[blackhole]

Nothing involving economics is ever simple. It's why people get PhD's studying this stuff and still have no idea what to do. Chances are, if someone who hasn't gone to college for 8 years thinks they know how to fix the economy, they aren't taking into account all of the variables.

Why would it be so complex? The way I see it is that the University is simply making the economics complex. While I'm certainly not educated in economics, I know a bunch of people who are and they don't make it that complex. [This is actually a more general problem in the Universities, all faculties are guilty of this.]

Mika

Because nothing is ever that simple. Wars aren't simple. Politics aren't simple. Abortion isn't simple. Gay rights isn't simple. These things are issues because they are complex. Probably one of the most ridiculous examples of this is America's own fiasco with Iraq - we didn't like the people who were in charge, so we orchestrated a coup and stuck Saddam in charge, then decided 20 years later that the war on terror would give us a good excuse to clean up the mess we'd made. Nothing is ever simple.

[Mika]

Because nothing is ever that simple. Wars aren't simple. Politics aren't simple. Abortion isn't simple. Gay rights isn't simple. These things are issues because they are complex. Probably one of the most ridiculous examples of this is America's own fiasco with Iraq - we didn't like the people who were in charge, so we orchestrated a coup and stuck Saddam in charge, then decided 20 years later that the war on terror would give us a good excuse to clean up the mess we'd made. Nothing is ever simple.

I think it was Europeans who said something like this when US was planning attack to Iraq (it is not that simple!). I see that the roles have been shifted. Pretty much the rest of the world told you not to go in Iraq and it still happened. It is not about cleaning up the mess, it is all about oil and control of the region. And for me, that is pretty simple. Also, understanding recent politics in US was pretty much understanding the fact that anything could be bought, given enough money. Though I suspect that this could have ended with current administration. What it comes to ethic questions, they are not simple any more.

And I still remember discussing about the looming economic downturn with US people a couple of years ago. Their comments were pretty much like 'not gonna happen here'. If I could fathom that, the subject could not be that complex, me being unfamiliar with US laws and commercial restrictions and all. And being located on the other side of the globe, also.

Sometimes I feel it is far more easier to see the reasons behind Russian, EU and US legislation than my own country.

Mika

[Kosh]

Here's a nice list of threats to the dollar, aka reasons why we're frakked.

[Roanoke]

Post WW1 Germany enjoyed much recovery inpart due to the big Goverment projects, such as the building of the Autobahns.

What is really odd (irionic ?) is Japan owns about a third of America's overall debt, a country pretty much destroyed at the end of the pacific war. How has America, the only country to emerge from ww2 financially wealthy, got it so wrong ?

[iamzack]

Japan rebuilt its cities in under a decade.

[Black Wolf]

It did almost absolutely nothing for our economy.  What got us out of the Depression was WWII

You're right to an extent.  The New Deal didn't improve the economy necessarily, but it did keep it from deteriorating any further.  It helped stabilize the stock market and the banking sector in particular, but it wasn't going to be enough to pull the country out of the economic downturn.  Hence, World War II.

Actually, WWII didn't fix the economy by employing people, it fixed the economy because 1) everyone was buying or leasing our weapons; and 2) all the politicians were too distracted by the war to stop breaking the economy.

The New Deal didn't end the Great Depression; it prolonged it.  See this article for example, or ask any Austrian economist.

The new deal halved unemployment. How would not having it have helped end the depression before WW2?

[Topgun]

I don't really remember my history, but even if those people where employed, if those government projects where paid for by the federal reserve, it would cause inflation.

[Kosh]

I don't really remember my history, but even if those people where employed, if those government projects where paid for by the federal reserve, it would cause inflation.

It didn't because, IIRC, there was massive deflation. But quite a few other those great depression era projects like timberline lodge and the bonneville dam actually did a lot of good and are still in use today.

[Goober5000]

The new deal halved unemployment. How would not having it have helped end the depression before WW2?

Because any positive effects of decreasing unemployment were more than outweighed by price & wage controls, monetary policy, market interference, etc.

