulus. They are not entirely wrong. Most economists agree that cutting taxes is likely to deliver some increase to growth. But it is substantially weaker than what Republicans often claim.

At the same time, the implicit proposition underlying the Republican case is that public spending amounts at best to money down the drain and, more often, to an albatross around the economy’s neck, discouraging work among beneficiaries of government largess. The evidence for that is even weaker. Under such assumptions, the return to Vermont’s additional Medicaid spending would shrivel to nothing. That is, pretty much, how the budget office scores Medicaid spending today. That truly misjudges the role of government in the long-term health of the American economy. “Of course there are positive returns to spending on health, education, nutrition,” said William Gale, a tax expert at the Brookings Institution. “They are saving a lot of money and generating revenues. The macro effects are big relative to the expenditures.”

We always hear about the laffer curve or supply side economic principles that tax cuts solve everything. It should be noted that not all general welfare spending is a waste. Or that type of spending is a waste at all. If the CBO is going to account for the multiplier effect of tax cuts, it should also account for the multiplier affect of welfare spending.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Wed Jan 14, 2015 9:53 am UTC

I'm not sure I disagree with this one (because to an extent its logicalish), but the overview narrative that more medicare = more tax does just seem to be describing that Vermont just has better jobs for poor people, which I don't find suprising at all. Naturally that could just be lazy reporting :)

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Tyndmyr » Wed Jan 14, 2015 9:07 pm UTC

sardia wrote:We always hear about the laffer curve or supply side economic principles that tax cuts solve everything. It should be noted that not all general welfare spending is a waste. Or that type of spending is a waste at all. If the CBO is going to account for the multiplier effect of tax cuts, it should also account for the multiplier affect of welfare spending.


If by "always hear about" you mean as a strawman by people who are proponents of increased spending, then yes. Not a lot of talk about how much folks like the laffer curve and how it'll solve all ills. And hasn't been for decades.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby sardia » Wed Jan 14, 2015 11:52 pm UTC

Tyndmyr wrote:
sardia wrote:We always hear about the laffer curve or supply side economic principles that tax cuts solve everything. It should be noted that not all general welfare spending is a waste. Or that type of spending is a waste at all. If the CBO is going to account for the multiplier effect of tax cuts, it should also account for the multiplier affect of welfare spending.


If by "always hear about" you mean as a strawman by people who are proponents of increased spending, then yes. Not a lot of talk about how much folks like the laffer curve and how it'll solve all ills. And hasn't been for decades.

A rose by any other name is still a rose. GOP (and Democratic ) domestic ideas haven't really changed in decades. It's just gotten gayer and people take weed more often.
http://www.nytimes.com/2015/01/07/busin ... .html?_r=0
Dynamic scoring, a rules change "ardently sought since the 1990s by Republicans — could ease passage of major tax cuts by showing that their impact on economic growth would substantially reduce their cost to the Treasury. " Circa Jan 2015 This is the GOP implementing the Laffer curve principles into the Congressional Budget Office.

Laffer curve- increasing tax rates beyond a certain point will be counter-productive for raising further tax revenue.
If you believe that, then it also means that cutting taxes could potentially raise revenue or be revenue neutral.
http://www.newrepublic.com/article/1195 ... form-plans
Paul Ryan built his November 2012 budget for Romney on the idea of tax cuts and loophole closures can balance the budget because it accounts for bonus revenue that cutting taxes gives the government.

http://money.cnn.com/2015/01/11/pf/taxe ... -tax-cuts/
Kansas's tax cuts blew a hole in the budget because the anticpated revenue bonus from the Laffer curve didn't come about. This was signed into law in May of 2012.

Looks like the principles behind it haven't died. Perhaps you are referring to the new legislative action against the ACA, immigration, and Cuba?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Thu Jan 15, 2015 12:17 pm UTC

the laffer curve is trivially true, everything here is its legitimacy in political decisions based on its actual turning point. I think we all know that the Kansas politiicans didn't cut taxes expecting to get more tax, they did it to get votes

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby sardia » Thu Jan 15, 2015 1:25 pm UTC

That's fair. Would it be more questionable to consider general welfare spending as investment? I find that helping the needy is worth it without considering the monetary returns, so long as its efficient. But for a conservative, would you let a child go blind to save a buck or because 'big government'?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Thu Jan 15, 2015 2:48 pm UTC

Now thats a suite of questions that would take a 5 hour drunken pub debate !

The first question is "Where do you define the boundaries?" - Personally I know I let kids go blind and drink poison everyday (as do we all), but at the same time I'd be uncomfortable with it happening in front of me. So for the same of discussion I'll agree that there is a level of geographic proximate social environment discussion (note I'm far more resistant to this on the scale of "England" and more accepting on the scale of "Lancashire"). So on the basis that such a bounded entity can be treated as a single enconomy we can move to the next question.

