Overspending crisis?

[Narz]

Seems like society is doomed because of shortsightedness. In US at least seems like each president (especially Republicans) just want to pump up economy by any means necessary (on their watch) increasing spending and promising tax cuts and deficit ballons.

Everyone has their head in the sand, my mom talks about how I should get an investment portfolio for the distant future (retirement acct) and I just want an unknown cabun in the woods with farmland. How long can we keep building this skyscraper higher with plunder from our own foundation before it all falls apart?

Theres a toilet paper company called Seven Generations claiming that got their idea of sustainability from some native tribe that used to plan 7 gens out. Is there any way to be make politicians and business leaders care about the long term future or must we wait for the collapse before anyone in power changes?

Are things as bad in your country as in the US?

 

[sophie]

The spending isn't "plundering our foundation". The government prints the money, and they can do so essentially forever, particularly for a large economy like the US. The money is merely a representation of economic activity, so as long as the money is being used to further economic activity, then there's nothing to worry about. The debilitating side of the recent tax deal is that it gives tax cuts to the rich and screws over everyone else. Unlike printing money, stark economic inequality does harm the economy per se, because you're giving money to people who aren't going to actually drive any further economic activity.

 

[luiz]

The spending isn't "plundering our foundation". The government prints the money, and they can do so essentially forever, particularly for a large economy like the US. The money is merely a representation of economic activity, so as long as the money is being used to further economic activity, then there's nothing to worry about. The debilitating side of the recent tax deal is that it gives tax cuts to the rich and screws over everyone else. Unlike printing money, stark economic inequality does harm the economy per se, because you're giving money to people who aren't going to actually drive any further economic activity.

That only "harms" the economy if you accept the truth that there are limited real resources to go around, which is contrary to your first point. If we follow the logic from your first point, we'd have to conclude that at the very worst giving money to the rich is neutral.

 

[El_Machinae]

That only "harms" the economy if you accept the truth that there are limited real resources to go around, which is contrary to your first point. If we follow the logic from your first point, we'd have to conclude that at the very worst giving money to the rich is neutral.

But money isn't resources. You know this. Giving money to the already-rich means that they can further purchase ownership of assets and resources, which will shuttle the wealth upwards if it's not 'given' with the proper set of incentives for them to re-invest those dollars. But, at the individual level, an investment and an asset purchase are made using similar metrics, so there's no outright guarantee that 'rich' person given money will invest it rather than just purchase assets and resources.

Money is merely distribution of existing assets, and in any given snapshot of time there are (obviously) limited resources. That means that today's spending of today's resources determines tomorrow's supply. We know that the rich and the poor are equally capable of investing it (in an economic sense), so that there's more tomorrow than there is today. But there's no guarantee that they will. It's very easy for a fiat money system to result in wealth shuttling ever-upwards, the government debt can be a symptom of that. Government debt is merely another created asset.

Government is an asset, and in our modern system the 'rich' are bribed to buy it. They only do so if they perceive it to be in their best interest. Remember, they use the same metrics when choosing between an investment and an asset purchase. Give them more money, there's no guarantee they'll invest it. They'll certainly shuttle the wealth upwards, though.

 

[Lexicus]

That only "harms" the economy if you accept the truth that there are limited real resources to go around, which is contrary to your first point. If we follow the logic from your first point, we'd have to conclude that at the very worst giving money to the rich is neutral.

This is just like, things that are completely not true and don't follow for 500, Alex

 

[Bootstoots]

This is one of those cases where it is helpful to have a serving of the MMT understanding that the government and its central bank create money de novo and can't default unless it expressly chooses to do so. As side dishes, add the caveats that high inflation happens if it spends quickly enough to grow the money supply much faster than the real economy, that it's generally a good idea to make the government issue bonds as though it had to borrow to finance itself, and that it can also negatively distort the economy if it stimulates too much in the wrong ways.

 

[Hygro]

That only "harms" the economy if you accept the truth that there are limited real resources to go around, which is contrary to your first point. If we follow the logic from your first point, we'd have to conclude that at the very worst giving money to the rich is neutral.

