The Instigator
BobTurner
Pro (for)
Losing
0 Points
The Contender
JohnMaynardKeynes
Con (against)
Winning
26 Points

How should we fix the economy?

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Post Voting Period
The voting period for this debate has ended.
after 5 votes the winner is...
JohnMaynardKeynes
Voting Style: Open Point System: 7 Point
Started: 3/9/2014 Category: Economics
Updated: 3 years ago Status: Post Voting Period
Viewed: 675 times Debate No: 48744
Debate Rounds (3)
Comments (1)
Votes (5)

 

BobTurner

Pro

In the first round, I will post the rules, while Con will post his opening argument. In Round 2 I will post my opening arguments and he will post his rebuttal. In Round 3 I will post my rebuttal, and he will post "No round, as agreed upon" to ensure that we get the same number of rounds.

We will both post our remedies for the current economic woes, and then debate our differences.
JohnMaynardKeynes

Con

I accept your challenge, BobTurner. Best of luck to you. I'm currently an economics PhD student, so this is a topic that is near and dear to me. I greatly await our discussion.

I'll divide my opening remarks into three categories: fiscal policy, monetary policy, and plausible solutions. The first two categories will focus on assessing the challenges that the U.S. economy currently faces, and the final category will address how I believe we ought to fix it.


Category 1: Fiscal Policy
The problem with fiscal policy that we currently face is the restraint on aggregate government spending. As Dr. Paul Krugman of Princeton pointed out in a January 2009 column in the New York Times (1), the stimulus package was far too small, and should have been about three times larger than it was if we wanted to address the output gap which resulted from the worst financial cataclysm since the Great Depression.

The question that I often hear as a challenge to the case of fiscal stimulus, however -- or to those of us who argue that the current slump is by virtue of lack of aggregate spending -- pertains to where the money came from. After all, many of my students point out (I'm also a TA!), for the government to spend money, it must collect that money in taxes. Therefore, it is not creating wealth, but "stealing it" from the private sector. It is, effectively, taking money that would otherwise have been invested in productive capacity or capital formation. If investors can spend the money better than the government, why have the government intervene at all?

There are a few answers to this question that I plan to explore throughout this piece. The first is that markets are inherently turbulent. Indeed, I want them to be as free as they possibly can be; I believe in self-interest, free enterprise, freedom and all the rest. However, I believe that the thesis of many neoclassical economists in the past, and many Austrian and Chicago School economists today, that the free market is the most efficient way to allocate scarce resources is deeply flawed. First, it presumes that people are rational actors, and guided by their own unrelenting self-interest and perfect knowledge of both the present, past, and future, as well as the whims of other consumers and entrepreneur participants in the marketplace, will always make the most efficient decisions as to how to allocate their capital. However, people are not psychic, nor has there ever been a genuine "free market" to the extent that many libertarians would desire. Historically as well as today, there have been disparities in terms of market share, economies of scale, and even internally as it pertains to bargaining leverage, i.e. employers tend to be better off in negotiating with their employees over wages, largely because the supply of labor is more abunddant during a recession than its demand, which places downward pressure on wages.

Not to mention, we know from history what happens when markets go awry: panics and financial meltdowns galore. We had five major panics in the 1800s, for instance. Then we had the Depression of the 30s, S&L crisis of the 80s, and Great Recession of 2007. Notice the large gap between the 30s and the 80s. This is largely by virtue of the passage of the Glass-Steaggall Act in 1933, which separated commerical and investment banks. Essentially, it told investment bankers that they could not take on too much leverage and gamble with depositor's money. Makes sense, right? Well, the law prevented financial crises for 50 years, and indeed, it was still in effect until 1999 when Bill Clinton signed the Commodities Futures Modernization Act and repealed it. However, the crisis of 1986 largely coincided with the deregulation under Ronald Reagan, part of his supply-side orthorodoxy that government is stifling the productive private sector and ought to step away: the notion that government is "not the solution to our poblem...[but] the problem." Reagan halted the enforcement of the Sherman Anti-Trust Act, for instance, which was intended to afford the federal government the power to dissolve monopolies. He trusted the "free market," yet it let him down. In fact, the growth during Ronald Reagan's tenure was largely due to a military-induced stimulus, something many of my colleagues and I call "militarized Keynesianism."

