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Sev
07-18-2011, 09:04 PM
So debt and deficits arent important?
The government will save us.

OH WAIT!!! WHAT AM I THINKING???

<span style="color: #000000"> http://blog.heritage.org/2011/07/18/aarp-how-high-do-you-want-your-grandkids-taxes-to-go/

AARP’s latest video http://www.youtube.com/watch?v=9SSttXqIuxcopposing spending reductions in Social Security or Medicare once again pushes the flawed argument that cutting federal budget waste and loopholes would effectively address America’s unsustainable fiscal problems. A senior featured in the video asks, “With billions in waste and loopholes, how could they look at us?”

Yes, there is substantial government waste http://www.heritage.org/Research/Reports/2010/06/Federal-Spending-by-the-Numbers-2010that Congress can eliminate, but that shouldn’t be a substitute for real entitlement reform. Spending on Medicare, Medicaid, and Social Security—the three main entitlement programs—represents more than half of the entire federal budget today and will consume all of tax revenues by 2049.http://www.heritage.org/budgetchartbook/entitlements-historical-tax-levels

http://i162.photobucket.com/albums/t278/Sevelli/Political/entitlements-historical-tax-levels-.jpg

It is this spending that drives the debt and deficits, not government waste or tax loopholes.

With entitlement spending projected to more than double by mid-century, http://www.heritage.org/budgetchartbook/entitlement-spending-doubleburdening future generations with unmanageable debt levels, Congress must tackle the difficult issue of entitlement reform now.

http://i162.photobucket.com/albums/t278/Sevelli/Political/entitlements_01-580.jpg

AARP argues that today’s seniors have paid into the system all of their lives and should get what they paid for. But both Social Security and Medicare are set up so that current workers pay for the benefits of current retirees rather than paying for their own future benefits. So seniors don’t actually receive what they paid into the system at all. In some cases, they receive more—the value of the benefits current seniors are receiving in Medicare is well in excess of what they paid in.http://blog.heritage.org/2011/02/28/the-...eived-benefits/ (http://blog.heritage.org/2011/02/28/the-case-for-entitlement-reform-taxpayer-contributions-fall-dangerously-short-of-received-benefits/)

The benefits seniors receive today won’t be around later if Social Security and Medicare remain as-is. Unless Social Security is fixed, everyone who is receiving benefits will face an automatic 25 percent benefit reduction by about 2036. Even now, some seniors are forced into poverty due to an inadequate Social Security benefit.

For these reasons, groups like AARP should support improving—not just preserving—entitlement programs through structural reforms. Heritage’s Saving the American Dream plan,http://blog.heritage.org/2011/02/28/the-...eived-benefits/ (http://blog.heritage.org/2011/02/28/the-case-for-entitlement-reform-taxpayer-contributions-fall-dangerously-short-of-received-benefits/) for instance, would improve benefits by guaranteeing that no senior under these programs would have to live in poverty or without access to health care. The Heritage plan accomplishes this for Social Security by increasing the retirement age to reflect changes in life expectancy that have already occurred; providing a predictable, new flat benefit; and ensuring that benefits go to Americans who actually need them. It reforms Medicare by transitioning to a system in which seniors receive a defined contribution, receive catastrophic care coverage, and can choose the health plan that most appeals to them.

Finally, the video spotlights the current 50 million seniors receiving benefits, which only stresses the severity of the problem: Taxpayers are stretched to their limits to fund inefficient and costly entitlement programs for a rapidly increasing number of beneficiaries. Compared to 50 years ago, when five workers paid the benefits for each retiree, today only three workers exist per retiree; in 20 years, it will amount to only two. In a word: unsustainable.

There are two ways to solve this problem. One way—the Obama way—is to lock in these unsustainable benefits and tax our way out. That would mean tax hikes on every American:http://www.heritage.org/budgetchartbook/entitlements-double-tax-rates from 10 to 25 percent for the lowest bracket, 25 to 63 percent for the middle, and 35 to 88 percent for the highest, by 2082.

http://i162.photobucket.com/albums/t278/Sevelli/Political/entitlements-double-tax-rates-6001.jpg

Would AARP’s members really want to pass on such a legacy to their grandkids?

