My Tea Party Starts at 3:00pm

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The point is that the extreme boom and bust cycle doesn't need to happen. We could damp the system and have a smaller noise amplitude. We would never be able to get rid of the noise but with clever regulation we could prevent the system from having such a large gain peak.

You could solve all the country's problems overnight - just replace all the hard-on pills with cyanide. >:->

Cheers! Rich

Could, but counter-cyclical goes so much against human nature on the upside. "Dow 36,000!" "Housing prices will only go up!" "These tulip bulbs are amazing!" Every time there's a bubble, it's only the shrill ones (see: Krugman, Paul) that play Cassandra; for the rest of the pundit class, the song is "This time, it's different!"

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Yes there is the problem that it needs not to rely on people acting. Thinks like a sudden step in the income tax at $3 Million would be the sort of thing needed. When a lot of people suddenly go above the $3 Million mark, it would cause the government to run a surplus and reduce the money supply. We could also have a small tax on all stock transactions. The bubbles are also marked by a large increase in the volume of transactions. When things go in the other direction, programs like unemployment insurance would add to the money supply.

The economy is very non-linear. The gain drops a great deal when the economy slows down and increases during a boom. This is why there is the tendency for it to stick at the bottom of the swing. whatever you do needs to change the gain in the other direction.

That would just cause people to earn less than $3M.

We could also have a small tax on all stock

It's not all that complicated. The government made a bunch of changes to get loans for non-creditworthy people. Don't do that.

Don't be in the loan business, don't meddle with the incentives, don't lend money to banks for nothing and let them leverage it

Obama's said he doesn't want an economy based on excess borrowing, yet his every move is to facilitate returning to it as quickly as possible, and make whole those who should be paying the price.

It's ghastly.

James Arthur

No if you look back to the Eisenhower era, you will see that adjusted for inflation there was such a tax and people did make more than it and they did pay the high tax.

This is not what caused even the bubble that you claim it did cause. It most certainly isn't what caused the Clinton era bubble. Note that the Clinton era one was less of a problem than the last one.

Failure to regulate is what allows the instabilities in the free market to be at there worst. It ensures that we have crash after crash and that the crashes will be of the worst sort.

Right now we have a decreasing money supply. Injecting money right now is the right thing to do. When the economy is doing well is when to sharply reduce spending etc. It is basic economics.

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Yep, one of the hardest things to teach is that Hubris is inevetably and inexorably followed by Nemesis. So difficult that the ancient Greeks elevated the principles to titular godhood. .

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I thought about agreeing; but 1. Obama is just good at reading a teleprompter and sounding sincere, 2. Who do you think is running capitol hill anyway. .

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That is one economic "school of thought". Accounting nonsense is another leg of the stool. .

Well, that'd screw the bankers pretty quickly. ;^)

Good luck explaining that to the Libertarian types.

Don't get me started. I turned a profit out of the dot.com boom, but none of my colleagues did.

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The others involve throwing cats over your shoulder after running around the stump three times. Think of the economy as a complex servo system with the money supply as one of the nodes in it. If you think about it that way, it should be obvious that the government should work against changes in the money supply, which ever direction they go in.

Ayup. All this stuff makes a lot more sense if you think of it as a nested control-loop servo-mechanism.

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With some of them it is just "religion" and no amount of logic and counter evidence will work but others are rational. The rational ones can be convinced once they see the facts. The easiest ones to convince are the ones who want to go back onto the gold standard. Those haven't thought about what happens if someone who doesn't like us finds a huge supply of gold. I used to use Russia as the example (It is the real case). Today Iran may work better.

Once the person sees how a sudden increase in the amount of gold effects things, they usually are willing to think of something other than gold setting the money supply. You then need to suggest the case that somehow the gold (or whatever) starts rapidly disappearing. You can usually make them see how a rapid reduction in the money supply can be bad too. At this point, a bit to talking about "if not gold then what" will usually convince them that as bad as fiat money is, all the other options are worse.

At this point, the person has agreed that a steady amount of money is best and that fiat money is the least bad sort of money. If they have come that far it isn't hard to get them to agree that government needs to act to keep the supply nearly constant.

Mortgage bubble: government was in-phase with the money supply.

HTH, James Arthur

So you think politicians are in the business of stabilizing the economy? Do you think they should be making win/lose decisions? You must be one happy weenie, because they are.

I'm really at a loss to respond to all these platitudes, naked assertions and assumptions.

Feel free to lay out exactly what you think caused the bubble, where the money went, in your view, and the numbers that make it work.

Rather than speaking in abstractions like "injecting" and "money supply", and it's-the-right-thing-to-do bromides, kindly explain the mechanism whereby

a) massively paying some people to b) temporarily (we hope) c) do things we don't need, makes things d) better for them once the program ends,

and why

e) that doesn't hurt, weigh on, slow down or discourage the remaining, productive people who are forced to pay for that, the cost of government waste and administration, plus interest.

Obama's phrase, "stimulating the economy," is not an explanation--the economy's an idea, not a thing. If it had a heart attack there'd be no place to connect your defib-u-lator[1] paddles.

Cheers, James Arthur

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I think that a well regulated currency and working for the general welfare are the jobs of government. I seem to remember that some others a while back thought the same and thought it important enough to put it down on paper.

No I don't think they should be making win/lose decisions. They set the rules of the game. You can't have much of a game without rules.