But why is the problem lack of fiscal stimuius? Well, what was the sector of the economy that was, arguably, the most hurt? The public sector, particularly at the state and local levels. I'm talking about teachers, construction workers, fire fighters, and police officers. State aid has declined substantially, and the stimulus funds ran out because, again, Mr. Obama's package was far smaller than it should have been. These are middle-income individuals that we are speaking about, who must consume with roughly everything they earn. When they earn additional income, they don't hide it under their mattress, or invest in a Cayman Island's bank account, as many affluent individuals may. Rather, they consume with it. Their spending is variable, contingnet on what they earn, and with consumption at 70% of Gross Domestic Product, the economy hinges on their capacity to spend and grow the economy. Businesses would be unable to hire people without adequate demand for their goods and services. In fact, many would not open their doors unless there were enough customers.


Category 2: Monetary Policy
Again, I'm going to defer to the great Dr. Krugman (2), who wrote extensively about the dangers of a liquidity trap, a predicament we now find ourselves in.

What is a liquidity trap? It's a situation in which interest rates are in the zero lower bound -- zero or just above -- and cannot be dropped any further by the Federal Reserve. Therefore, the Fed can't stimulate aggregate demand simply by purchasing treasury securities. But even at current inflation expectations and rates, there is so little demand in the economy that consumers and investors will not take advantage of the low interest rates in order to grow the economy, the former because they're scared and are paying down their own private debt (debt deflation, which we can get to later on) and the latter because they're uncertain as to whether they'll earn a return on their investment when consumers simply are not spending. We can couple this problem with downward nominal price rigidity -- and, thus, downward nominal wage rigidity -- and the impending threat of deflation, and we run into a severe problem that can only be remedied by fiscal policy. After all, Fed policy at this point, save for a few small measures that I will recommend later on, is largely a matter of pushing on strings.

Category 3: So, what does it matter? In order words, what should we do?
Well, that's a good question, and I'm glad you asked it. Here are my proposals:

-Although monetary policy is largely in a slump, there are a few things I would recommend that Janet Yellen do. First, she could raise inflation expectations from 4 percent to 2 percent, and reverse course on the recent $10-billion-per month deceleration of QE3 asset purchases to reassure the financial markets. Whether this policy, by and of itself, will generate any benefit is largely a tossup, but in conjunction with fiscal policy, it could be promising.

-We should raise the federal minimum wage, but not to $10.10 as the President has suggested, but to $15 an hour. Indeed, there were inevitably be some job losses, as some employers choose to lay off employees whom they simply refuse to pay this figure. However, by all accounts, this policy would ultimately have a net benefit on the economy. The recent CBO report told us, for instance, that only 12% of minimum wage workers are teenagers -- the rest are breadwinners. As I pointed out earlier, they'll use their increased wages to increase their consumption, and a result provide a net benefit to the economy, which will more than offset the job losses. Businesses will know this, actually, and adjust accordingly. Many will absorb the cost of the wage, in fact, since companies paying minimum wages tend to be in close competition with one another, and raising prices can be detrimental.

-Pass a large enough stimulus to offset the output gap of the Great Recession. The stimulus should not only extend aid to states so they can rehire public employees -- and thus employ people directly -- but also target infrastructure projects, academic research, science and technology, and green energy, all of which are pertinent to the future of the economy.

-Pass strict financial regulation, such as the Glass-Steaggall Act, to ensure that Wall Street banks can never again go overboard with leverage and crash the global economy once again. This would actually lower future deficits, arguably, since we wouldn't have to pay for a massive bailout!

-Raise taxes on the top 2 percent of income earners, largely because they can afford it. Their tax rates have been near historic lows, and income inequality has become a significant threat, with 95% of recent income gains since the 2009 recovery trickling up to the top 1 percent. With the revenue, we can address the federal deficit and ensure that we can responsibly pay for the stimulus I suggesed earlier.

-Extend unemployment insurance, because it has a large multiplier effect and people need it.

-Add a public option to the Affordable Care Act to introduce competition, lower health care costs, and expand coverage to people in need of it, but who could not access it after many GOP governors refused to expand their state's Medicaid system.

I have some more ideas, but am almost out of characters, so I'll leave it at this.

1. http://www.nytimes.com...
2. http://www.princeton.edu...;
Debate Round No. 1
BobTurner

Pro

You're a PHD student yet you're debating on this site?!?!?! That's not fair. You're a cheater. I urge the voters to vote for me because of this cheater.