The better solution is to transform these programs in a way that could give AARP’s members confidence that they will have economic security in retirement, that Social Security and Medicare will be around for decades, and that their grandkids will have the same kind of promise and opportunity they had. Surely that is the kind of legacy AARP’s members want.

Saving the American Dream http://savingthedream.org/must be the job of this Congress and this President.</span>

Qtec
07-18-2011, 10:08 PM
<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">So debt and deficits arent important? </div></div>

What does the debt have to do with SS?

Q

LWW
07-19-2011, 03:01 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body"> <div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">So debt and deficits arent important? </div></div>

What does the debt have to do with SS?

Q </div></div>

What does rain have to do with clouds?

LWW
07-19-2011, 03:05 AM
This is the shame of the greediest generation.

People are selling their children and grandchildren into third world status so that they can retire with 25+ years or state support to comfort them.

They are destroying the good paying blue collar job base so that they canbuy a DVD player for $29.00.

And, in the ultimate insult to society and the future, they are demanding more.

Qtec
07-19-2011, 05:09 AM
No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q

Gayle in MD
07-19-2011, 06:05 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body">No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q </div></div>

What a crock of bull this thread is. We were the first ones here warning about Bush et al, spending our children's and grand children's futures, and they were the ones attacking us for it, and yapping the party line, like screwed up little parrots they are, writing that the deficits didn't matter!!!!

BWA HA HA HA, what a bunch of out of touch, game changers they are, refusing to accept the FACT, that Bush, and the Repiglican blank check Congress, put us right in the mess we're in, while the stupid nutjobs, defended everything Bush/Repiglicans did to destroy our economy, and our honor in the world.

LIARS! Deniers! Fly-over idiots! Our problems grew, while the right yapped about God, Guns and Gays, and Cheney told them, the deficits didn't matter, and they couldn't swallow it up fast enough!

Unbelievable!

G.

Soflasnapper
07-19-2011, 09:51 AM
AARP argues that today’s seniors have paid into the system all of their lives and should get what they paid for. But both Social Security and Medicare are set up so that current workers pay for the benefits of current retirees rather than paying for their own future benefits.

This author's comment is false. As of the Greenspan Commission recommendations being signed into law, the boomer generation began to pay about 50% more a rate on payroll tax (4.2% for SS went to 6.2%), and the ceiling of earned income to which the SS payroll tax applied went up 400%. This was so that they were actually paying for the current older retirees, AND (at least partially) paying for or substantially adding a lot of resources to help pay for their SS retirements.

That's where the couple trillion in SS trust fund monies came from-- overpayment of the boomers compared to what was necessary to fund current payouts, creating large, $100+ billion a year surpluses, which over the years has added up to over $2.5 trillion in SS trust bonds. The SS system is due back the principle and the interest, which has already been booked into the total debt obligation of the US.

LWW
07-19-2011, 03:52 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body">No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q </div></div>

SS is a Ponzi scheme.

SS has no assets other than a promissory note from a bankrupt borrower.

Next myth?

LWW
07-19-2011, 03:53 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">AARP argues that today’s seniors have paid into the system all of their lives and should get what they paid for. But both Social Security and Medicare are set up so that current workers pay for the benefits of current retirees rather than paying for their own future benefits.

This author's comment is false. As of the Greenspan Commission recommendations being signed into law, the boomer generation began to pay about 50% more a rate on payroll tax (4.2% for SS went to 6.2%), and the ceiling of earned income to which the SS payroll tax applied went up 400%. This was so that they were actually paying for the current older retirees, AND (at least partially) paying for or substantially adding a lot of resources to help pay for their SS retirements.

That's where the couple trillion in SS trust fund monies came from-- overpayment of the boomers compared to what was necessary to fund current payouts, creating large, $100+ billion a year surpluses, which over the years has added up to over $2.5 trillion in SS trust bonds. The SS system is due back the principle and the interest, which has already been booked into the total debt obligation of the US.