Humans have feelings and act accordingly, and inequality changes feelings and actions top to bottom.

 

[Lexicus]

This is one of those cases where it is helpful to have a serving of the MMT understanding that the government and its central bank create money de novo and can't default unless it expressly chooses to do so. As side dishes, add the caveats that high inflation happens if it spends quickly enough to grow the money supply much faster than the real economy, that it's generally a good idea to make the government issue bonds as though it had to borrow to finance itself, and that it can also negatively distort the economy if it stimulates too much in the wrong ways.

But of course, in reality, this happens waaaaaaay less often than the private banking system inflating bubbles which collapse and create the opposite problem, deflation, which is far more damaging than inflation by any possible measure.

 

[Bootstoots]

But of course, in reality, this happens waaaaaaay less often than the private banking system inflating bubbles which collapse and create the opposite problem, deflation, which is far more damaging than inflation by any possible measure.

It has happened before, including a few recent cases in Latin America and in a variety of countries (including much of Latin America) in the 1930s-1980s. But it is extremely unlikely to happen in a country that has an "independent" central bank that views staying at 2% inflation as their sacred duty, and a government whose policy is effectively captured by wealthy interests that will never allow inflation to eat away at their wealth, and in which the deficit is treated as a bad thing that should be remedied by cutting spending. That sort of economy, both the 1980s-present one and also the gold standard world pre-1930s, will see speculative bubbles followed by crippling deflationary depressions along with high inequality and all the rest of it.

BTW, how much more difficult is it to attain high inflation in a world where labor is weak? The wage-price spiral more or less requires workers to have the power to force their employers to raise wages. Without strong unions and labor politics in general, this would require such an acute labor shortage that almost anyone with a pulse could get employed. Weak labor must be an important part of why inflation has been so low from the late 1980s on.

 

[stinkubus]

Certainly. The "too many dollars chasing too few goods" scenario doesn't play out when all the dollars are going to just a few thousand households and everyone else (in real terms) is treading water. The only place you are seeing stark inflation in the US is speculative asset prices. What else are the already impossibly wealthy going to do with it?

 

[GoodSarmatian]

Are things as bad in your country as in the US?

Germany has the opposite problem.
We've had ideologically motivated budget surpluses since 2015 and the government wants to keep balanced budgets until at least 2021 while underinvesting in basically everything.
I guess I should be at least a bit grateful that they aren't pointlessly burning money on tax cuts on people who are already too rich.

 

[Lexicus]

Germany has the opposite problem.

Not really. The problem in both countries is deeply conservative political leadership in thrall to rich people. Y'all are running surpluses for the same reason we're running deficits.

 

[GoodSarmatian]

Not really. The problem in both countries is deeply conservative political leadership in thrall to rich people. Y'all are running surpluses for the same reason we're running deficits.

If you put it that way, yes, it's not exactly the opposite, but I'm beginning to think that we should start to come up with more precise terms for political ideologies. The Republicans aren't really conservative anymore and have much more in common with the AfD than the CDU.

 

[Hygro]

I think with y'all Germans, however, the surplus and deficits are more religious than for us.

I guess any opiate of the masses is a great profit source.

 

[Lexicus]

If you put it that way, yes, it's not exactly the opposite, but I'm beginning to think that we should start to come up with more precise terms for political ideologies

Germany's macro position is different. The Germans can run surpluses because their trade relationships with the rest of the EU allow them to do that - their private sector can accumulate enough claims on foreigners to more than offset the net increase of claims on the private sector by the government. Ultimately the political purpose of y'all surpluses and our Republican-created deficits are the same.

I think with y'all Germans, however, the surplus and deficits are more religious than for us.

Well, the difference for us is that he's correct about the Republicans being more analogous to the AfD, while the Democrats are now the main standard-bearers of the balanced-budget religion in American politics. Hopefully the political forces represented by AOS, El-Sayed, Bernie etc. will be able to cure them of this.

