Huh, negative interest rates

[Cutlass]

Well yes. We should actually purposefully produce a steady deflation rate to discourage debt.

Except the majority of the population does not want to live in cardboard shantytowns.

 

[Cutlass]

It was my understanding that Supply Side Economics and Monetarism were both fundamentally derived from Keynesian principles. Primarily the principle that the way to encourage economic growth is to increase aggregate expenditures. A true Keynesian will want to do this directly through government spending. A Supply Sider wants to do this indirectly through lowering taxes to increase consumption and economic investment. Monetarists want to do this indirectly through manipulating the money supply to increase economic investment and to a lesser extent consumption. All three methods can be effective.

Since we're talking about Supply Side Economics, let's talk about Reagan. The main reason Reagan's tax cuts failed is because the massive tax cuts to the upper class were offset by smaller tax increases to the middle and lower class. Since the middle and lower classes have a much higher propensity to consume, aggregate demand fell even though taxes were lowered overall. However, not only were the Reagan Tax Cuts offset by more powerful (but smaller overall) tax increases, but also spending cuts.

Unfortunately, taxes are now to low for any significant tax breaks to do anything other then just bankrupt the Federal government.

Let me start by copying something I wrote elsewhere. It's not a direct answer to you, but sets it up with some background.

For a quick and easy introduction you could pick up Tim Harford's recent book The Undercover Economist Strikes Back: How to Run-or Ruin-an Economy While he does not get into the politics of the shift in political support, he does lay an accessible groundwork to understand the approaches.

Keynesian macroeconomics is, at it's most basic, approaching the problem of how well the economy does or does not run from the perspective of demand side management. That is, that if government policy is centered around managing the demand, Aggregate Demand (AD), in the terminology, then the economy will be much more stable in the long run, and produce more wealth in the long run. That problems with the economy are typically problems with the demand in the economy being inadequate or disrupted, and that is the cause of recessions.

Supply side economics is a school which is something of a subset of classical, or neo-classical economics. The classical (whether neo or not, or something along those lines) tends to see problems in the overall economy in terms of problems with the supply of goods and services, and that recessions result from the supply side.

Further, the classical schools of thought tend to see economic disruptions as coming from outside the economy. The classical schools see shocks to the economy which may cause recessions or other disruptions as exogenous, that is, factors that are outside of the normal run of the economy. And because the shocks come from outside, and because they're not about demand in the economy, then government policies aimed at demand management, are thought to be the wrong approach, and so government shouldn't do them. In fact, the classical approach tends to believe that for the most part there's nothing practical that the government can do. At least in the short run.Keynesian economics, on the other hand, see shocks to the economy primarily as endogenous, that is, as originating from within the economy, and as being a natural part of the economy. And because they are a natural part of the economy, and because government policy can be used effectively to mitigate recessions and other economic disruptions, that government should act.

Also an important factor is that Keynesians see government economic policy as critically including regulatory policy. The believe that a lot of the endogenous problems in an economy can be prevented or mitigated by a proper regulatory framework. While the classical schools tend to be much more opposed to economic regulation, to one extent or another.

Supply side economic kind of takes this old debate and heads off on a tangent. Like the Keynesians, Supply siders think that the government can act in some ways to stabilize the economy. But unlike the Keynesians, they do not see the problems with economy as Aggregate Demand problems, but rather as Aggregate Supply problems. And so while they will intervene in a malfunctioning economy, their methods of intervention are intended to be to improve the situation on the supply side. That is, if the supply of goods and services available in the economy is improved, or if obstacles to supply, often regulations, are removed, then the economy will improve.

So Supply side isn't entirely within either the Keynesian or the classical framework, though it has a lot more in common with the classical then the Keynesian.

Now which is right? Harford in his book makes a point of demonstrating that both endogenous and exogenous shocks do happen. But it appears that most shocks to the economy are endogenous. Though the oil shock experienced in the 1970s was exogenous. And, importantly in the political context, the Keynesian economists who were dominant in macroeconomics from WWII until the 1970s did not have good theory, understanding, or policy prescriptions, to offer to government to deal with the type of exogenous shock that oil was to the US at that time. As a result of this the Keynesians took a critical hit to their reputation that they never really recovered from.

