You can pay off debt while having a balanced budget, since each piece of debt paper has an expiry date.
The Consequences of Federal Default
- Thread starter KMRblue1027
- Start date
Your numbers aren't right, total labour force has never been above 70%, and it's currently higher than any point prior to 1986: http://en.wikipedia.org/wiki/File:US_Labor_Participation_Rate_1948-2011_by_gender.svg
If you brought labour participation rates down to post-WW2 level you'd be at -2% unemployment or so.
KMRblue1027
The Crown!
I got the numbers from here: Employment to population ratio.
It was actually at 74.2. I'm not sure what exactly the different calculation are between the US standard and OECD.
I was including in the balanced budget payments to lower debt. Apologies if that was contrary to the accepted normal definition of a balanced budget. Just going off the fact that if I balance my personal budget, I can't just ignore debt. Banks get picky if you don't make your house payment, for example.
I still just do not accept the premise, however. Bear in mind, this started when I said I was okay with sending us into a depression if we came out of it on the other end stable and with a balanced budget (see above, yo!) to boot. Spiral into depression, the government finally realizes it cannot sustain the stupid entitlement programs it's been implementing and it slashes them all, going back to what it's supposed to deal with and leaving the rest to the States -if they so choose to do it-. Tell me we cannot balance if we cut the ridiculous crap from the budget.
You guys keep talking about how our debt is fine and how it's manageable, but just look at the sheer numbers. What is it? 15-16 trillion dollars in debt? If our debt is just fine and dandy, why do people always scream about how Reagan skyrocketed it (forget the fact that it was really Congress' fault for insisting in expanding asinine entitlement programs) and how Clinton was our savior for coming close to balancing it? No, either the debt is fine or it is not, and frankly it's not.
I still just do not accept the premise, however. Bear in mind, this started when I said I was okay with sending us into a depression if we came out of it on the other end stable and with a balanced budget (see above, yo!) to boot. Spiral into depression, the government finally realizes it cannot sustain the stupid entitlement programs it's been implementing and it slashes them all, going back to what it's supposed to deal with and leaving the rest to the States -if they so choose to do it-. Tell me we cannot balance if we cut the ridiculous crap from the budget.
You guys keep talking about how our debt is fine and how it's manageable, but just look at the sheer numbers. What is it? 15-16 trillion dollars in debt? If our debt is just fine and dandy, why do people always scream about how Reagan skyrocketed it (forget the fact that it was really Congress' fault for insisting in expanding asinine entitlement programs) and how Clinton was our savior for coming close to balancing it? No, either the debt is fine or it is not, and frankly it's not.
Honestly, I think people mention Bush's and Reagan's shooting up of the debt if only to highlight their hypocrisy. Like I said, if the cost of servicing the debt is rising faster than government revenues, it really is a reasonable thing to be concerned about.
The other thing to worry about is where the money is coming from. If the median income is not rising, then that tax base can only rise with population growth. If corporate profits are rising, then ostensibly that tax base should be rising too.
The other thing to worry about is where the money is coming from. If the median income is not rising, then that tax base can only rise with population growth. If corporate profits are rising, then ostensibly that tax base should be rising too.
Back in the Great Depression, before the federal government was involved in any social program spending, the government tried for years to slash spending and balance the budget. It never worked. Why? Because when you cut spending fewer people are working, and less taxes are coming in.
How do you balance your checkbook when you refuse to go to work and get paid?
Arrow Gamer
America's Dictator
@VRW: Governmental debt has little to do with household debt. Debt is necessary to run a government effectively, from what little I know of economics.
And $15,000,000,000,000 is a large number, yes. But, and here's the key, SO IS OUR GDP. It's about the ratio, not the numbers.
And $15,000,000,000,000 is a large number, yes. But, and here's the key, SO IS OUR GDP. It's about the ratio, not the numbers.
Yes, I realize this. I was simply explaining to Hygro why I had assumed "balanced budget" meant also making payments to lower the debt. Nothing more.
KMRblue1027
The Crown!