</div></div>

And how will they pay for it without making debt slaves of future generations?

Soflasnapper
07-19-2011, 04:41 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: LWW</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body">No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q </div></div>

SS is a Ponzi scheme.

SS has no assets other than a promissory note from a bankrupt borrower.

Next myth? </div></div>

You've listed two myths right there. I'll read another one from you, if you provide it.

Soflasnapper
07-19-2011, 04:45 PM
And how will they pay for it without making debt slaves of future generations?

All borrowed amounts, and all tax cuts, will eventually have to be made good by taxing the current and future generations at a higher level. The option except that solution is bankruptcy, or inflating away the value of the debt.

If you are concerned about the future generation, the current generation needs to be taxed more right now, or at least, quite soon.

LWW
07-20-2011, 02:09 AM
Why can you never comprehend of a solution that reduces the scope of your beloved state?

LWW
07-20-2011, 02:10 AM
You do realize that you argue against your point in your very next post?

Soflasnapper
07-20-2011, 11:14 AM
You will notice in LWW's reproduced chart that the area representing the SS factor does not 'explode,' and doesn't even increase much if at all, to my eye.

The increases are in the Medicare area, based on current baseline assumptions of annual medical care inflation increases remaining what they are today.

That is indeed unsustainable, and must be addressed, but as you rightly note, and as the chart itself bears out, SS is not a growing factor in this issue. It looks to straightline out at about the same it is now.

LWW
07-20-2011, 03:59 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">You will notice in LWW's reproduced chart that the area representing the SS factor does not 'explode,' and doesn't even increase much if at all, to my eye.</div></div>

<span style='font-size: 11pt'>REALLY!</span> <span style='font-size: 14pt'>REALLY!</span> <span style='font-size: 17pt'>REALLY!</span>

Perhaps a closer review will yield some enlightenment?

Sev
07-20-2011, 07:14 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">AARP argues that today’s seniors have paid into the system all of their lives and should get what they paid for. But both Social Security and Medicare are set up so that current workers pay for the benefits of current retirees rather than paying for their own future benefits.

This author's comment is false. As of the Greenspan Commission recommendations being signed into law, the boomer generation began to pay about 50% more a rate on payroll tax (4.2% for SS went to 6.2%), and the ceiling of earned income to which the SS payroll tax applied went up 400%. This was so that they were actually paying for the current older retirees, AND (at least partially) paying for or substantially adding a lot of resources to help pay for their SS retirements.

That's where the couple trillion in SS trust fund monies came from-- overpayment of the boomers compared to what was necessary to fund current payouts, creating large, $100+ billion a year surpluses, which over the years has added up to over $2.5 trillion in SS trust bonds. The SS system is due back the principle and the interest, which has already been booked into the total debt obligation of the US.

</div></div>

Well then.
If the debt ceiling is not raise there should be no problem sending out those Soc Sec checks. Right?

Soflasnapper
07-20-2011, 11:56 PM
SS checks would be paid by redeeming its bonds.

Rolling over debt is routine, and how the government always pays maturing bonds. If they borrowed exactly as much as they were paying off, no net difference in the national debt. But they borrow the interest as well, making the debt grow.

Once at the debt ceiling, the normal refinancing procedure isn't available, since it does add greater debt.

So only actual cash receipts can be used to redeem SS bonds. There are many critical needs to be funded out of those scarce cash receipts. SS might get enough money to send all checks, but take almost the cash. I've also seen an analysis that even with all the cash, it still would be short when the next round of checks was due.

LWW
07-21-2011, 04:06 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">SS checks would be paid by redeeming its bonds.</div></div>

Where will the gubmint get the money to redeem the bonds with.

This isn't a trick question.

I'll even give you a hint:

TH _ Y W _ LL PR _ NT TH _ M _ N _ Y.

You may buy a vowel if you need to do so.