Here enters Aurthur Laffer and Ronald Reagan. Laffer was able to convince Reagan, and a number of up and coming Republican leaders such as David Stockman, who became Reagan's budget director, that the Supply Side theories were the way to go. Now had Reagan not won the 1980 election, it might have ended there. George HW Bush, who you recall became vice president under Reagan, famously labeled Supply Side economics as Voodoo Economics. And the old guard of the Republican party at the time mostly agreed with Bush. But he did win, and also a Republican majority won in the Senate. That plus the Republicans in the House, and many conservative Southern and Western rural Democrats known at the time as the Boll Weevils were sufficient so that Reagan was mostly successful in getting his legislative agenda passed into law. Reagan, for whatever else you want to say about the man, was typically pretty effective in his relationships and ability to work with Congress, including Congressional leaders who were opposed to him on ideology.

So that's really the story of how Supply Side economics came to be. How it became enshrined in the Republican party is politics. Bush promised to not raise taxes, but then he did, because he was a real fiscal conservative, and very much wanted to address the deficits that Reagan had left behind. And then he lost reelection to Clinton. The lesson Republicans took from this is never raise taxes.

Now we could get a lot more into the politics of how and why the Republicans got locked in where they did. But I'll leave off from that here.

Others are better at explaining just what the current schools of economic thought are. Typically among the professionals and academics in macroeconomics, there's a lot of agreement in a synthesis of economic schools that grew out of the 1980s. The golden age of politicians actually listening to economists was in the postwar era. No matter what economists are saying now, politicians are really only hearing what they want to hear.

The problem that was going on in the 1970s was inflation due to an exogenous supply shock. Oil. And the economist at the time didn't understand how to deal with that. In hindsight we can say a lot of things. And it probably just had to run it's course. But the politics at the time said otherwise. And the inflation did get serious enough so that a lot of people were open to a different approach.

To sum up, Supply Side Economics is not in any sense a Keynesian approach to economics. It uses some of the same tools. But other than being a semi-activist policy, really has nothing else in common with Keynesian. And in fact the purpose of it was to replace Keynesian economics, not expand upon it.

Monetarism was also intended to replace Keynesian economics, not expand or improve it. The Monetarists were much more neoclassical than Keynesian. The foundation of Monetarism was fundamentally an opposition to an activist government economic policy. Specifically an opposition to fiscal and regulatory policy.

Monetarists and Supply Siders want, at heart, for the government to cease doing those things that Keynesians say that the government should do. And because of that, conflating them as being part of Keynesians is fundamentally wrong.

 

[Tahuti]

Except the majority of the population does not want to live in cardboard shantytowns.

So... debt is what keeps us from living in cardboard shantytowns?

 

[Cutlass]

So... debt is what keeps us from living in cardboard shantytowns?

To a very large extent, yes. Developing a modern wealth economy cannot happen without debt.

 

[Tahuti]

To a very large extent, yes. Developing a modern wealth economy cannot happen without debt.

I think you are mistaking debt with investment. Not all investment is debt. Investment is needed to make economies prosperous. Debt is investment with the investor passing on all the downsides to one invested in should things go wrong.

Now, debt may encourange more investment. Though it is essentially akin to selling fridges of which you know some will certainly explode though most may function alright and benefit their users.

 

[Cutlass]

I think you are mistaking debt with investment. Not all investment is debt. Investment is needed to make economies prosperous. Debt is investment with the investor passing on all the downsides to one invested in should things go wrong.

Now, debt may encourange more investment. Though it is essentially akin to selling fridges of which you know some will certainly explode though most may function alright and benefit their users.

Debt backs the overwhelming majority of all investment. Without it, you get the premodern era. Or you get a 3rd world country. There aren't any other alternatives. You cannot get a developed nation without it. If you end debt, you end prosperity for the masses. There is no escaping that.


The danger of debt is manageable if we choose to manage it. But nobody has ever come up with a way to have mass prosperity without mass debt.

 

[Tahuti]

Debt backs the overwhelming majority of all investment. Without it, you get the premodern era. Or you get a 3rd world country. There aren't any other alternatives. You cannot get a developed nation without it. If you end debt, you end prosperity for the masses. There is no escaping that.