Also, I read your suggestions and you're a socialist. The government is not the solution to our problem, government is the problem. Haven't you ever heard of China?
JohnMaynardKeynes

Con

Well, my apologies about that, Bob. I didn't know that there were any stipulations preventing a PhD student from debating on this website. I certainly don't think it qualifies me as a "cheater."

As for your remarks: I hardly fancy me a "socialist." A socialist believes in government-run businesses. Indeed, socialism is actually endorsed in many aspects of the economy: police forces, fire forces, military, etc. I would even go further, in some respects, and follow Canada and much of the industrialized world and have a single-payer health care system, which I suppose you could qualify as socialism. However, I would hardly think that makes me a socialist. As I said, I believe in free enterprise, but I simply want the government to step in as a referree, when and if it is needed.

And, yes, I have heard of China. I wrote a paper about it recently, actually. China has been getting by with a trade surplus and Keynesian investments in infrastructure. Pretty cool, right?
Debate Round No. 2
BobTurner

Pro

Whatever. Here is my platform:

1. Eliminate all personal income taxes, corporate income taxes, payroll taxes, estate taxes, and taxes on capital gains, dividends, and interest.
2. Impose tariffs on imports.
3. Legalize all drugs.
4. Tax those drugs.
5. Eliminate all federal regulations.
6. Repeal ObamaCare.
7. Abolish Social Security, Medicare, and Medicaid.
8. Part-time Congress.
9. Abolish the Federal Reserve and bring back the gold standard.
10. Abolish the Departments of Education, Interior, Housing and Urban Development, Interior, Commerce, Energy, and the Environmental Protection Agency.
11. Ban all gay marriages.
12. Ban all abortions.
13. Re-invade Iraq.
14. Invade Pakistan, Syria, Yemen, Ukraine, and the Congo.
15. Stay in Afghanistan.
16. Expand the drone war.
17. Allow states to ban contraception.
18. Allow states to establish religions.
19. Abolish all campaign finance restrictions.
20. Expand oil subsidies.
21. Abolish welfare.
JohnMaynardKeynes

Con

No round, as agreed upon.
Debate Round No. 3
1 comment has been posted on this debate.
Posted by Wylted 3 years ago
Wylted
Con at least gave reasons why his policies would help the economy. Pro just stated his policies.
5 votes have been placed for this debate. Showing 1 through 5 records.
Vote Placed by Hematite12 3 years ago
Hematite12
BobTurnerJohnMaynardKeynesTied
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Reasons for voting decision: Con gets conduct because Pro accused Con of "cheating" just for having a background in this. Con gets arguments because Pro provided no arguments to support any of his policies, and Con gets sources because Pro provided none. S&G was fine on both sides.
Vote Placed by Wylted 3 years ago
Wylted
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Reasons for voting decision: Pro's remark in round 2 was ridiculous. I can't see why pro would want a weak opponent as opposed to one he can learn something from. If you're intimidated by somebody's knowledge of economics, you should have made sure you did your homework before issuing the challenge. Besides that, con really didn't say anything that advanced. About half of people with the most basic knowledge of economics, would have given you a similar argument.
Vote Placed by dtaylor971 3 years ago
dtaylor971
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Reasons for voting decision: Absolute awful conduct from the pro side by saying con cheated when he was just a PhD student. Pro completely SUCKED at his arguments compared to con, who destroyed the whole debate. Spelling and grammar to con because he didn't make a single S&G mistake. Pro made many. I really expected a lot better than pro.
Vote Placed by Krazzy_Player 3 years ago
Krazzy_Player
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Reasons for voting decision: Pro basically conceded in R2. There are no rules that a PHD student cannot debate in this site. Pro's attempt to come back in R3 was not satisfying and lost conduct for directly attacking his opponent.
Vote Placed by Actionsspeak 3 years ago
Actionsspeak
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Reasons for voting decision: Pro said: "You're a PHD student yet you're debating on this site?!?!?! That's not fair. You're a cheater. I urge the voters to vote for me because of this cheater." This shows awful conduct, its debate.org anyone can debate. Spelling and grammar is tied, I was much more convinced by Con as Pro didn't refute anything or make an argument. In addition resources to Pro he talked about alot of history such as depression and had 2 hyperlinks while Pro's claims were unreliable since they had no sources.