Because like everything in life it needs context. Reagan ran up a massive amount of debt simple being he handed an enormous tax break to people who didn't need it while cutting programs that helped people. Clinton didn't really do anything and that's kinda the point, he didn't need to, while Bush II did the same exact thing only even worse than Reagan. Both Bush's and Reagan's debt was completely unnecessary. Unlike Obama who inherited 2 wars and a crashing economy.
The moral of the story is you run up debt when the economy is slow than when it rebounds raise taxes and cut out emergency spending. Boom balanced budget.
The moral of the story is you run up debt when the economy is slow than when it rebounds raise taxes and cut out emergency spending. Boom balanced budget.
Bank of America has total debt equal to about 150x their net annual profit.
Murky
Deity
If the GOP forces a default on the debt ceiling it would make the 2008 recession look like a walk in the park. You would have to be insane to think it would be a good thing.
Hygro
soundcloud.com/hygro/
Naw, because this metaphor doesn't work. You are putting the bank above the couple in the money signal flow. But the couple is the federal government. Thereby the bank actually goes to them for money, which they are in charge of creating and destroying at their whim.
@VRWCAgent, the main problem with this discussion is that we are using the terms "debt" and "deficit". We could literally call the "deficit" a surplus and it would be just as technically accurate and a lot less misleading for its relation to our day to day lives. We could call the national debt anything we want, including net savings financial contribution to the private sector.
When you cut a dollar, you cut a dollar. Whether it goes for funding the Ten Commandments in front a courthouse or a redundant, second engine for the F22, that's still a dollar you cut from the private sector. Remember, public employees' salaries are private sector money: they are private citizens whose money is in private banks and gets spent on personal goods etc.
You can spend money way more efficiently, but you still need a money surplus (aka gov't deficit) to keep the money supply growing in tandem with the growth of the real economy. So funding schools, public works, science and scientists!, unemployment assistance, cutting taxes on lower incomes, etc allows you to run way smaller deficits. You can run a smaller deficit with government run healthcare (note Scandinavia) because the money is more in-house (and more efficient). Health insurance is a natural monopoly which means the more people are on one plan, the cheaper it is for everyone on that plan.
You could also run deficits with tax cuts to top earners. That's the Dick Cheney way. This requires much larger deficits since one dollar given to a broke person goes something like 7 times further than a dollar given to a rich person.
[size]You can still be a Republican and be down with the accounting facts like certain members of the Bush administration who misused it. But imagine if the Bush style economy wasn't running deficits. How bad would that be? Oh yeah, we started running a structural surplus and then the economy crashed bad. We might be running a structural surplus right now relative to full employment, hence our stagnation.[/size]
Ultimately that would lead to much less revenue from those taxes sources, putting the federal government back in deficit anyway.
Yeah. That was on the back a private credit expansion to cover for the private sector deficit caused by the public sector surplus. THAT is the debt crisis we should fear. Again, that's also what was going on in 2006-7 and 1929.
There are 3 sectors of the economy
Public
Private
Foreign
Money moves among them. Money up in one sector means money down in another. Money down in one means up in another. The only sustainable one to keep in deficit is the government, since it can't run out.
I don't think they ever thought they needed to. The US Treasury can't default without bizarre artificial legal constraints like this arbitrary debt ceiling. There's no "natural" default cause. It's as relevant as having a clause in your marriage contract spelling out what happens when marriages become illegal.
Right, except since the government can't default unless it's forced to default, it makes even more sense!
KMRblue1027
The Crown!
I don't really agree with that. How exactly is the money from capital gains and the plus like 10 million dollar yearly income people affecting the economy? At least public perception is it sits there and stagnates at the upper income levels. I could be off base here but it would make a lot more sense for that money to actually, I don't know, pay for healthcare or road construction, or just reduce the overall deficit instead of essentially being forcefully removed from economic growth?
Hygro
soundcloud.com/hygro/
Erm, the taxes forcefully remove it from growth, though like a tree with dead branches, can be good in the long run? But nevertheless if the money goes towards areas that are more efficient than the sectors that produce capital gains and super super high incomes, then those sectors won't receive incomes, so won't pay taxes, so that revenue is gone and we have a deficit again. Maybe we are talking about different things?
