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PostPosted: Tue Sep 08, 2009 10:45 pm    Post subject: Econ Comments Reply with quote

A 1% per year difference in real GDP growth makes a big difference after (and over) 10 or 20 years. Using a scientific calculator, a 2% real GDP growth rate will increase real GDP from $14 trillion to $17.1 trillion in 10 years (type 1.02, then hit the y^x key, then type 10, then hit = then hit X or the times key, and type $14 trillion or 14,000 for a smaller number). However, a 3% real growth rate will be $18.8 trillion after 10 years or a difference of $1.7 trillion after 10 years. The difference is about $4 1/2 trillion after 20 years. Also, government spending has been growing much faster than nominal GDP over the past few decades.

It's remarkable, U.S. per capita income is over $10,000 a year more than Western European countries, and the cost of living is lower in the U.S., because of lower prices, interest rates, and taxes, given the U.S. was basically a wilderness 200 years ago, while Western Europe accumulated over 2,000 years of wealth. Also, the vast majority of immigrants to the U.S. were poor.

Also, I may add, I think, everyone will agree some sort of labor standards are needed. It's a question of magnitude. I doubt the current minimum wage is a high standard.

Moreover, regarding "Hoover's Pro-Labor Policy Caused Great Depression," it seemed to be a fiscal stimulus attempt by the Hoover Administration, i.e. weakening corporate balance sheets to strengthen household balance sheets, to stimulate demand.

It seems some, e.g. geoih, believe workers are an expendable resource, and labor standards are an unnecessary burden on firms.

Also, geoih doesn't know if the Hoover fiscal stimulus actually worked. It's likely corporate retained earnings were built-up after the 1920s economic boom, and distributing some of those earnings to workers may have spurred demand to partially offset the contraction of the money supply.

I wonder what Americans would do with an extra $1,000 a month.

In my case, after I received a roughly $1,000 a month after tax raise at work, I initially used most of it to pay down debt that was costing me $400 a month in interest and fees, while I also increased my consumption and caught-up on bills. Eventually, I paid off the debt and the $1,000 a month raise allowed me to increase my income by $1,400 a month, which was all used for consumption. Later, I saved an average of $300 a month. So, in my case, saving (i.e. shifting from borrowing to saving) was the last thing I did with the extra income.

It would have been more efficient to pay down the debt with 100% of the raise, and continue to stay within my original budget, until the debt was paid off. However, I rewarded myself with a higher level of consumption for making progress on my debt and bills.

I suspect, most Americans would do the same thing if they received a raise at work, a similar tax cut, or a similar government cash benefit. However, creating a new government job, for example, may have done almost nothing to help me pay off my debt, unless perhaps I was hired for that job. I think, a permanant tax cut would have a powerful impact on consumption. However, it's likely the Bush tax cuts will be allowed to expire in 2011.
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