So "Can general welfare spending (i.e. forced redistributed services spending) be a net positive" - is I think the hardest question in politics, because the answer is mostly certainly yes in some cases and most certainly no in others - most are a very murky though. Take your immediate question - if by funding the saving of the boys sight he goes on to be a productive net producer and the cushion of such spending has a positive effect on rest of society then the answer is likely yes. However if he becomes stupid and lazy and becomes a fully sighted dolelite shacked up in public housing with a mother of 3, one of which may be his - then the answer is likely no (as mean as that sounds).

"Conservatives" I think come generally from two positions - the first is that the boy is generally not my problem (an more extreme version of the first discussion) & that whilst being immediately charitiable now is obviously of benefit to the recipient, it comes both with a huge potential draining effect on the economy (the save one now vs 10 later discussion ) and the moral hazard problem (essentially if you subsidise bad outcomes you get more bad outcomes - sounds wierd in terms of a blind boy, but even that doesn't arrise in a vacuum).

Given the current baseline of only 20% of people being net tax minus benefits contributors, I'm pretty sure we are massively into the latter camp generally - i.e. more government welfare has minimal immediate difference and sponsors worse longer term outcomes. See the probable outcomes of all the western state pension schemes in 40 years for details. On an individual issue e.g. local sewerage protection vs flooding then yes naturally I can agree the spending case subject to the first question :)

Of course if said blind kid is called Steve and is thrown in front of a candidate during a press conference during election season, having such a dispassionate discussion is a lot harder.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Chen » Thu Jan 15, 2015 3:01 pm UTC

leady wrote:Given the current baseline of only 20% of people being net tax minus benefits contributors


Do you have any source for this?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Thu Jan 15, 2015 3:55 pm UTC

Chen wrote:
leady wrote:Given the current baseline of only 20% of people being net tax minus benefits contributors


Do you have any source for this?

Does seem very dubious as how it could be demonstrated. Let's take a super simple example.

There's a guy that earns $100/hr for the economy; Obviously he's a net contributor.

He likes his lawn kept neat and tidy, and pays a gardener $10/hr to make it so; This gardener is presumably not a net contributor according to this 20/80 'rule'.

And yet the guy really likes his lawn neat and tidy - to the extent that he'd do it himself if he couldn't find someone else to do it; He'd be willing to pay much more to have it done - all the way up to $100/hr if necessary - but of course he only needs to offer minimum wage to find a willing worker.

So what is the gardener's 'true' worth to the economy? Is it the mere $10/hr he's getting paid? How much should he be credited for freeing up his boss's time which contributes $100/hr?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Thu Jan 15, 2015 4:04 pm UTC

His true value is $10 per hour :)

The 80-20 thing is for tax - benefits, which is measureable as opposed to the economic impact in its entirety which is far less so. If govenment spending were 10% of GDP such a balance isn't a problem, at 50 - 60% of GDP its a concerning (and well known in the right circles) issue.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Tyndmyr » Thu Jan 15, 2015 4:11 pm UTC

leady wrote:the laffer curve is trivially true, everything here is its legitimacy in political decisions based on its actual turning point. I think we all know that the Kansas politiicans didn't cut taxes expecting to get more tax, they did it to get votes


Precisely. When people decry it, they mean a particular Reagan-era economic idea based on it.

sardia wrote:That's fair. Would it be more questionable to consider general welfare spending as investment? I find that helping the needy is worth it without considering the monetary returns, so long as its efficient. But for a conservative, would you let a child go blind to save a buck or because 'big government'?


I'm fine with evaluating it as an investment. Of course, this would require considering the monetary returns. I'd also expect that different forms of welfare might result in very different returns, so it wouldn't boil down to something as trivial as "welfare good" or "welfare bad".

I also have my doubts as to the motivations and objectivity of a great deal of research in this area. Factionalism affects social research pretty heavily on some divisive topics.

elasto wrote:So what is the gardener's 'true' worth to the economy? Is it the mere $10/hr he's getting paid? How much should he be credited for freeing up his boss's time which contributes $100/hr?


$10/hr. Because that's the worth that the free market put on his time. Just because a bosses work time is worth $100/hr doesn't mean his free time is. The boss isn't normally going to work less because he mows his own yard. Most jobs are simply not that flexible. He has less time to watch the ball game or whatever instead. This also gives you a proximate value for how highly he values his entertainment time.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Chen » Thu Jan 15, 2015 4:19 pm UTC

leady wrote:His true value is $10 per hour :)

The 80-20 thing is for tax - benefits, which is measureable as opposed to the economic impact in its entirety which is far less so. If govenment spending were 10% of GDP such a balance isn't a problem, at 50 - 60% of GDP its a concerning (and well known in the right circles) issue.


And your source? Anything I've seen pegs it at closer to 40-60 for the UK and even some of those numbers are questionable considering what they include.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Thu Jan 15, 2015 4:24 pm UTC

The bbc had the chart 3 years ago (everytime I look for it, it take ages) and yes you can argue about the allocations. The 7th decile is the break even point - only the last two deciles generate any significant positive uptick

and to make it really scary look at the birthrates in those income deciles you can see the future unravel one generation at a time (fortunately I'll be dead by then :) )

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Thu Jan 15, 2015 4:33 pm UTC

leady wrote:His true value is $10 per hour


Only for a very naive definition of 'true' :p

Economic impact is obviously what really counts; Using an invalid measure simply because the correct measure is harder to make doesn't magically give the invalid measure validity.