For those New Deal employment programs you have in mind, they were horribly inefficient from an economic standpoint (although, by improving the national infrastructure, they did do some good).  Market forces were driving salaries and wages downward, but by artificially keeping them high, FDR interfered with employment recovery.  And by artificially providing jobs at those high wages, he sucked money out of the economy that could have been better used somewhere else.

[Black Wolf]

You're not sucking money out of the economy, you're getting it in there by distributing it to people who would otherwise have been unemployed. That's the whole basis of all these stimulus packages that governments around the world are throwing around. Otherwise those people would have had no money, retail would have slowed down, more job losses, less money moving around the economy and down you go.

[Goober5000]

No.  The money needed to finance the New Deal jobs had to come from somewhere.  Whether it came from taxes, inflation, or some other source, it was being redirected.  That's what I mean by "sucking money out of the economy"; it was going to the New Deal instead of where the market wanted it to go.

And these "stimulus packages", at least the TARP programs in the US, are doing much the same thing.  Good money is being used to buy worthless assets, so it's essentially going up in smoke.

Every boom is followed by a bust.  You need to allow the market to readjust.  That means bad assets need to get written off, insolvent companies need to go bankrupt, and debt needs to be retired.  Instead we have bad assets being bought for far more than they're worth, insolvent companies being propped up, and more debt being created.  That means this whole thing is going to get worse.

[Black Wolf]

I tried to explain this in one of the other threads I think, but I'll go again. The problem with simply letting the market correct itself is that when companies fall on this scale, you have thousands upon thousands of people losing their jobs, and a massive ripple effect from that out into the other sectors of the economy. Noody really cares if, for examle, as a corporation, AIG goes under, but they do care about the thousands of lost jobs that would result in, and the sectorwide depression that would mean laid off workers wouldn't get re-employed at other companies. Even if things did eventually rebalance, and all those old jobs still existed (not all of them would, of course, but we're playing hypotheticals here) you're still looking at (bare minimum) months for that to happen. Months while tens of thousands (potentially hundreds of thousands if you include the associated ripple effect, millions if you include families and dependents) have no income. So they either go on government support (Which runs out as I understand it in the US?) taking money from the governent anyway, or starve. For the ones with money saved they go into frugal mode, keeping even more cash locked up in banks rather than out in circulation, where it's useful.

You can not - can not - forget that everything people say when they talk about "the market" ultimately comes down to people. Talking about market corrections and letting the market dictate the bust just smacks of an absolute lack of concern for the individuals caught up in all this. And when you're talking about something on the scale of the event we're in now it's much, much worse

[Goober5000]

I'm not forgetting about the jobs that are on the line here, but you seem to be forgetting that there's no use in keeping a bankrupt company on life support.  People who lose their jobs can find other jobs, either in the same industry or in other industries; but an insolvent company should not be allowed to be a parasite on the rest of the economy.

Let me clarify this with an example.  Suppose Company X is in the business of making motorized unicycles.  They spend millions of dollars to hire the best unicycle engineers on the planet, they invest billions of dollars in production... and then they find out that nobody actually wants a motorized unicycle.  If we follow the logic of the bailout proponents, we should buy those unwanted motorized unicycles so that Company X will continue to make a profit and Company X's employees will continue to be employed.  Quite obviously, that doesn't make sense.  Company X should be allowed to go bankrupt, its unicycle stock should be sold for scrap metal, and its employees should look for other jobs.

[Topgun]

+1 goober.
yeah, people will lose jobs. it's a sad thing, but stuff happens.
the question is, is it fair to make other people pay for other peoples problems? yeah, they might be good people, but it isn't everyone else's job to support them.

example, lets say that in a neighborhood, some lighting falls on a house. the house is burned but the family survives.
should the government force the neighbors to pay for the damages the lighting caused?

Now lets say that this particular family are the only ones that take care of the neighborhood, they clean the streets and stuff like that. now, if the family are forced to move to a poorer neighborhood, no one will be there to clean the streets.

so the neighbors now have two options, bail the family out, or let the family leave and assign someone else to clean the streets. either could work, depending on the situation.
if, for example, one of the family's own stupidity caused the fire and not the lighting, would you look at it the same way? what if the family didn't do anything for the neighborhood?
and finally, who should decide to give the family money, the neighbors or the government?
just my 2c.