LWW
07-21-2011, 04:07 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: LWW</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">You will notice in LWW's reproduced chart that the area representing the SS factor does not 'explode,' and doesn't even increase much if at all, to my eye.</div></div>

<span style='font-size: 11pt'>REALLY!</span> <span style='font-size: 14pt'>REALLY!</span> <span style='font-size: 17pt'>REALLY!</span>

Perhaps a closer review will yield some enlightenment? </div></div>\

HMMMMMM?

Soflasnapper
07-21-2011, 01:57 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: LWW</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">SS checks would be paid by redeeming its bonds.</div></div>

Where will the gubmint get the money to redeem the bonds with.

This isn't a trick question.

I'll even give you a hint:

TH _ Y W _ LL PR _ NT TH _ M _ N _ Y.

You may buy a vowel if you need to do so. </div></div>

They will borrow the money. However, if they borrow it from the Fed, then it will be equivalent of printing money. Although paying interest instead of the minor printing charges. No worries, though-- the interest income to the Fed is returned to the Treasury, minus expenses. The Fed paid the government about $80 billion last year.

LWW
07-21-2011, 03:11 PM
How are the fairies and unicorns doing where you live?

Gayle in MD
07-21-2011, 03:21 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body">No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q </div></div>

Nothing!


The Republican Party abandoned fiscal responsibility in favor of reckless tax cuts and “deficits don’t matter” policies.

Sid_Vicious
07-21-2011, 04:48 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Gayle in MD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body">No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q </div></div>

Nothing!


The Republican Party abandoned fiscal responsibility in favor of reckless tax cuts and “deficits don’t matter” policies.

</div></div>

That is a fact, but the "you know whos" don't acknowledge facts. All the Piglicans are wanting to do with SS is play it for their party's advantage, in order to dicker over keeping the wealthy taxpayer's tax cuts. I still say, it is very ignorant and dumb for the non wealthy citizens here, especially the middle class voters, to fall for it, cuz thay are simply asking to screw themselves, and the their older family members on SS. The wealthy tax cuts should be an outragous policy to logically try to sell on all the non wealthy Americans, but they got it done with The Chimp for 8 years,,,it didn't work to gain revenue or jobs...and they are still getting dumbos to swallow it again. So in the end, the rich(who surely donated a lot to get the Pigs elected) may keep their tax benefits, while the SS recipients get "back end taxed" by cuts.

Now, doesn't all that sound real Christian! sid

Soflasnapper
07-21-2011, 04:54 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: LWW</div><div class="ubbcode-body">How are the fairies and unicorns doing where you live? </div></div>

So you're not aware that by law, the Fed returns all net profits to the Federal government, and that last year, that returned profit was $80 billion?? Interesting.

Sev
07-21-2011, 08:05 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body">SS checks would be paid by redeeming its bonds.

Rolling over debt is routine, and how the government always pays maturing bonds. If they borrowed exactly as much as they were paying off, no net difference in the national debt. But they borrow the interest as well, making the debt grow.

Once at the debt ceiling, the normal refinancing procedure isn't available, since it does add greater debt.

So only actual cash receipts can be used to redeem SS bonds. There are many critical needs to be funded out of those scarce cash receipts. SS might get enough money to send all checks, but take almost the cash. I've also seen an analysis that even with all the cash, it still would be short when the next round of checks was due. </div></div>

So then you would agree Obama is doing nothing but scaring the Seniors?

cushioncrawler
07-22-2011, 01:37 AM
Dan 11:20 Then shall stand up in his estate a raiser of taxes [in] the glory of the kingdom: but within few days he shall be destroyed, neither in anger, nor in battle.

Gayle in MD
07-22-2011, 07:00 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Sid_Vicious</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Gayle in MD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body">No answer then?

SS is paid for. Right now it has 2.5 Trillion in assets.

What does it have to do with GW's overspending?

Q </div></div>

Nothing!


The Republican Party abandoned fiscal responsibility in favor of reckless tax cuts and “deficits don’t matter” policies.