---

Surely whether your country is a net importer or exporter matters far more than what proportion of GDP government spending represents anyhow.

Let's assume one country is so amazing that all citizens only ever buy locally: Even if the government gives its entire tax take straight to the poor as cash, because they buy locally all that money trickles back up to the 'contributors' who then give the excess (profits minus investments) back to the government.

Let's assume another country is so terrible that its citizens only ever buy from abroad: Now there's a severe likelihood that money given to the poor will exit the local economy via being spent on consumables and no longer returning to government coffers.

(Good is still done either way though: Just because the importing country is haemorrhaging money, that money doesn't disappear; It does good in the exporting country - improving the quality of life of someone. Humanity still benefits as a whole.)

---

Tyndmyr wrote:$10/hr. Because that's the worth that the free market put on his time. Just because a bosses work time is worth $100/hr doesn't mean his free time is. The boss isn't normally going to work less because he mows his own yard. Most jobs are simply not that flexible. He has less time to watch the ball game or whatever instead. This also gives you a proximate value for how highly he values his entertainment time.


I was trying to keep the example simple. If you prefer I can include the driver who drives him to work so he arrives fresh instead of tired; the secretary who opens his mail and answers his calls saving him hours a day; the restaurant who cooks his food so he doesn't have to spend hours cooking and shopping; the teacher who teaches his child so he doesn't have to spend half his waking day doing that and so on.

If he's contributing $100/hr in work, and he'd have no time to work if none of those other people existed, then even if a surplus of labor means they will all work for $10/hr (or $1/hr or 10c/hr...) it makes no difference: They enable him to contribute $100/hr so their true value to the economy needs to reflect that.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Tyndmyr » Thu Jan 15, 2015 4:46 pm UTC

elasto wrote:
leady wrote:His true value is $10 per hour


Only for a very naive definition of 'true' :p

Economic impact is obviously what really counts; Using an invalid measure simply because the correct measure is harder to make doesn't magically give the invalid measure validity.


Well, we don't have an A/B version of the world to measure, so ANY estimate is going to have a certain degree of inaccuracy. Would the guy have still hired him for $10.01? How about $10.02? At some point, we have to make estimates. Estimation calculations that involve less guessing and more precise measurement are going to be more accurate.

Surely whether your country is a net importer or exporter matters far more than what proportion of GDP government spending represents anyhow.


That really depends on what you're talking about. "matters more" is...really broad.

Let's assume one country is so amazing that all citizens only ever buy locally: Even if the government gives its entire tax take straight to the poor as cash, because they buy locally all that money trickles back up to the 'contributors' who then give the excess (profits minus investments) back to the government.

Let's assume another country is so terrible that its citizens only ever buy from abroad: Now there's a severe likelihood that money given to the poor will exit the local economy via being spent on consumables and no longer returning to government coffers.

(Good is still done either way though: Just because the importing country is haemorrhaging money, that money doesn't disappear; It does good in the exporting country - improving the quality of life of someone. Humanity still benefits as a whole.)


Ah, you'll want to go read up on Mercantilism. That's long dead. Long story short, isolationism as an economic strategy doesn't work well, trade is fantastic.

There's more to trade than just that, and net import/export have more precise meanings, but lots of money going overseas does not mean your economy must be in trouble. This is why those panicking over China are often overrepresenting their case.

Tyndmyr wrote:$10/hr. Because that's the worth that the free market put on his time. Just because a bosses work time is worth $100/hr doesn't mean his free time is. The boss isn't normally going to work less because he mows his own yard. Most jobs are simply not that flexible. He has less time to watch the ball game or whatever instead. This also gives you a proximate value for how highly he values his entertainment time.


I was trying to keep the example simple. If you prefer I can include the driver who drives him to work so he arrives fresh instead of tired; the secretary who opens his mail and answers his calls saving him hours a day; the restaurant who cooks his food so he doesn't have to spend hours cooking and shopping for food; the teacher who teaches his child so he doesn't have to spend half his waking day doing that and so on.

If he's contributing $100/hr in work, and he'd have no time to work if none of those other people existed, then even if a surplus of labor means they will all work for $10/hr (or $1/hr or 10c/hr...) it makes no difference: They enable him to contribute $100/hr so their true value to the economy needs to reflect that.


Yeah, we have a way of valuing contributions. It's called salary. It isn't perfect, some are paid too much, some too little, but it's the best indicator we have. Their "true" value must inherently include surplus supply. You cannot divorce supply and demand from value and still be doing economics.

Yes, you can SAY that dirt has a true value far more than gold, because you can't grow food in gold, but that doesn't make it so.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Thu Jan 15, 2015 5:09 pm UTC

Tyndmyr wrote:Ah, you'll want to go read up on Mercantilism. That's long dead. Long story short, isolationism as an economic strategy doesn't work well, trade is fantastic.

