Woodstock CT Café

from Newcomer

I’m slow to reply to your question (see “Re: Tough Times Ahead”) because it’s so thought-provoking. Our nation was formed some 234 years ago and one would think that this question would have been answered at the outset. But as we’ve ‘evolved’ (if that’s the correct word) we’ve added more states, more people, more industry, more infrastructure, more politicians, etc.

I think for me, what makes your question so difficult to answer is that in these 234 years, we have blurred the lines ourselves as to the proper role of our government. That role was generally initially defined in the preamble of the Constitution, the purpose of which was “in order to form a more perfect Union”. The goals and “mission statement” of our federal government were to “establish Justice, ensure domestic tranquility, provide for the common defense, promote the general welfare, and secure the Blessings of liberty…”

If you take that piece by piece, there’s quite a bit there. I think most citizens would agree that we still have a legitimate need for our Federal government to provide for our National defense. We can dissect the hows and how much of the defense system, of course, but I think we would all agree on the continuing need for it to remain in place.

Ensuring domestic tranquility….I’m not sure what the founding fathers exactly intended by this phrase, but to me it speaks to the need at the State and local governmental level (since we’ve now added more states than the original 13 we started with) for basic public services such as police enforcement and fire protection. How tranquil can one’s life be if subjected to crime or fire? If we want to expand this notion of tranquility to the Federal level, then I could see an argument for FEMA to exist in times of disaster relief. I guess this would also make a case for militia at a State level, such as the National Guard, enforcement at a State level, such as a State police Dept., disaster relief at a State level as an outpost of FEMA at the federal level. I could also see highway infrastructure coming under this category at all 3 levels of government because vehicles are available for purchase in the private market for those who have the financial means. But vehicle ownership requires someplace on which to safely operate the vehicle. I would limit the role to infrastructure maintenance though. To me, this should not include a nationalization of public transit be it planes, trains, buses, monorails, subways, ferries - whatever. None of these other modes of transport are a requirement for one to live a life of domestic tranquility so they can and should be provided by the private sector and each citizen can choose to avail themselves of any given method as their means and circumstance (and personal preferance) dictate. Read the rest of this entry »

from Anonymous

That anecdote about the $100 circulating through a small town is - as one blogger observed - in part about velocity. How fast money moves through the economy is a partial measure of how well the economy is functioning. 

The anecdote is also an illustration of what economists call the “circular flow.”
Circular flow can be reduced to a simple chart that illustrates how money travels in a (theoretical) circle throughout the economy.
- Consumers pay for what they get;
- The storekeeper uses that money to pay the manufacturer for his store stock;
- The manufacturer uses the money to pay for his equipment, his raw materials, and the talent that made it;
- and along the way, everyone is using some of the money to pay employees… who take their paycheck home and … spend it on consumer goods and services.

Circular flow also works the other direction; read the little story backwards to see how goods and services move in a circle too.

There are lots of visual charts for this (go to google images and type in “circular flow”). Some are simple, most add in government, usually placed in the center of the circular diagram (because money flows to the government from all quarters as tax payments, and services flow out from the government to all quarters). Some diagrams get very complex by adding in the role of banks, others add annotations for “leakage” (money that goes out of the system because Aunt Tillie stores it in her mattress or Billy dropped his lunch money down the storm drain or all those coins are gathering dust in odd corners around the house). But however much elaborated, the basic idea remains one of money moving around the circle in one direction, in exchange for goods and services that move around the circle in the other direction.

The reader who thought the anecdote was just a tired old internet joke … was right; it is. But perhaps he didn’t recognize it as an illustration of Circular Flow, deliberately oversimplified for a touch of humor (yeah, rather dry humor at best, but economists aren’t known for their humor, are they).

from Frank Corden

Independent, Taxpayer, Con and all others who seem to be routinely participating in a number of thoughtful discussions, I’d like to tee one up that flows from Independent’s comment above regarding a few tough years ahead.

Clearly, we need to get our state and federal budgets under control. As we look at the approach of the Reagan Republicans (and as most recently championed by the Tea Party activist), abandoning regulation hasn’t served us very well. Their collective cry for “smaller government” is too simplistic. There appears to be this sense that by starving government for funds, government will get better.

