How exactly does the government control the economy and job creation?

[coloradodem2005]

I am just curious. I know that there is taxation and what not. I don't quite understand how that works.

[terryg11]

1. there is taxes and also infrastructure

such as the maintenance and building of roads. If a state can get money for road improvements (often highways and interstates) then they will hire contractors to do that work.

also many state government budgets rely heavily on federal grants and monies for an assortnment of projects. It may differ per state but federal money can make up a good percentage of a state's budget (something like 6-8% seems right). This is why many states are scrambling to balance their budgets, they are not getting as much from unlce sam as they used to.

[LoZoccolo]

2. supply-side vs. demand-side economics

This site has a lot of stuff about economics, especially "Defeat the Right in Three Minutes":
http://www.conceptualguerilla.com

[napi21]

22. GREAT READ! I love the "Cheap-labor Conservative"

This guy has some GRET IDEAS on fighting the opposition arguments.

Best of all, we need a catch phrase we can all repeat over and over again until it sticks! His suggestion is "cheap-labor conservative", and he explains how it fits with everyone of their programs.

IT'S GREAT! PLEASE TAKE TIME TO AT LEAST SCAN THROUGH IT.

[On the Road]

3. The Federal Reserve (Greenspan) Controls Interest Rates

and the money supply. It has a powerful (but not always effective or predictable) impact on economic growth. Rates were lowered 11 times going into the recession in a futile effort to prevent it. All it did was start the housing boom by making mortgages cheaper.

Government spending on infrastructure creates jobs and increases payrolls, which result in greater economic activity and presumably stimulate the economy. Tax rebates also stimulate activity by putting spending money in people's pockets. But if the government runs a defecit in doing so, it uses money that could also borrowed by the private sector for more direct economic activity.

Employment can also be affected by trade policy. Putting tariffs on steel imports, for example, can save jobs in the steel industry (but can also have a negative effect by raising prices of products that use steel).

Trade can also be influenced by the exchange rate. Government policies can affect the price of the currency. Bush has recently chosen to weaken the dollar, which discourages imports by making them more expensive and encourages exports by making them cheaper to other countries.

There are a lot of different levers the federal government can use. Most of them are indirect and most of them have a potential downside. The trick is to understand what's going on with the economy and choose the right combination.

Intrinsically, there's nothing wrong with any of the things that Bush has done -- tax cuts, lowering tariffs, weakening the dollar -- under the right situations. Problem is, they have been the wrong amounts (tax cuts too large), directed to the wrong people (benefiting the upper class and corporations), ineffective, and done for political rather than sound economic reasons.

[Bandit]

4. They create or destroy confidence in the market and the economy

Without Consumer Confidence there is little growth. Bush* pretty much destroyed Consumer confidence and we see the results. Greenspan is befuddled about it because he thought he could lower interest rates and that would make everything all better. They firmly believe their phony BS about supply side economics. They can supply all they want but with no Demand their will be no business. Demand Side Economics is the only thing that really makes sense and a combination of the two is the cat's meow. A store may drop the price on certain goods to spur sales (tax cut) but they don't cut the price on everything in the store or they go out of business. America is "going out of business" so to speak because we cut the price on every item. Doesn't work that way.

[Lydia Leftcoast]

14. And in practical terms

stores can cut their prices to the bare minimum, and sales will still drop if their potential customers are hurting financially.

I learned this from experience during the Reagan recession. Prices dropped to wonderfully tempting levels on a lot of items, and if I had been working, I would have gone on a buying spree. But instead, I was barely surviving on temp jobs, so I had to pass up these sales.

[F.Gordon]

5. It doesn't really "control" the economy

If it did then Bush* could snap his fingers and correct the problems facing this country. But it can greatly influence the direction the economy takes. It can also have a passive role in setting the level of confidence that consumers and investors have.

Your question would be answered 100 different ways if you asked 100 different "economists".

If you have a keen interest in answering this question for yourself, then study things like deregulation, taxation, and trade.