Hey, you don't have to tell me. I'm an Englishman who's lived in China for the past five years.

Still, a big part of why isolationism doesn't work is because it will quickly be reciprocated: If you slap tariffs on our exports we'll do the same to yours.

If, like with China though, the isolationism is one way (the West buys tons from China but China puts all sorts of bureaucratic barriers in the other direction) then isolationism is Ka-CHING!.

All that is a bit OT though.

Yeah, we have a way of valuing contributions. It's called salary. It isn't perfect, some are paid too much, some too little, but it's the best indicator we have. Their "true" value must inherently include surplus supply. You cannot divorce supply and demand from value and still be doing economics.


Let's take another example to illustrate maybe, since I'm not sure how successful my first one was.

Let's assume there is a skilled job of a widget-assembler. There are only 10 widget-assemblers in the country - and because of their rarity they can command $100/hr which is close to the 'true value' of an assembled widget, which we'll put at $110.

Now let's say a boatload of 100 widget-assemblers arrives. The free market prevails, they undercut each other mercilessly and end up getting paid $10/hr.

An assembled widget's 'true value' doesn't magically drop - only the naive estimate of it. If it's true value was $110 before, it's still $110 now. The excess value not paid to the widget assemblers that went from $10 to $100 might go into the widget plant owner's pocket - but more likely the sale price of a widget will drop - meaning the customer is getting $110 of value for, say, only $20.

Bottom line: The true value of the widget cannot change simply based on how many widget assemblers there are. The only thing that can change is the estimate that naive and simplistic economics would place on the widget.

And that means that cold economics should not be the only consideration when it comes to matters of public policy. Because the market can and does get things horribly wrong: valuing footballers much higher than teachers and so on.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Thu Jan 15, 2015 6:03 pm UTC

There is no such thing as "true value"

Footballers are worth more than teachers on an individual basis - they have scarce abilities. You may consider them pointless abilities but a great deal of folks are willing to freely spend a good sum of their money on it (including myself indirectly through tv sports)

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Tyndmyr » Thu Jan 15, 2015 7:00 pm UTC

elasto wrote:
Tyndmyr wrote:Ah, you'll want to go read up on Mercantilism. That's long dead. Long story short, isolationism as an economic strategy doesn't work well, trade is fantastic.

Hey, you don't have to tell me. I'm an Englishman who's lived in China for the past five years.

Still, a big part of why isolationism doesn't work is because it will quickly be reciprocated: If you slap tariffs on our exports we'll do the same to yours.

If, like with China though, the isolationism is one way (the West buys tons from China but China puts all sorts of bureaucratic barriers in the other direction) then isolationism is Ka-CHING!.

All that is a bit OT though.

Yeah, we have a way of valuing contributions. It's called salary. It isn't perfect, some are paid too much, some too little, but it's the best indicator we have. Their "true" value must inherently include surplus supply. You cannot divorce supply and demand from value and still be doing economics.


Let's take another example to illustrate maybe, since I'm not sure how successful my first one was.

Let's assume there is a skilled job of a widget-assembler. There are only 10 widget-assemblers in the country - and because of their rarity they can command $100/hr which is close to the 'true value' of an assembled widget, which we'll put at $110.

Now let's say a boatload of 100 widget-assemblers arrives. The free market prevails, they undercut each other mercilessly and end up getting paid $10/hr.

An assembled widget's 'true value' doesn't magically drop - only the naive estimate of it. If it's true value was $110 before, it's still $110 now. The excess value not paid to the widget assemblers that went from $10 to $100 might go into the widget plant owner's pocket - but more likely the sale price of a widget will drop - meaning the customer is getting $110 of value for, say, only $20.

Bottom line: The true value of the widget cannot change simply based on how many widget assemblers there are. The only thing that can change is the estimate that naive and simplistic economics would place on the widget.

And that means that cold economics should not be the only consideration when it comes to matters of public policy. Because the market can and does get things horribly wrong: valuing footballers much higher than teachers and so on.


That isn't "wrong". Economics is like math(largely because it IS math). 2 + 2 = 4 is only right in the sense that it follows the rules of math and is consistent. And this makes it a very useful tool.

You are assuming that things have some innate value divorced from supply and demand. This is simply not the case. ALL things are valued relative to other things, and thus relative scarcity always matters.

Labor theory of value is also pretty dead.

leady wrote:There is no such thing as "true value"

Footballers are worth more than teachers on an individual basis - they have scarce abilities. You may consider them pointless abilities but a great deal of folks are willing to freely spend a good sum of their money on it (including myself indirectly through tv sports)


Attempts at "true value" are just "I think people should value things the way I do". Sure, football has no value to me, but lots of other folks definitely value it.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Thu Jan 15, 2015 8:28 pm UTC

Assume teacher can educate 20 brats. Assume one footballer can entertain 20,000 hooligans. So if the footballer is paid 500 times as much as the teacher, we value teaching at twice as much as entertainment.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby morriswalters » Thu Jan 15, 2015 8:42 pm UTC

leady wrote:There is no such thing as "true value"

Footballers are worth more than teachers on an individual basis - they have scarce abilities. You may consider them pointless abilities but a great deal of folks are willing to freely spend a good sum of their money on it (including myself indirectly through tv sports)

True enough. However if their were no teachers and no athletes, Who would be missed most in their absence?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Thu Jan 15, 2015 8:50 pm UTC

You are confusing marginal utility vs total utility. Diamonds in the desert paradox; when you have no water, it's more valuable than diamonds, but in normal circumstances no one will trade a diamond for a glass of water.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Fri Jan 16, 2015 2:06 am UTC

Diamonds are another great example of how the free market fails to find the true value of things.