</div></div>

That is a fact, but the "you know whos" don't acknowledge facts. All the Piglicans are wanting to do with SS is play it for their party's advantage, in order to dicker over keeping the wealthy taxpayer's tax cuts. I still say, it is very ignorant and dumb for the non wealthy citizens here, especially the middle class voters, to fall for it, cuz thay are simply asking to screw themselves, and the their older family members on SS. The wealthy tax cuts should be an outragous policy to logically try to sell on all the non wealthy Americans, but they got it done with The Chimp for 8 years,,,it didn't work to gain revenue or jobs...and they are still getting dumbos to swallow it again. So in the end, the rich(who surely donated a lot to get the Pigs elected) may keep their tax benefits, while the SS recipients get "back end taxed" by cuts.

Now, doesn't all that sound real Christian! sid

</div></div>

Yep, and doesn't it make you wonder why so called "Christians" think or pretend that they are more compassionate, all knowing and loving than non Christians.

Talk about hypocrites!!!!

I suppose fantasy is their forte'... given the way they think and the way they vote.

too bad they're too gullable to realize they're only being exploited by Repiglicans Without conscience, and all for political and financial gain.

/forums/images/%%GRAEMLIN_URL%%/crazy.gif

But then, lets face it, they're experts at suspending critical thinking skills, hence, too ignorant to understand why in times like this, cutting spending, instead of investing in jobs, is the absolute worst policy of any!!!!


At the very least, I'm thinkful that Americans, by huge numbers, are seeing how irresponsible Repiglicans really are, and also how ignorant and inept they are as regards economic policies.

The current polling data proves it.


Repigs have fully demonstrated that their only intention is to give away more of our tax revenues, raising our dtbt levels, all in the interest of giving away more and more of our money to the wealthy, just as they have been doing all along.

"When fascism comes to America, it will come wrapped in the flag, and waving the cross."


G.

LWW
07-22-2011, 07:23 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Soflasnapper</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: LWW</div><div class="ubbcode-body">How are the fairies and unicorns doing where you live? </div></div>

So you're not aware that by law, the Fed returns all net profits to the Federal government, and that last year, that returned profit was $80 billion?? Interesting. </div></div>

I'm well aware of the law, I just don't believe in this mythical fairy tale land that you subscribe to.

The reality is that the debt limit is only a feasible solution so long as the rest of the world is willing to loan us money.

The left is like the guy standing at the checkout while the clerk cuts up his credit cars and explains <span style='font-size: 11pt'>"BUT I AUTHORIZED THE ADDITIONAL DEBT!"</span>

WORLD GDP (http://www.economist.com/blogs/dailychart/2011/05/world_gdp) is roughly $65,000B.

US GDP (http://www.usgovernmentspending.com/fed_us_real_gdp_chart_09_k.html) is roughly $13,000B.

That leaves the rest of the world's GDP at about $52,000B and current US DEBT LIMIT (http://politicalticker.blogs.cnn.com/2011/07/21/cnn-poll-strong-partisan-divide-on-debt-ceiling/) is roughly $14,300B.

IOW ... current US debt is at about 27.5% of the remaining (non US) global GDP.

Conservatively speaking, current stupidonomic policy will increase the US debt by an additional $10,000B ... and probably more.

That would take the US debt to roughly $25,000B ... or roughly 48% of the non US global GDP.

Most of the rest of the world is in dire financial straits on their own.

It is actually more logical to believe in fairies and unicorns than it is to believe that the rest of the world will continue to loan us money under such a scenario.

When our creditors cut us off, which is already happening with the Chinese bailing dollar assets and the Fed using QE1 and QE2 and a likely QE3, we shall have no choice but to monetize the debt.

