Keith Devens .com

Euro's gain not a major pain

Economists doubt the currency's record run will hurt the U.S. economy; in fact, it could help.

NEW YORK (CNN/Money) - If it's Monday, the dollar must be hitting another record low against the euro.

That's bad news if you're an American tourist planning a trip to Paris to eat some Freedom -- er, French -- bread, but many economists believe that it's also mostly good news for the U.S. economy.

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Indeed, but if you're not going to tax, you have to get money from somewhere, no matter how dumb that somewhere may be.

I've never understood why people can't make the connection between public services and tax. A lot of people think they can pay no tax and still avail of said services. Therein lies deficits.

No government will support a balanced budget amendment: it means there's too much of a chance they'll end up out on their asses.

ideoplastos, the article points out that in the short term, it might be good. I hadn't really thought of it that way, so thanks. But it does point out that long term, we still have major problems.

Keith, actually they putting a balanced budget amendment up for a vote in California. That that can happen in California gives me hope

You know, early in Bush's term he made the point that the government doesn't have money... it's the people's money they spend. When I heard that, I thought "Yeah Bush... awesome". Then his administration hasn't behaved like he believed that for a second.

I can see this becoming somewhat of a ramble...

Balanced Budget amendment in CA: I know that already. However, in California you're looking at one of the few cases where that could be done. You've got an immensely rich state, a newly-elected political neophyte with an action-hero persona, a huge debt, and a ridiculous position whereby the governor can be impeached at the drop of a hat even if they're trying to institute measures that might hurt in short term but will get things working in the long term. People just can't seem to grasp the simple equation taxes = Public Services. I think Schwartznegger will either as an utter hero if he manages to pull it off, or end up even more demonised that Davis.

Do I think a balanced budget amendment is a fine ideal? Yes. Do I think it's practical? No. You won't always be able to balance your budget and there will be times when you'll have to borrow. This should only be when times are lean. Mind you, when they're good you should be saving for the bad times.

But politicians don't do this. They don't invest in infrastructure, nor do they introduce any kind of radical reforms, such as worthwhile regional development. Here in Ireland when the economy was booming, our Finance Minister cut taxes for the wealthy radically. Now, it's worth noting that this country is ran more like the US than the rest of Europe, including the UK. This was done under the pretence of helping the poor (both the upper and lower rates were dropped).

[A short digression: I don't think trickle-down economics works. I know you're probably going to disagree with me on this. My reasoning is not terribly complicated and feel free to refute it. Putting it simply, the wealthy can afford to hoard, and therefore putting more money in their pockets won't necessarily mean that money will reenter the economy. When it's in the hands of the poor, you are certain that money will reenter the economy pretty quickly. This flow of capital is the economy's lifeblood. If you want to encourage spending, you put more money into the pockets of those on low-to-medium sized incomes.]

Did he provide money for developing the country's infrastructure? Not a lot. Is our government trying to stem the growth of Dublin (which has 1/3 of the country's population) and encourage growth of the rest of the country? No, quite the opposite in fact, and to the whole country's detriment.

That's my roundabout way of saying that politicians are shortsighted. If they want to stay in business, they can't afford to play the long game.

Going back to irish politics, we have three/four major parties in this country. The two biggest are Fianna Fail (FF) (pronounced FEE-nna fawl, meaning "Soldiers of Destiny" in English) and Fine Gael (FG) (pronounced FEE-nuh gale, meaning roughly "Kin of the Gael"). Both of these are the modern splinters of pre-Civil War Sinn Fein, being the anti-treaty and pro-treaty factions respectively. Not that modern day Sinn Fein bears little connection with the original. There's also Labour (Lab) and the Progressive Democrats (PD).

FF and FG are both conservative. FF is a lot like the Republican Party, FG like the Democrats. FG tends to be a reform-driven, progressive, Christian Democratic party with a tendancy to implode regularly. FF is more interested in staying in power. Labour is, well, Labour. PD splintered from FF in the mid-80s but absorbed some FG members too, including our current Minister for Justice. They're pro-business, pro-small government, but have a bizarre big-brother streak running through them. There are genuinely good people in all these parties, but as happens, other interests keep genuine reform from happening.

In the early-80s, a minority FG-Lab coalition government was formed. The FG leader at the time was Garret FitzGerald. A very decent and idealistic man, he'd campaigned on a social reform ticket and did well enough. He couldn't form a government alone, so invited Labour into government for the first time in their history.

As I said, he's decent and idealistic, and this was his and his government's undoing. While he'd expected things to be tight, he didn't expect the state's finances to be like they were. One word: Argentina. FF had destroyed the exchequer time after time in the interests of reelection.

FitzGerald and his cabinet worked hurculean hours to try to put things in order. They had to try to explain to the people what state the country's finances were in, that the reforms would have to go on hold, and that a rather hard budget was required. His budget was voted down in the Dail (our lower house, pron. Dawl). GFG decided to take it to the people, expecting them to understand. They didn't: FF won power, but thankfully only for a short while. GFG was leading the country again within a few months. He managed to institute the fiscal reforms before the IMF had to intervene. Had that happened, we'd be a lot less well off now than we currently are.