By any rational metric you care to mention, synthetic diamonds are superior to natural ones - whether it's cost to produce, lack of imperfections and so on. Yet the irrational metric prevails.

Yes the true value of anything (ie. its utility) is impossible to gauge precisely, and the free market can often make a good approximation to it. But the free market can easily go awry as with diamonds: If a society under-invests in its population's education and health - instead investing in vapid entertainment that is as economically productive as breaking windows and then fixing them - then it will find itself falling behind other countries that make more economically rational choices.

CorruptUser wrote:Assume teacher can educate 20 brats. Assume one footballer can entertain 20,000 hooligans. So if the footballer is paid 500 times as much as the teacher, we value teaching at twice as much as entertainment.

You're assuming being entertained has the same long-term economic benefit to a country as having education (or being healthy). That's the kind of short-term thinking that the free market engages in - and why free market valuations should not be the only metric by which a country makes long-term (ie. generational) policy decisions.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Fri Jan 16, 2015 5:16 am UTC

elasto wrote:
CorruptUser wrote:Assume teacher can educate 20 brats. Assume one footballer can entertain 20,000 hooligans. So if the footballer is paid 500 times as much as the teacher, we value teaching at twice as much as entertainment.

You're assuming being entertained has the same long-term economic benefit to a country as having education (or being healthy). That's the kind of short-term thinking that the free market engages in - and why free market valuations should not be the only metric by which a country makes long-term (ie. generational) policy decisions.


If you think that politicians are any better at doing present value calculations than the free market, I have a bridge to sell you...

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby jseah » Fri Jan 16, 2015 5:37 am UTC

elasto wrote:You're assuming being entertained has the same long-term economic benefit to a country as having education (or being healthy). That's the kind of short-term thinking that the free market engages in - and why free market valuations should not be the only metric by which a country makes long-term (ie. generational) policy decisions.

You mean "that's the kind of short term thinking that people engage in".

Health care and education are those classic economic examples of public goods that an unregulated free market undersupplies (relative to net utility) due to positive externalities.


If you're talking of actual short term thinking, then what you are doing is questioning the discount rate of the market participants. Eg. Whether exploiting the difference in discount rates of different groups of people for profit (bankers borrowing from rich people and lending at higher rates to poor people) is a thing you're going to accept is less an economics question than a policy / moral one.
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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Chen » Fri Jan 16, 2015 1:04 pm UTC

elasto wrote:Diamonds are another great example of how the free market fails to find the true value of things.

By any rational metric you care to mention, synthetic diamonds are superior to natural ones - whether it's cost to produce, lack of imperfections and so on. Yet the irrational metric prevails.


Diamonds are more of a status symbol than anything. They are intentionally scarce and cost a lot of money as a result. Consequently having a big diamond makes you look like more of a big shot. That's the value you're paying for. I mean from a purely rational point of view synthetic diamonds are irrational as jewelry too. I can make glass that is probably thousands of times cheaper and still looks decent for jewelry if the look is all you're going for.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Fri Jan 16, 2015 1:28 pm UTC

It's called Conspicuous Consumption, and it has an evolutionary explanation; creatures like peacocks intentionally waste resources and cripple themselves to show off to peahens just how great they are gathering resources.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Tyndmyr » Fri Jan 16, 2015 3:06 pm UTC

elasto wrote:Diamonds are another great example of how the free market fails to find the true value of things.

By any rational metric you care to mention, synthetic diamonds are superior to natural ones - whether it's cost to produce, lack of imperfections and so on. Yet the irrational metric prevails.


I assure you, having purchased them, even synthetic diamonds are more expensive than water.

But I ask, by what rationale do you determine "true" value? Why is displaying status NOT a valid use?

Yes the true value of anything (ie. its utility) is impossible to gauge precisely, and the free market can often make a good approximation to it. But the free market can easily go awry as with diamonds: If a society under-invests in its population's education and health - instead investing in vapid entertainment that is as economically productive as breaking windows and then fixing them - then it will find itself falling behind other countries that make more economically rational choices.


Does entertainment really have no value? Do you really think it is likely or possible that a country could ban entertainment entirely, and become better as a result?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby sardia » Sat Jan 17, 2015 4:16 pm UTC

Tyndmyr wrote:
sardia wrote:That's fair. Would it be more questionable to consider general welfare spending as investment? I find that helping the needy is worth it without considering the monetary returns, so long as its efficient. But for a conservative, would you let a child go blind to save a buck or because 'big government'?