At that point we become Zimbabwe, Hungary, and the Weimar Republic redux.

http://upload.wikimedia.org/wikipedia/commons/thumb/f/ff/Bundesarchiv_Bild_102-00104%2C_Inflation%2C_Tapezieren_mit_Geldscheinen. jpg/438px-Bundesarchiv_Bild_102-00104%2C_Inflation%2C_Tapezieren_mit_Geldscheinen. jpg

GERMANY 1923: The German Mark used as wallpaper. In 1914 it took
4.2 Marks to buy 1 US dollar. By 1923 it took 4,200,000,000,000 to
achieve the same task. Any idea what happened next? Hitler.

http://upload.wikimedia.org/wikipedia/commons/3/3e/Zimbabwe_%24100_trillion_2009_Obverse.jpg

ZIMBABWE 2011: A $100,000,000,000,000.00 note. In 1960 one Zimbabwe dollar was worth 1.25 US
dollars. Today one US dollar is worth 688,000,000,000 Zimbabwe dollars. Inflation peaked at about
9,000,000%. per year. Any idea what the result was? 80% unemployment.

Class dismissed.

Sev
07-25-2011, 04:17 PM
Families will be selling their daughters to make ends meat.

cushioncrawler
07-25-2011, 08:06 PM
History
Rate of Change of Wages against Unemployment, United Kingdom 1913–1948 from Phillips (1958)William Phillips, a New Zealand born economist, wrote a paper in 1958 titled The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957, which was published in the quarterly journal Economica. In the paper Phillips describes how he observed an inverse relationship between money wage changes and unemployment in the British economy over the period examined. Similar patterns were found in other countries and in 1960 Paul Samuelson and Robert Solow took Phillips' work and made explicit the link between inflation and unemployment: when inflation was high, unemployment was low, and vice-versa.

In the 1920s an American economist Irving Fisher noted this kind of Phillips curve relationship. However, Phillips' original curve described the behavior of money wages.[1]

In the years following Phillips' 1958 paper, many economists in the advanced industrial countries believed that his results showed that there was a permanently stable relationship between inflation and unemployment. One implication of this for government policy was that governments could control unemployment and inflation with a Keynesian policy. They could tolerate a reasonably high rate of inflation as this would lead to lower unemployment – there would be a trade-off between inflation and unemployment. For example, monetary policy and/or fiscal policy (i.e., deficit spending) could be used to stimulate the economy, raising gross domestic product and lowering the unemployment rate. Moving along the Phillips curve, this would lead to a higher inflation rate, the cost of enjoying lower unemployment rates.

cushioncrawler
07-25-2011, 08:08 PM
Unemployment and Inflation
Unemployment and inflation are two intricately linked economic concepts. Over the years there have been a number of economists trying to interpret the relationship between the concepts of inflation and unemployment. There are two possible explanations of this relationship – one in the short term and another in the long term. In the short term there is an inverse correlation between the two. As per this relation, when the unemployment is on the higher side, inflation is on the lower side and the inverse is true as well.

This relationship has presented the regulators with a number of problems. The relationship between unemployment and inflation is also known as the Phillips curve. In the short term the Phillips curve happens to be a declining curve. The Phillips curve in the long term is separate from the Phillips curve in the short term. It has been observed by the economists that in the long run the concepts of unemployment and inflation are not related.

As per the classical view of inflation, inflation is caused by the alterations in the supply of money. When the money supply goes up the price level of various commodities goes up as well. The increase in the level of prices is known as inflation. According to the classical economists there is a natural rate of unemployment, which may also be called the equilibrium level of unemployment in a particular economy. This is known as the long term Phillips curve. The long term Phillips curve is basically vertical as inflation is not meant to have any relationship with unemployment in the long term.


It is therefore assumed that unemployment would stay at a fixed point irrespective of the status of inflation. Generally speaking if the rate of unemployment is lower than natural rate, then the rate of inflation exceeds the limits of expectations and in case the unemployment is higher than what is the permissible limit then the rate of inflation would be lower than the expected levels. The Keynesians have a different point of view compared to the Classics.

The Keynesians regard inflation to be an aftermath of money supply that keeps on increasing. They deal primarily with the institutional crises that are encountered by people when they increase their price levels. As per their argument the owners of the companies keep on increasing the salaries of their employees in order to appease them. They make their profit by increasing the prices of the services that are provided by them. This means there has to be an increase in the money supply so that the economy may keep on functioning. In order to meet this demand the government keeps on providing more money so that it can keep up with the rate of inflation.