Oh, and don't get me started on how the Rainbow Coalition was treated after they managed to somehow managed to get the country's economy going! You probably won't believe me, but the best, and most prudent, Finance minister we've had for a long time was a left winger, whereas our current one, who's vehemently right-wing (our current one). Sometimes personal politics aren't a sign of whether somebody will be good in government or not: it's character that counts.

[And just in case you think I'm completely derisive of FF, during the 60s, it gave us one of our best leaders, Sean Lemass, who managed to pull the country into the 20th century in just a few years. As I said, it's character that counts.]

I hope this ramble made some kind of sense. It's late and I'm tired!

Back on the dollar: I want a stronger dollar. A positively sickly dollar is hurting the Irish and EU economies badly. It means we (and particularly Ireland) are utterly uncompetitive in terms of wages and prices. You want a stronger dollar, and so do I!

Do I think a balanced budget amendment is a fine ideal? Yes. Do I think it's practical? No. You won't always be able to balance your budget and there will be times when you'll have to borrow. This should only be when times are lean. Mind you, when they're good you should be saving for the bad times.

Part of any balanced budget amendment should be a provision to borrow in emergencies, and the government should be forced to save money in a "rainy-day fund". One of the reasons I'm very impressed with the proposed amendment in California is that it has both of these provisions (1% of government revenue is required to be saved in the fund). The proposed amendment in California seems to be very sensibly put together, from what I understand of it.

[A short digression: I don't think trickle-down economics works. I know you're probably going to disagree with me on this. My reasoning is not terribly complicated and feel free to refute it. Putting it simply, the wealthy can afford to hoard, and therefore putting more money in their pockets won't necessarily mean that money will reenter the economy. When it's in the hands of the poor, you are certain that money will reenter the economy pretty quickly. This flow of capital is the economy's lifeblood. If you want to encourage spending, you put more money into the pockets of those on low-to-medium sized incomes.]

Fun digression. Obviously we could go on for a long time, so I'll keep it short. For me, this type of issue is a moral one. I don't think it's right to tax one group of people at a higher rate than another. I think a flat tax is the only fair way to implement an income tax. A full discussion about "trickle-down economics" can wait for another time

That's my roundabout way of saying that politicians are shortsighted. If they want to stay in business, they can't afford to play the long game.

Yes, to me this is one of the fundamental paradoxes of representative government. What might manage to get a politician re-elected isn't always what's the best thing to do, and vice versa. Cynics say that the job of a politician is to get himself (re)elected. Idealists say that the job of a politician is to serve the people. Pragmatists might say that the job of a politician is to make the people happy, though that might not be in the people's best interests. In fact, that's why we have representative government in the first place: we give our representatives the authority to make decisions that they think will be best overall for us. Anyway, more thought is required on this.

Thanks for the intro to Irish politics, which I knew nothing about before now.

I want a stronger dollar. A positively sickly dollar is hurting the Irish and EU economies badly. It means we (and particularly Ireland) are utterly uncompetitive in terms of wages and prices. You want a stronger dollar, and so do I!

And from what I understand, that's exactly what Europe doesn't need right now. What's interesting is that I suppose I had a hole in my knowledge of economics, because before ideoplastos gave a link to that article above, I hadn't really considered that a weaker dollar could actually be a good thing (at least in the short term). Of course, our current fiscal situation -- deficit spending, huge trade deficit, huge national debt, out of control government growth, etc. -- would lead to a weaker dollar, and I've predicted that (not on my weblog though). But I hadn't considered the positive effects of it. A lot of our biggest issues, such as losing manufacturing and other jobs to other countries, and our widening trade deficit with China partly due to their artificially cheap currency, will be helped by the weaker dollar.

It's interesting... I've taken macro-economics, but I really have no background in international economics. Something for me to learn up on.

Well, a slightly weaker dollar would be great, but not one quite as weak as it is now. It's too weak right now to be of benefit to any of the Eurozone nations. Ireland is especially hurt by this because we have a criminal overdepenancy on US firms for employment.

The weak dollar should help US business in the short term and maybe help fix your trade deficit somewhat. Longterm, it's going to hurt.

One republican/representative government: As Churchill correctly said (I personally put a distinction between democracy--as practiced in Athens and, today, Switzerland--and republican government--as practiced in most democracies today and Rome): Democracy is the worst kind of government, save the rest. I'd say republican government comes second.

As far as tax goes, and I may have mentioned this before, I'm in favour of a single tax on land rent. As things stand, I'm, on ethical grounds, a supporter of a tiered income taxes. This is on the grounds that if you are well off, you should help those who are less well off. If any part of my christian upbringing stuck, that was one of them.

As things stand, I'm, on ethical grounds, a supporter of a tiered income taxes. This is on the grounds that if you are well off, you should help those who are less well off.

Remember that the rich do pay far more taxes than the poor do, even in the case of a flat tax, since it's based on percentage. I don't think it's just to arbitrarily say "You make X amount? Ok, then the government will take a higher percentage of your money".

If any part of my christian upbringing stuck, that was one of them.

One of the main reasons I'm for a flat tax is because the Bible says to treat the rich and the poor equally. To me that implies a flat tax. Also keep in mind that it's not charity if the government forces you to give your money up. And it's certainly not the government's job to engage in charity.

Anyway, the main reason I wanted to comment again is because I came across an article I think is relevant: IMF Researchers: US Budget Gaps Endanger Global Economy