We probably will need a significant decrease in living standards (meaning: luxury) to live sustainably. I would also argue that we owe more living standards to certain technology like sanitation rather than the institute of banking.

Note that in pre-modern England, peasants worked like 20 hours a week. I'll give you a source should I stumble upon something relevant in that regard.

 

[Farm Boy]

Note that in pre-modern England, peasants worked like 20 hours a week. I'll give you a source should I stumble upon something relevant in that regard.

That's always a loaded analysis. Who worked 20 hours a week, what were they doing when they weren't "working," and what was the standard of living? We're talking about what, the 1300s and earlier? The early European modern era coinciding with the Renaissance? Dear Lord man if you think medieval agricultural societies were a bastion of free time and leisure. Even if you qualify the work down so that you can average the winter out of the equation somehow and come up with a 20 hour work average annually, who does that even apply to? A man may work from sun to sun but a woman's work is never done. That's how that one goes right? And that isn't just child rearing. Gardening, spinning everyone's clothes, etc. Even if you're counting walking behind an ox, or weeding, or scaring birds off your hand-broadcast seed, or chopping firewood, or sitting around looking lazy tending a herd of sheep, that isn't leisure time. That's the pastoral fantasy and lie.

 

[Tahuti]

That's always a loaded analysis. Who worked 20 hours a week, what were they doing when they weren't "working," and what was the standard of living? We're talking about what, the 1300s and earlier?

Let's say before 1450s. Whatever they were doing when not working and the standard of living are not directly related to the work hours.

 

[Cutlass]

We probably will need a significant decrease in living standards (meaning: luxury) to live sustainably. I would also argue that we owe more living standards to certain technology like sanitation rather than the institute of banking.

Note that in pre-modern England, peasants worked like 20 hours a week. I'll give you a source should I stumble upon something relevant in that regard.

So because you don't like debt, the majority of the human population has to just settle for a hopeless lifetime of abject poverty?

That is evil.

 

[Tahuti]

So because you don't like debt, the majority of the human population has to just settle for a hopeless lifetime of abject poverty?

That is evil.

False dilemma, there is a way to avoid abject poverty and debt.

 

[Farm Boy]

Let's say before 1450s. Whatever they were doing when not working and the standard of living are not directly related to the work hours.

No, the standard of living was in large part tied to your share of ownership, more accurately access, in the open fields system. Yields were abysmal. From wiki:

Wheat and barley were the most important crops with roughly equal amounts planted on the average in England. Annual wheat production at Battle Abbey in Sussex in the late 14th century ranged from 2.26 to 5.22 seeds harvested for every seed planted, averaging 4.34 seeds harvested for every seed planted. Barley production averaged 4.01 and oats 2.87 seeds harvested for seeds planted. This translates into yields of seven to 17 bushels per acre harvested. Battle Abbey, however, may have been atypical, with better management and soils than typical of demenses in open-field areas.

Wiki also put the number of acres for a family to survive at ~10. Fallowing ground in the absence of modern fertilizers chewed up much of the time of arable land, from 1/3 - 1/2 of it in any given season where it had to be given over to grazing. If you didn't have enough acreage to feed your family, you had to work for those who had more. You probably also had to work the lord's land while you were at it. I would be absolutely stunned if this 20 hours a week figure didn't come from odd accounting of labor perhaps only quantifying field work and ignoring many of the other tasks needed to survive and thrive. Maybe it was analyzing townsfolk instead of the majority of the population? Perhaps the smith only had enough paid business throughout the year to keep his highly skilled labor at the anvil 20 hours a week averaged?

 

[El_Machinae]

Well, deflation still allows debt based investment. And you can still have investment without debt. It's mostly that you can get more investment without deflation and with debt.

It's mostly a matter of quantity of investment.

 

[Tahuti]

Wiki also put the number of acres for a family to survive at ~10. Fallowing ground in the absence of modern fertilizers chewed up much of the time of arable land, from 1/3 - 1/2 of it in any given season where it had to be given over to grazing.

Irrelevant, as we have far better technology nowadays.

 

[Farm Boy]

Aight, so that would reduce hunger by shifting some labor away from tasks that could be sacrificed in the name of more food. Which is probably most of them. Also bear in mind the green movement pegs(possibly accurately) modern fertilizers as a chief culprit in unsustainability. Yet there are no meaningful replacements forthcoming.