I'm fine with evaluating it as an investment. Of course, this would require considering the monetary returns. I'd also expect that different forms of welfare might result in very different returns, so it wouldn't boil down to something as trivial as "welfare good" or "welfare bad".

I also have my doubts as to the motivations and objectivity of a great deal of research in this area. Factionalism affects social research pretty heavily on some divisive topics.

.

Theoretically, I'm really for efficient, investment based ideas towards general welfare spending, but it leads to uncomfortable conclusions. Emergency care is incredibly expensive and wasteful, does that mean we should show them the door? I think this kind of analysis works best under a "A vs B" scenario where limited dollars are spent the best way they can, and not as an excuse to cut funding period.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Sat Jan 17, 2015 4:39 pm UTC

Tyndmyr wrote:I assure you, having purchased them, even synthetic diamonds are more expensive than water.

But cheaper than real ones - hence my point.

But I ask, by what rationale do you determine "true" value? Why is displaying status NOT a valid use?

It's a valid use but not the one with the greatest economic utility, making it irrational. (Note that the irrational action can none-the-less sometimes (often?) be the correct one to take - simply because others also act irrationally - sort of making it rational again on a meta-level.)

Does entertainment really have no value? Do you really think it is likely or possible that a country could ban entertainment entirely, and become better as a result?

Who's talking about banning anything? And who's talking about something having no value? I am talking about comparative value; I'm talking about what will have the greater impact on a country's (and indeed the world's) future GDP: Investing $x in footballers or the same amount in science and technology education. Investing in football can certainly bring in income - perhaps sometimes even a net positive return - but that's about as far as it goes.

sardia wrote:Emergency care is incredibly expensive and wasteful, does that mean we should show them the door?

I'm not actually sure how true that is.

If a country has spent a couple of decades educating a citizen to university+ level, and they have four or so decades of highly productive years ahead of them, should we not treat them for a broken leg (causing them to die of sepsis) because it'd have a cost on this year's medical budget?

I think there's a serious debate to be had on non-emergency end-of-life care though: If there's a drug that could give a terminal patient a few extra months of life but it costs hundreds of thousands of dollars, is that a good use of scarce resources?

There's some real gray areas out there but I don't think emergency care is one of them. (Assuming the emergency care is properly priced of course: The American implementation of emergency care is horrendously expensive and wasteful but most countries don't get it as badly wrong as they do...)

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Ormurinn » Sun Jan 18, 2015 3:50 pm UTC

On the topic of the laffer curve, at least in the U.K we have empirical evidence of it.

Before the last general election the Labour Party forced through a rise in the top rate of income tax to 50% (paid by those earning £50,000 or more - essentially well-paid professionals and up) as a poison pill - they knew the Tories would want to repeal it and they knew they could make political hay out of them doing so. Tax receipts dropped.

Sure enough, the Tories win the election and return the top tax band to its previous value of 45%. And the tax take went up.

So we can say empirically that in the U.K's current tax regime, the laffer curve optimum for income tax is somewhere between 45 and 50%.
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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Mokele » Sun Jan 18, 2015 4:17 pm UTC

Ormurinn wrote:So we can say empirically that in the U.K's current tax regime, the laffer curve optimum for income tax is somewhere between 45 and 50%.


Actually, it only shows that the peak of the curve is less than 50%.

For any tax reduction from A to B, you will get an increase in tax revenue if A and B are both greater than the peak, a decrease if both are less than the peak, and you could get a decrease or increase if A is greater and B is lesser, depending on which it's closer to and how symmetrical the curve is.
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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Sun Jan 18, 2015 4:28 pm UTC

All taxes create a deadweight loss. All.
All spending stimulates the economy. All.

The issue is determining whether the spending and the tax used to support said spending are combined a net positive or negative for the country. Public education, the FDA, police force, generally good. Things like National Center for Complementary Alternative Medicine? Absolute waste.

Oddly, I opposed the second and third stimulus packages for exactly the same reasons we learned in Econ why Reagan's tax cuts did not work (in spite of what people will have you believe about Saint Ronald); tax cuts that are expected to be financed by future tax increases do absolutely nothing to stimulate the economy; people/firms save for the future tax increase so the result is nothing. Less than nothing if the future tax increase is higher than the interest rate. Stimulus bills are pretty much the same as a tax cut, only it's given to whom the government likes rather than whoever earned it, but the results are the same. Oh, they can be useful for preventing the collapse of specific industries, sort of like a mandatory reinsurance policy for the entire country, but not for stimulating the economy through spending alone.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby sardia » Mon Jan 19, 2015 12:31 am UTC

CorruptUser wrote:All taxes create a deadweight loss. All.
All spending stimulates the economy. All.

The issue is determining whether the spending and the tax used to support said spending are combined a net positive or negative for the country. Public education, the FDA, police force, generally good. Things like National Center for Complementary Alternative Medicine? Absolute waste.