 

[Quintillus]

I probably wouldn't be so concerned about the deficits if they were being invested in things like infrastructure, education, and scientific development (think NASA in the 60s, but also all the government scientific investment that lead to Silicon Valley), rather than tax cuts for the rich and huge spending on the military. As it is, I feel the U.S. is underinvesting in basically everything that lead to it becoming a great nation in the first place.

It could be worse, though. Much worse. Look at Venezuela.

As for ways to make an impact... voting is one. As well as explaining why so many policies (such as the Republican tax cut) are short-sighted. Really, I think public civic education is a lot of it. People think economic prosperity just grows on trees, but don't remember that the U.S. got to where it is through investing in its future, not always optimizing for what's best in the short term. Of course civics is hardly taught in schools these days, either.

Another one I'm exploring is related to that retirement savings thing, and is putting that sort of investment in companies that aren't, for example, spilling oil in the Gulf of Mexico. I recently learned about the ESG ratings, which rank mutual funds based on their environmental and social impact, and (more nebulously to me) how they are governed. I'm just starting to look into it, but I like that it's now easier to make sure you aren't indirectly investing in coal or oil companies, while not being reliant on a few particular stocks. And the other aspect of this, is that if a lot of investors stop investing in companies that are ruining the environment due to greater awareness and ability to avoid that type of investment, it will put pressure (in the form of falling stock prices) on the leaders of those companies to change their ways.

Finally, I've also switched over to renewable electricity generation. Ohio has a deregulated electric market, which traditionally has meant that some fat cats could make money selling electric at inflated rates to consumers (using short-term discounts to lure them in). The local paper figured out this had cost consumers several billion dollars since deregulation occurred, versus everyone sticking with the default. But on the upside, it also means Ohioans can choose to have 100% renewable electric generation, even though the overall state average is closer to 2%. And if 10% of Ohioians took that option (which is not much more expensive at all; I saved 2-3% the first year and will spend about 5% extra this year), you'd be looking at a significant increase in wind and solar power generation.

I do expect an economic downturn within the next 2 years or so, though not anarchy, and have taken precautions with that in mind. But nonetheless, while any individual's actions won't have much impact, all of the above are ones where if 10% of people started caring about them, they'd start moving the needle noticeably.

 

[Hygro]

I probably wouldn't be so concerned about the deficits if they were being invested [...]rather than tax cuts for the rich

Tax cuts for the rich paid for by deficit spending near literally means printing fully insured interest bearing money for rich peoples' accounts.

Changing the volume of money and who gets it affects different people and firms and governments in different ways so we shouldn't be mindlessly printing money in hopes that we continuously drive full employment. Instead we should be mindfully trend toward printing money to drive full employment

 

[Bootstoots]

Germany's macro position is different. The Germans can run surpluses because their trade relationships with the rest of the EU allow them to do that - their private sector can accumulate enough claims on foreigners to more than offset the net increase of claims on the private sector by the government. Ultimately the political purpose of y'all surpluses and our Republican-created deficits are the same.

Nowadays, almost every country in the Eurozone has a trade surplus, which is how the Eurogroup intends to make the new gold standard work. By design, the engineered depressions in the debtor countries crushed the spending power of the citizens of the PIIGS to decrease imports, while reducing the cost of labor and the prices paid by tourists so as to increase exports. The effect is that the German model has been extended to the rest of the Eurozone. It's working pretty well so far, and could keep going as long as the US keeps up its role as the world's chief deficit country. Of course, it might stop working if either Trump manages to push tariffs with the EU to very high levels or an economic downturn decreases spending here.

 

[Farm Boy]

Tax cuts for the rich paid for by deficit spending near literally means printing fully insured interest bearing money for rich peoples' accounts.

And we wonder why handouts* paid with public debt ossify class.

Are we back in the 2016 election thread?

*the dole, whatever positive term you want instead. I'm not fussed, really, pick your poision.

 

[Lexicus]

And we wonder why handouts* paid with public debt ossify class.

Obama's mother received handouts and he grew up to be a Harvard professor, President of the United States, and a multimillionaire. But tell us more about how "handouts...ossify class"