My two cents as to the problems facing our country now is that we are static. Bush* is still in the year 2000 when it comes to our economy. When he took office "economy time" froze.

Take nano-technology for example. This is one area where the government could create jobs. The problem is that all the government R&D money (which is billions) is going almost exclusively towards military applications. While this might help create real jobs 10 or 15 years from now, it could be creating jobs NOW if the government took those billions and applied it towards functional non-military applications.

If I had another cup of coffee in me I could go on, but....

[Blue_Roses]

8. Close, but more like:

"Bush is still in the year 2000,"...try more like the year 1981!

Job creation is dependent on a government who sees "progress" not "regress" as it's ally with the stock market and other government infrastructures.

I don't see Bush as one who likes to be "creative" in stimulating a progression into the 21st century, because he relies too much on what has happened in the past. He's basically afraid of change I think--that or he's just rally dumb!

One thing that I liked so much about Clinton is he wasn't afraid of new and innovative ideas.

[F.Gordon]

13. I like that! 1981!

How bout' I edit my comment to say...Bush* took the economy of 2000 and has used 1981 standards to "improve" it?

You and I are on the same page with regards to Clinton.

[Blue_Roses]

19. sounds great!

doesn't it suck to go back to the 80's, however, those were some good times,(carefree and stupid) but geeze, I don't want to relive them!

I never thought I would have to worry about "regression" again in this country after Clinton. Boy was I wrong. I took the Clinton years for granted 'cause I just knew things were taken care of with the big dog. Never did I think we would regress to the point we are at now. We should be way more advanced in technology, science, healthcare, and jobs.

[coloradodem2005]

11. As for your bit about nano-technology.

While I think that Bush's little space plan is either blatantly political, or would be executed in the wrong fashin, such as undercutting NASA, or militarizing space, if somebody comes in and sets out to do it right, it would be a good idea and it would create jobs.

[CaptainClark23]

6. From 10,000 foot view

The government is charged with fostering and maintaining a secure and stable environment in which a national economy can prosper. An environment that invites both domestic and foreign investment.

[RichardRay]

7. Basically, it doesn't, can't and never has

Efforts to 'control' the economy result in a 'control' economy - that's what the old Soviet Union had and what China is now moving away from. Doesn't work.

Government can try to bump the economy in a direction it wants with monetary policy (interest rates, money supply, etc) and through spending (direct investment in programs that employ people, projects that create improved infrastructure, etc). Niether of those are very accurate either in terms of their effect or their timing.

I am far from a market fundamentalist, but I also have never seen any evidence that government can make any long term predictable change in the behavior of our economy. At best government can ameliorate the worst effects and try for better conditions with the tools at its disposal, and pray, just like the rest of us.

[ProfessorGAC]

9. Not Quite Correct

There may not be anything the gov't can do to control the economy (so, we agree there).

But, there are things the gov't should avoid because the data indicate that they always have a negative influence on economic health, and the causative models make the reasons for that leverage clear.

So, they can do damage rather quickly and the impact is pretty strong. Making it better and keeping it there is much, much harder.
The Professor

[RichardRay]

23. Agreed!!!

Very easy to do harm, quite difficult to make any positive changes on purpose, and especially difficult to make them stick over the long run.

[rman]

10. to improve the economy:

- make Free Trade Agreements with anyone who wants to play along - never mind if they're dictators.
- tax cuts for the rich.
- out of gratitude they replace American workers with cheap labor abroad.
- which increases profit for these corporations, this equals "improved economy".
- never mind that ever more Americans become unemployed and eventually fall into poverty; it's not their economy any more.

yes, i'm being cynical. but this is how it does work these days.

[rman]

12. appropriate quotes

1787 - US President Thomas Jefferson
"All the perplexities, confusion and distress in America rise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation."

1881 - US President James Abram Garfield (assasinated)
"Whoever controls the volume of money in any country is absolute master of all industry and commerce."