 

[El_Machinae]

You know, I betcha a person in the developed world could live significantly better than a 1305 AD farmer both debt-free and working only 20 hrs per week. The only real problem comes from bidding for essentials against those willing to work more than 20 hrs per week or those willing to take on debt. But, I still be it would be better.

Now, that's a modern adult. I'm not sure about any child born and raised that way. I guess it would be technically possible,but they'd lose out on all types of assets during their development. That said, I betcha a functionally illiterate adult can do better today than 800 years ago, with the understanding that some essentials might have been priced out of reach through sheer competition.

 

[Borachio]

Aight, so that would reduce hunger by shifting some labor away from tasks that could be sacrificed in the name of more food. Which is probably most of them. Also bear in mind the green movement pegs(possibly accurately) modern fertilizers as a chief culprit in unsustainability. Yet there are no meaningful replacements forthcoming.

How about genetically modifying crops to have nitrogen fixing rhizomes?

 

[Farm Boy]

How about genetically modifying crops to have nitrogen fixing rhizomes?

Somewhat promising. Reducing the overall need for fertilization, even though it wouldn't eliminate it, is a win. It's an even better win(necessary probably) if you can fit it into a crop rotation that's functional for the producer. But taking into account the organizations that are going to need to research, market, refine, and distribute those modified crops you are going to have to contend with butting heads with the anti-science Whole Foods nation that craves inefficient luxury food production methods as a matter of moral principle.

 

[Hygro]

No one is buying 30 cups, that's for sure.
You know hyperinflation is a thing, right?

Nope, I've never heard of hyperinflation.


Spending beyond full employment is indeed inflationary. Spending ridiculous amounts beyond full employment can be hyperinflationary. These are the limits of the economic effects of spending more money – diminishing marginal returns on the value of each new dollar spent.

None of that has a lick to do with the ability of the sovereign to service debt. They are two separate issues. The state has infinite money. The state does not have infinite capacity in pushing production. But the lack of infinite capacity-boosting is not a limitation on what we're talking about, which is the USA risking being unable to service its debt under any non political circumstances.

False dilemma, there is a way to avoid abject poverty and debt.

And it doesn't come from "encouraging deflation". Pray tell, what mechanism of the state would you use to "encourage deflation"?

More likely those with resources aggressively squeeze out smaller holders of real estate and commodity. So yea, kinda like 30 cups of coffee at a time, but somewhat less ridiculous and definitely more harmful to the "peasants." You should pay attention to small agricultural landowners when the big ones think that holding assets is a clear winner over holding liquid. It's a trope in Westerns and Melodramas I think. But either way, when you unstabilize the values of things too much you wind up with the same old problem. The entities that are already deeply pooled enough to act quickly and in the correct direction are going to use that advantage to hoover up the accumulated wealth/value of the smaller, less flexible classes. No? Stability is always touted as representing the interests of the already wealthy, but a degree of instability helps them more than everyone else in the zero sum games. Little guys don't have the same finance/economics majors on their payrolls.

Sure, but that comes from supply side shocks (maybe a drought?) an noninflationary demand side cronyism (special tax breaks and subsidies that benefit the richest farmers). General price increases from more money in consumer pockets shouldn't hurt. Indeed, most the populist farmer movements I learned of in high school were pro-inflationary (not the same as pro-inflation).

 

[Farm Boy]

Sure, but that comes from supply side shocks (maybe a drought?) an noninflationary demand side cronyism (special tax breaks and subsidies that benefit the richest farmers). General price increases from more money in consumer pockets shouldn't hurt. Indeed, most the populist farmer movements I learned of in high school were pro-inflationary (not the same as pro-inflation).

But I'm not really talking about agriculture so much, just as part of a whole and an old trope. Steady inflation is good for those who operate on debt. It's the instability that hurts. The people who react fastest and get the most off the margins every time things shift are those with the financiers on the payroll. Everyone else is too busy working their own job, or raising their kids, or whatever. Eventually they'll catch on to how things have changed but by then they're riding the poop end of the wave. Then repeat when the valuation changes again. Boom/recession cycles unseat relative wealth from middle to small players and consolidate it, eh?