EDIT: i changed a few things.

[Rick James]

+1 goober.
yeah, people will lose jobs. it's a sad thing, but stuff happens.
the question is, is it fair to make other people pay for other peoples problems? yeah, they might be good people, but it isn't everyone else's job to support them.

example, lets say that in a neighborhood, some lighting falls on a house. the house is burned but the family survives.
should the government force the neighbors to pay for the damages the lighting caused?

In a truly capitalistic society, that is exactly what the neighbors would and should do.

Now lets say that this particular family are the only ones that take care of the neighborhood, they clean the streets and stuff like that. now, if the family are forced to move to a poorer neighborhood, no one will be there to clean the streets.

so the neighbors now have two options, bail the family out, or let the family leave and assign someone else to clean the streets. either could work, depending on the situation.
if, for example, one of the family's own stupidity caused the fire and not the lighting, would you look at it the same way? what if the family didn't do anything for the neighborhood?
and finally, who should decide to give the family money, the neighbors or the government?
just my 2c.

EDIT: i changed a few things.

You are seeing the tree as a tree and not part of the forest. True, all aid, government or otherwise, inevitably helps someone who is essentially getting off scott-free or who is plain undeserving. But there are so many more who are in need of help and deserve to get it.

[Scotty]

But the helping that the government is GIVING them, in the form of gigantic bailouts in the current case, is prolonging the amount of time that the people are GOING to need help.  The longer we prop this up, the worse it will be in the long run, because it discourages competetion.  By keeping the existing giants afloat, it keeps newer, possibly more innovative and economically intelligent companies from ever gaining a foothold in an industry.

[Black Wolf]

I'm not forgetting about the jobs that are on the line here, but you seem to be forgetting that there's no use in keeping a bankrupt company on life support.  People who lose their jobs can find other jobs, either in the same industry or in other industries; but an insolvent company should not be allowed to be a parasite on the rest of the economy.

Let me clarify this with an example.  Suppose Company X is in the business of making motorized unicycles.  They spend millions of dollars to hire the best unicycle engineers on the planet, they invest billions of dollars in production... and then they find out that nobody actually wants a motorized unicycle.  If we follow the logic of the bailout proponents, we should buy those unwanted motorized unicycles so that Company X will continue to make a profit and Company X's employees will continue to be employed.  Quite obviously, that doesn't make sense.  Company X should be allowed to go bankrupt, its unicycle stock should be sold for scrap metal, and its employees should look for other jobs.

That's a meaningless strawman and I would have thought you'd know that. Nobody's bailing out motorized unicycle companies. We're talking, for the most part, about fundamentally sound businesses in proven markets who've been established for decades and have between them tens of thousands of employees. You can't let that many people fall into an already weak job market, especially when the companies in question can be saved.

[Goober5000]

That's a meaningless strawman and I would have thought you'd know that. Nobody's bailing out motorized unicycle companies. We're talking, for the most part, about fundamentally sound businesses in proven markets who've been established for decades and have between them tens of thousands of employees. You can't let that many people fall into an already weak job market, especially when the companies in question can be saved.

It's not a meaningless strawman, and I would have thought you'd understand that.  It's a shift in context that lets you see the actual issues without the trigger words.  You can very easily apply it to the current situation by replacing "motorized unicycle" with "subprime mortgage" and "scrap metal" with "pennies on the dollar".

At some point people need to start thinking about this crisis rationally, rather than reacting reflexively or with appeals to emotion.

[Black Wolf]

The problem is that it doesn't scale up. A motorized unicycle company can fall with very few repurcussions. The massive companies that are getting bailed out can't.

Anyway, I've made my point, you've made yours. We're sitting at opposite ends of a spectrum, and not, I think going to convince each other to change their opinion, so I might have to let this one go

[SpardaSon21]

Actually, they can and should fall.  Someone else will be there to pick up the slack.  Its the nature of capitalism.  If not one of the big companies, then one of the smaller companies that are looking to expand.  Propping up inefficient, debt-ridden companies only keeps that debt around instead of it disappearing.