Rather it seems that a cash poor government is generally headed to becoming a poor government. Case in point, starving the regulatory arms of the SEC, the bank regulators and the food safety inspectors hasn’t made us any richer or safer.

Organizational behavior virtually guarantees a poor outcome. When organizations are starved for resources, in the absence of VERY STRONG leadership, the organizations don’t try to limit what they do, but rather peanut-butter the resources across as many of their previous activities as possible. The result is that the organization tries to “do it all” but instead does it all poorly.

If we are going to reduce government spending and still have well run programs that protect the health and safety of our citizens and the financial future of our country, what we need to do is to settle on the appropriate priorities for government at each level, federal, state and local. Then be rigorous about holding to those priorities.

So, the question I pose for discussion is, “what are the appropriate rolls for the federal government” and “what should we shut down”. In each case of the do’s and don’ts, I like to discuss what rationale we would use to justify the recommendation.

from Independent

Once again, Anon makes an important point about the core workings of our economy. When I was in college, my professor took the class to Sturbridge Village to make this same point. Like the little town in Texas, it is a microcosm of the broader economy.

Economists call this concept the “Velocity” of the money supply - the speed at which money moves through the economy is as important as the total supply of money in the economy. So, “Moneterists” traditionally believed modulation of the cash supply is a sufficient tool to expand or contract growth in the economy, as needed, depending on its Velocity.

“Fiscalists” or “Keynesians” traditionally believed that it is the total amount of spending that matters, and that growth must be modulated through the expansion or contraction of government spending.

The “ISLM Framework” resolved this theoretical divide in the 1960’s, providing a hybrid theoretical framework that accommodates both concepts. This common ground was generally supported by both sides.

What changed beginning in the 1980’s was the rise of classical economists and their theory of pure free market principles to the securities markets; i.e., the belief that all security prices were by definition priced correctly in an open market. The theoretical work of these academics was picked up by key players in the capital markets and politicians and policymakers who favored government deregulation. This became the basis for deregulation of the financial markets and the failure to regulate new financial instruments like derivatives. Read the rest of this entry »

from Ernest Wetzel

What ever liberal wrote this nonsense (below) must be smoking some good stuff. You’re revisionist history is incredible. Our country has been marching toward socialism/communism since the early 1900’s. The American public educated by our government schools has no basis of history, economics or common sense. They keep voting for liberals/progressives and when it comes time to pay for “services” of government they don’t want to pay taxes. So our government has resorted to borrowing to finance these communist programs and now the bill is coming due. There are plenty of fingerprints at the scene of this crime, you can blame Republicans or Democrats, take your pick. What is really wrong with America is her people. The public is uninformed, uneducated and doesn’t care what happens as long as they can live the good life on borrowed money. Our fiscal and monetary policy of the last 30 years is disgusting and mainly implemented by the Honorable Alan Greenspan. America is bankrupt financially and morally. We are in another Great Depression right now and the public is too stupid to realize it. They still believe, ABC, NBC, CNN, MSNBC etc. The TARP and Stimulus programs are just throwing gasoline on the fire. I love it when everybody says our great grandchilren will pay the bill.  How stupid are you? The bill is coming due now and over the next 10 years everyone is going to pay by living in poverty. The only consolation I have is that the Baby Boomers, the most undisciplined, immoral, fiscally irresponsible generation is going to get the brunt end of it. Couldn’t happen to a bigger group of idiots, morons I mean.

from Independent

This (below) is a good summary of our political economy in my opinion. I have a few relative nitpicks.

Demographic trends as the echo generation attempts to support the larger retiring baby boom generation has greatly aggravated the entitlement financing problem. The solution will inevitably involve means=testing these programs on both the revenue and expenditure sides as with Greenspan’s Social Security commission in the 1980’s. Incremental adjustments to actuarial assumptions compound over time to create large savings.

The “green revolution” in American agriculture was spawned by government research that responded to the terrible climactic conditions (”Dust Bowl”) as well as the financial crisis in the agricultural industry. In the words of one defender of these programs “When Roosevelt took office, our country could not feed itself; by the end of his administration we were feeding the world”. However, with the green revolution spreading globally, the rest of the world is now largely feeding itself, and so it is long past time to adapt to the new realities of the agricultural economy.