So, one of the big questions is: who *does* control the volume of money in the US? (same thing pretty much anywhere else btw)

[ScotTissue]

15. What is meant by "volume" of money?

What did Garfield refer to when he referred to control of the volume of money?

[ProfessorGAC]

16. M1, M2, & M3

Today, there is very little chance of printing excess money, simply because the velocity of money is 6x of what it would have been in Garfield's day.

The same dollar buys >18 sets of goods or services (at retail and wholesale) and at the turn of the 18th century it would have only bought <3. The rapidity of circulation due to giant leaps in both transportation and technology is well beyond what Garfield could have imagined. Therefore, the printing and releasing of additional volumes of money (that actually in circulation as cash and cash equivalents) is something that is far less productive than it was in the days of low velocity. The government can introduce measures that encourage higher rates of exchange (improved v), but printing additional money is always a negative. (Unless a technological innovation makes GDP grow so fast that the new money still keeps the velocity up and M1 as <20% of GDP.)
The Professor

[ScotTissue]

17. So "volume of money" is the amount of currency in the economy?

So "volume of money" is the amount of currency (or currency + M2 and M3) in the economy, rather than the amount of wealth in the hands of any specific part of the population?

[ProfessorGAC]

20. Yes.

Of course, Garfield was not an economist, so i can't be sure what he meant, but if he knew his stuff (and i've no reason to believe he didn't know something about it) he was talking about monetary volume.

Remember that in his day, even more than now i would think, wealth and control of the dollar volume were synonomous. People could horde vast sums of cash and control monetary supply in a way they can't today. (Remember that Rockefeller and Carnegie were almost 5 times wealthier than Gates on a % of GDP basis.) So, he might have meant both control by the wealthy and control by gov't.
The Professor

[ScotTissue]

21. Interesting.

Thanks.

[sangh0]

18. Govt influences (not controls) the economy two ways

Monetary policy (managing the money supply) and fiscal policy (taxes and spending)

[sweetheart]

24. Its really about political economy

These wooly words like job creation mean nothing without the
political as well as the economic context.

How. The economy is centrally planned by a bunch of guys in the
big defense establishment. The allocate money on hundreds of
spreadsheets in to different technology, aircraft, space, bioweapons
and other research they want to do. Then all those thousands of
piles of money in the weapons budget get made as contracts and
grants for the welfare of military related industry.

The structure of these grants creates hummers and defines a secondary
layer of grants for things like transport and the body of law that
defines standards in industries like securities trading. There
is a massive infrastructure in place that sponsors industry. One
problem is that the theory of free markets suggests that the best
investments are making it in to the best socially-useful areas. As a
financial market (where credit is created/issued and traded), is
a public utility, it must serve to allocate incoming investment
to the optimal projects that the economy be best served by every
dollar of investment passing through the financial markets.

Rather than this, we have dollars sitting on roulette arbitrage
squares in the middle of a financial markets weights and measures
scheme where all the credit is unweighable, and without secrecy, the
entire banking profession would be called con artists. Just the con
works, as long as there is confidence (that word) in the *public*
system of financial markets.

Instead, we have the military central planning problem, where our
economy is more centrally planned than real capitalist nations. By
increasing this military spending, it can create an artifical boost
to that industry, it will hire more people to deliver the increased
production. These people in turn spend their earnings in shops
that fertilizes the economic ground as the income primes other areas
of the economy by military keynsianism, economic stimulus.

Then the markets that are private (and many which are truly arguably
not really private companies, even though they trade as such)
FREDDIE MAC comes to mind. This huge heard of companies must conform
their economic adgenda to whatever war the military budget is
fighting today, so investment runs hither and yon from administration
to administration. As bombs are a total waste of investment, they
don't create long term jobs. Schools do, hospitals do, obviously.
The republican destroy the economy by spending everything on
military empire. As it takes some years for the transitions to occur,
the economy festers in the meantime. Best if they cut
the stimulus, and left the bloody economy to grow without the
very central planning that the ideological market-ists know skews
the selection of a market to dangerous minima.