Oddly, I opposed the second and third stimulus packages for exactly the same reasons we learned in Econ why Reagan's tax cuts did not work (in spite of what people will have you believe about Saint Ronald); tax cuts that are expected to be financed by future tax increases do absolutely nothing to stimulate the economy; people/firms save for the future tax increase so the result is nothing. Less than nothing if the future tax increase is higher than the interest rate. Stimulus bills are pretty much the same as a tax cut, only it's given to whom the government likes rather than whoever earned it, but the results are the same. Oh, they can be useful for preventing the collapse of specific industries, sort of like a mandatory reinsurance policy for the entire country, but not for stimulating the economy through spending alone.

Show me that data that proves money to poor people is saved in anticipation of future tax increases. Then show me how the same perfectly rational people won't buy lottery tickets... oh wait. There's a chance you're right, but I've seen too many market assumptions that people are rational which inevitably turn out to be not quite true.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Mon Jan 19, 2015 3:15 am UTC

Umm, do poor people expect that their tax cuts and stimulus bills will be financed by them paying higher taxes in the future, or do they think someone else will pay for it?

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Mon Jan 19, 2015 12:04 pm UTC

CorruptUser wrote:tax cuts that are expected to be financed by future tax increases do absolutely nothing to stimulate the economy; people/firms save for the future tax increase so the result is nothing.

CorruptUser wrote:Umm, do poor people expect that their tax cuts and stimulus bills will be financed by them paying higher taxes in the future, or do they think someone else will pay for it?


I think I get what you're saying, but you seem to making a confusing argument here - probably from a sloppy use of the word 'poor':

Firstly, poor people don't receive income tax cuts, so they aren't going to be parking the difference in the bank until the tax rise arrives or anything.

Secondly, the only real tax affecting poor people is sales tax: If sales tax is cut today and will go up next year, consumers definitely won't be pocketing the difference; They'll be bringing forwards any major purchases to ensure they occur this year. This is what the UK government did - and, as far as I know, it had exactly this result. The reason such a thing was useful is that the world was at risk of falling into deflation and depression. Your stimulus had the same goal and probably had the same effect in terms of how the poor reacted. (Companies probably did just park the difference but that was also useful in terms of cushioning their blip in revenue and preventing the shedding of jobs and bankruptcy etc.)

Thirdly, poor people don't really have any capacity to save much, given that they generally are having to choose between whether they'll eat that night or replace their kid's lost schoolbook or whatever. So even if they were given a welfare boost followed by a welfare cut (which is the nearest direct equivalent I can think of to what you're saying) they'd still not likely just 'save it up till next year'.

Finally, if they are given a welfare boost paid for by other people then they are not going to save it up either; So any stimulus directed in this fashion will have the full effect.

So, basically, no matter what the scenario, there's never going to be a time when the poor are going to react in the way you claim, so a stimulus aimed at the poor will never fail in the way you describe.

Now, none of that means I disagree with you about the 80s tax cuts: They were ideological driven and flawed for exactly the reason you describe.

Nor do I think the way the US and UK handled the recent crash was very noble: It represented the biggest transfer of wealth from the poor and middle-classes to the wealthy there has even been. The super-rich have made out like bandits while the poor have had their welfare payouts slashed and the middle-classes will be paying higher taxes and receiving lower wages for at least a generation.

It's one thing to say that 'from each according to his ability, to each according to his need' is unrealistic - but that doesn't mean the opposite notion should be grabbed with both hands...

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby leady » Mon Jan 19, 2015 1:13 pm UTC

elasto wrote:or do I think the way the US and UK handled the recent crash was very noble: It represented the biggest transfer of wealth from the poor and middle-classes to the wealthy there has even been. The super-rich have made out like bandits while the poor have had their welfare payouts slashed and the middle-classes will be paying higher taxes and receiving lower wages for at least a generation.


Outside of Greece i'm not aware of any of this welfare slashing thats going around. I suspect its because "welfare slashing" looks remarkably like slowing in the exponential increase to more neutral eyes :) In the UK everyone refers to "austerity", which in the real world is literally a lower increment in welfare spending vs pre 2008 estimates. Heaven forbid I ever got into power and demonstrated what austerity really means :)

The super-rich have become more super-rich on asset inflation not liquid cash (though it took until about 2011 to recover their 30% asset crash in 2008). This is all driven through zero rate interest policy and QE in my opinion - I don't think there is realy any change here, they aren't hoovering up any more money generally. The reality as usual is that the rich don't pay for government spending (and rarely have), the aspirant do - those with higher incomes, rather than assets.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby Ormurinn » Mon Jan 19, 2015 11:15 pm UTC

elasto wrote:Nor do I think the way the US and UK handled the recent crash was very noble: It represented the biggest transfer of wealth from the poor and middle-classes to the wealthy there has even been. The super-rich have made out like bandits while the poor have had their welfare payouts slashed and the middle-classes will be paying higher taxes and receiving lower wages for at least a generation.


I don't know about the US, but in the UK there haven't been any nominal cuts to benefits. At most they've been frozen, but inflation is supposedly very low. They've been capped as well, but the cap is more than many people even earn (more than my family lives on) and the cap doesn't apply for for instance severely disabled people.