It was Jimmy Carter who replaced Arthur Burns at the Federal Reserve with the intention of getting the money supply under control, as the rapid expansion of the consumer credit system (sound familiar?) in the 1970’s had expanded credit beyond the traditional definition of M-1 (i.e., cash) in the economy and, along with the financing of entitlement and military expenditures, created the persistent, stubborn inflation pattern of the 1970’s, accompanied by structural shifts in the economy (i.e., decline of manufacturing) that created a co-incidental persistent unemployment problem. Read the rest of this entry »

Comment about this article from an economic advisor:”This writer’s take on the TARP mirrors that of the press but is inaccurate; the money put into the banks usually involved sale of debt (bonds, preferred), not a ‘bailout’ and as such repayment was required and in fact most of the dollars have been repaid.

The four biggest institutions that haven’t paid back their TARP money include only one bank, Citigroup; the other three are Chrysler, General Motors, and AIG. Six of the ‘Big 7′ banks have paid back their TARP funds, and the government has made about 15% on those investments.

Also I would blame the Great Recession, at least in the immediate moment, on two factors - the big push for housing and specifically FNMA and FHMLC, which have been around since the 1970’s, and the lack of regulation in the derivatives markets, specifically credit default swaps and their various offspring. There are many other underlying causes, many of which the writer mentions.

The comments on Keynes and the misapplication of his writings was excellent and right on the money. The paragraph that begins ‘While the system is so labyrinthine as to be impenetrable…’ may be the best summary of those things that economists agree on that I’ve seen.”

by Anonymous 

Farm underwriting is no news. It originated in the Great Depression — along with Social Security, the w.p.a., the c.c.c., etc. — when family farms were folding right and left and vast numbers were unemployed.  

The idea originated as social programs to help the most desperately unemployed and poor, though it would mean deficit spending. Previously deficit spending had happened only in wartime. The idea of peace-time deficits originated in the theory of British economist John Maynard Keynes, who advocated that — if a nation operated with a balanced budget or a modest surplus in flush times — a depression could be abbreviated if a government spent into debt to generate jobs, stimulate industry, and get money flowing again … provided they afterwards paid back their debt when stability returned. Taking a chance, the US adopted this policy and launched small programs, of rather modest impact given the depth of the depression (though those who found work through government programs were grateful, and a lot of lasting public works were accomplished). But it was massive deficit spending required by World War II that turned out to be the boost that jump-started the economy, proving Keynes to be correct that government spending could bring a country out of economic depression. But anyone who says today’s cumulative debt is the result of Keynsian economic theory is either ignorant of — or willfully ignoring — his full argument that presumes paying off debt in prosperous times.   

Most Depression-era programs were discontinued in time, with the exception of Social Security, a variety of farm aid programs, and (indirectly) veterans’ benefits. In time, with broad changes in American public conscience toward poverty and racism, Johnson’s Great Society Programs were added in — aid to dependent children, head start, medicare, etc., some of them (welfare) replacing old state-run poor-relief programs. In time it got out of whack and expensive. Starting around the end of the Vietnam War the national debt grew and was not repaid. More and more programs were added, mostly with good intent, but the number of people qualifying for support (”entitlement”) kept growing too. 

As recently as the 1950s Republicans were socially liberal and fiscally conservative. Recall that for a brief moment both the Democrats and Republicans considered Eisenhower as their candidate. But from Reagan onward these stances were reversed, as the party sold its soul to evangelicals to buy their votes (though in fact harshly indifferent to evangelical social causes), and became the party socially rabid and fiscally irresponsible. Most of the current national debt has been accumulated since then, the vast majority of it (but not all) under Republican administrations and congresses, through a combination of increasing debt (through entitlement programs and wars) and simultaneous cuts in taxes. That’s a little bit like quitting your job and going on a spending spree. Recall that almost the only balanced budget we’ve seen since Eisenhower was under Clinton’s second term. (By the way, the annual deficit and cumulative debt are not the same as international balance of trade).