Housing benefit can now be reduced as an incentive to free up large houses for others or to sublet rooms, which has been masterfully spun as the "bedroom tax" but is a pretty sensible policy when you consider the housing crisis were currently in.

The only people whose benefits have been eliminated are those previously taking child benefit and earning over £50k a year, who hardly need it, and people sanctioned for not looking for work.

I understand there are problems with disability benefits but I don't understand them very well.

Still, hardly severe cuts in benefits. You can still get over £70 a week dole, which leaves the average benefit claimant with more disposable income than some of my working family.
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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Tue Jan 20, 2015 3:57 pm UTC

@Ormurnin: Ok, fair enough, my usage of the term 'slashed' is perhaps a bit strong. But in real terms benefits have definitely been cut and the poor and middle classes are both worse off in cost-of-living terms. Don't forget the VAT rise for example, nor the huge year-on-year rises in fuel costs (which are failing to come down in any meaningful way following the drop in the price of oil).

My real point was that our countries are both massively more in debt than they were five years ago - and, in a vacuum, what would make more sense: For the people with lots of money to pay down that debt or the people with no money to do so? (Especially since it wasn't the poor that causes the crash.)

The richest 1000 in the UK are twice as wealthy as they were five years ago. The poor and middle-classes are less wealthy than they were. But the latter are the ones being picked up, turned upside down and shaken to see what coins fall out.

Like I say, it's not simply disregarding the maxim of 'from each according to their ability, to each according to their need' but flipping it on its head to the neediest footing the bill...

You can still get over £70 a week dole, which leaves the average benefit claimant with more disposable income than some of my working family.


Yah but the answer there is to increase the financial reward for being in work rather than taking money away from those in poverty. That's just mean... I read today that if the minimum wage had grown at the same rate CEO pay has it'd now be at £19/hr...

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby CorruptUser » Tue Jan 20, 2015 4:07 pm UTC

Simple solution from an actuary with an MPA and a background in economics; don't let people just declare profits whereever they want. If 90% of your revenue is in Britain, 90% of your profit is as well. None of this "oh our company is headquartered in the Cayman Islands" crap.

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Re: Medicaid Stimulates Economy More than Tax Cuts

Postby elasto » Tue Jan 20, 2015 4:32 pm UTC

CorruptUser wrote:Simple solution from an actuary with an MPA and a background in economics; don't let people just declare profits whereever they want. If 90% of your revenue is in Britain, 90% of your profit is as well. None of this "oh our company is headquartered in the Cayman Islands" crap.


That would definitely help.

Dunno if it's just smoke and mirrors but there has been a push to get companies to pay their fair share of taxes:

The Guardian wrote:Tax structures used by Amazon to route billions of pounds from sales to British customers through Luxembourg, paying negligible UK tax, are among a series of international loopholes earmarked for closure in a programme of reforms backed by G20 nations.

The "once-in-a-century" move to patch up holes in international tax rules was unveiled in Moscow by George Osborne and fellow finance ministers from France and Germany, who have together been the driving force behind calls for reform.

France's Pierre Moscovici said the 15-point action plan, which has been produced by the Organisation for Economic Co-operation and Development club of industrialised nations, was a "major breakthrough" and was "at the heart of the social contract".

"It is clear multinational companies have developed an unprecedented know-how for minimising their worldwide tax pressure," he said. "These situations are literally impossible to explain to our fellow citizens."

Osborne agreed: "People and companies have to pay the taxes that are due, it's the only way to operate in a fair and competitive society … Our message is clear: everyone must pay their fair share of tax."

Under current rules, Amazon's £4.2bn annual sales in the UK, which rely on a network of eight mega-warehouses across Britain, are routed through Luxembourg.

Revenue & Customs has no taxing rights over any profits from those sales. Under the proposals, multinationals with warehouses will be taxed in the country where the distribution centres are located.

Friday's OECD plan, which will lead to firm recommendations within 12 to 30 months, has support of the increasingly influential economies of Brazil, China and India as well as the likes of Luxembourg, the Netherlands and Ireland — all of whom have been accused of beggar-thy-neighbour tax policies.

But even as the European trio of finance ministers congratulated one another on the unprecedented show of G20 unity, behind the scenes there were growing concerns that national self-interest could scupper some elements of the plan.

Notably absent from the launch event was the US treasury secretary, Jack Lew. Sources with knowledge of the extensive negotiations said the US was growing increasingly frustrated with sniping from European politicians targeted at some of the most successful US multinationals including Starbucks, Google and Amazon.

Lew used an article in the Financial Times to call on Europe and other economies to knuckle down and focus on fostering growth rather than squabbling over taxing rights. "When [finance ministers] … gather in Moscow, getting people back to work must be top of the agenda," he said. "In many parts of the world, such as Europe, growth is too weak to drive job creation, and it is critical to take steps to bolster private hiring."

His remarks appear to echo recent warnings from big business lobby groups such as the United States Council for International Business and the Confederation of British Industry suggesting the scale of multinational tax avoidance had been exaggerated and draconian measures to stamp it out risked damaging job creation.


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