Reagan does get legitimate credit for taking some really unpleasant steps to stabilize the economic mess that had been taking shape since Nixon’s era; he allowed the Federal Reserve Bank to adopt controls on quantities of cash awash in the market place. It was painful but it worked. Reagan also set in motion the consecutive tax cuts and deregulation that would come back to bite us all later. His party continued with deregulation and tax cuts for the next thirty years. Clinton gets a share of blame for signing some legislation passed by the Gingrich Congress (pressing Ginnie Mae to extend mortgage credit to people who really weren’t qualified). Bush II’s tax cuts combined with his puzzling war in Iraq added immensely to cumulative national debt. With these expenses and still more tax cuts, annual revenue fell ever shorter of annual expenditures. The end-of-year debt just keeps getting rolled over into cumulative debt that requires interest payments. If the day comes that interest payment (”servicing the debt”) equals or exceeds revenue, we’ll see a collapse that will make the Great Depression will look like a Sunday school picnic. If Reagan wanted to “starve the beast” of Big Government… we may be seeing the beginning of it now.

Meanwhile, in the Reagan spirit, his party set about de-regulating banking, investment, and other financial industries because they (correctly) saw that there was great growth possible with removal of these barriers. These regulations had been put in place after the Great Depression. For a reason. You will recall that the first signal that deregulation wasn’t such a great idea was the collapse of numerous Savings and Loan banks just as Reagan wound up his career and passed the torch to Bush I. Their party may have led the stampede for deregulation, but they probably weren’t alone in voting for it; it would be instructive to see a vote-by-vote tally of every deregulation vote in congress since 1980. Read the rest of this entry »

from John

I did my taxes this week … always ahead of the game. Usually I owe a little bit to the Feds and receive quite a bit back from the state which off-sets Federal taxes owed and the cost of heating oil in February and March. I did notice that very little federal taxes had been withheld from Becki’s lower pay.

As usual I received a goodly sum back from the state but was wacked by the Feds. Then I recalled that the Feds had reduced withholding requirements to encourage spending and employers automatically implimented this stimulus. For those out of work in the last year, reduced withholding was irrelevant. For those of us that received a slightly larger take-home pay as a result of this stimulus, this seemed inconsequential. But for the overall economy, lower withholding resulted in several billion dollars being put back into circulation.

Frankly I never considered the ramifications of lower withholding until I found out that I owed the Feds a little more than $2700 with a small fine added in.  It would not surprise me if most of the employed did nothing about their withholding a year ago and are now in shock because of what they owe the Feds.

While reduction of withholding may have stimulated the economy last year, what impact will this measure have on our national economy this year?

by Newcomer

As an aside (to Chicklet), did you hear about yesterday’s Supreme Court ruling? It struck down a significant portion of McCain-Feingold that had made it illegal for private corporations to pay for ads either in support of or against a political candidate. In a way, this related to what I was discussing here about what a powerful lobbying block the Telecomm Industry is. This ruling, while a victory for freedom of speech, also clears the way for more special interest money to flow into the political process. The companies cannot give money to a candidate’s campaign directly, but they CAN put up an ad either supporting ‘their’ candidate or denouncing, even attacking ‘their’ candidate’s opponent. This has the potential to make candidates (once elected) beholden to the special interests of the corporations that supported them.

To me, this is a dangerous thing. There’s already too much special interest money in politics. And the result can be sweeping legislation like the Telecommunications Act of 1996 where an industry has far more rights than do the American citizens do as consumers of that industry. Read the rest of this entry »

This paper was published on October 8th: 

“Evaluation of the efficacy and safety of a statin/caffeine combination against H5N1, H3N2 and H1N1 virus infection in BALB/c mice”   

by Liu, Zeyu et al.

European Journal of Pharmaceutical Sciences 38:215-223, 2009
  
“The development of novel antiviral drugs is necessary for the prevention and treatment of a potential avian influenza pandemic. The aim of this study was to evaluate the efficacy and safety of a novel statin/caffeine combination against H5N1, H3N2 and H1N1 virus infection in a murine model. In H5N1-, H3N2- and H1N1-infected BALB/c mice. 50 mu g statin/200 mu g caffeine effectively ameliorated lung damage and inhibited viral replication and was at least as effective as oseltamivir and ribavirin (two antiviral drugs). The statin/caffeine combination also appeared to be more effective when administered preventatively rather than as treatment. These findings provide justification for further research into this novel antiviral formulation.