@VR: I missed your most recent post. Yes, you are right, it can't be both ways with hating on deficits and then preferring them. It's bothering me too. We should just prefer deficits. Reagan era and Bush era deficits were inefficient. They caused waste. They meant that we could have inflation before the private sector operated at full USA#1 capacity. I'm serious. But the Clinton surplus helped cause a small recession. The Bush II structural surplus combined with the massive wealth inequality in part due to the inefficiency of who received the tax cuts helped cause a much bigger recession.
So yeah, surpluses are usually bad. They are only good to stop inflation, and even then, only the kind of inflation that happens when you are pushed past full employment. So like, you can run a surplus for a year but only if the economy is usually at sustainable full employment, which over all can only be through deficits anyway.
KMRblue1027
The Crown!
But it's removing it with an intention to reinvest it somewhere important. If you can give a concrete reason on how the upper level tax level being ungodly low helps than I can accept that but right now you trying to use proof without example. I just don't know how you are coming to this conclusion.
Edit: Ah you ninja edited me. Ok, now I can start to see where you are coming from. I think we were approaching this at two different angles and that's where the confusion stepped in.
Edit: Ah you ninja edited me. Ok, now I can start to see where you are coming from. I think we were approaching this at two different angles and that's where the confusion stepped in.
Hygro
soundcloud.com/hygro/
My bad-- I forgot to finish my previous post before I posted it but check the edits 
The thing is that if you run a surplus on say capital gains. Let's say we somehow could run a total government surplus that was $200 billion capital gains revenue next year. If we wanted to "reinvest it" then we would spend it. So there's no more $200 billion surplus. There is instead a money transfer from speculative asset holders to the very economy they are seeking to own a piece of. Win for everyone, maybe.
But! So the surplus is gone. You now have altered GDP by +$200b investment spending times multiplier of that spending (I imagine to high MPC actors), so let's say that $200b creates $600b of GDP growth. But you also altered GDP by -$200b times multiplier of thathoarding savings which in being charitible to your argument is 0.5 for a total of -$100b.
In year 1 you'd have a $500b GDP growth stimulus holding everything else constant.
However, 3 things.
1) You didn't run a surplus because you spent the money
2) My previous post
3) The economy would grow but to continue its growth the following year it needs new money.
In other words: In addition to point 2 aka previous post meaning that the pool of money to do what we did just shrank, requiring deficits to sustain the economy from that point, the economy still has get new dollars somehow. We can keep taxing inefficient money to spend it more efficiently, but only to a point. Markets are good at a lot of things, and even in the perfect money-based economy, which is a kind of libertarians meet communists paradise, you still have sticky prices. You still see deflation happen as spiraling unemployment rather than price drops.
If you want new growth, you need new money. Your idea recycles old money better. But eventually we need new money to match new output even when we are at our most efficient tax and spending code.
The thing is that if you run a surplus on say capital gains. Let's say we somehow could run a total government surplus that was $200 billion capital gains revenue next year. If we wanted to "reinvest it" then we would spend it. So there's no more $200 billion surplus. There is instead a money transfer from speculative asset holders to the very economy they are seeking to own a piece of. Win for everyone, maybe.
But! So the surplus is gone. You now have altered GDP by +$200b investment spending times multiplier of that spending (I imagine to high MPC actors), so let's say that $200b creates $600b of GDP growth. But you also altered GDP by -$200b times multiplier of that
In year 1 you'd have a $500b GDP growth stimulus holding everything else constant.
However, 3 things.
1) You didn't run a surplus because you spent the money
2) My previous post
3) The economy would grow but to continue its growth the following year it needs new money.
In other words: In addition to point 2 aka previous post meaning that the pool of money to do what we did just shrank, requiring deficits to sustain the economy from that point, the economy still has get new dollars somehow. We can keep taxing inefficient money to spend it more efficiently, but only to a point. Markets are good at a lot of things, and even in the perfect money-based economy, which is a kind of libertarians meet communists paradise, you still have sticky prices. You still see deflation happen as spiraling unemployment rather than price drops.
If you want new growth, you need new money. Your idea recycles old money better. But eventually we need new money to match new output even when we are at our most efficient tax and spending code.
KMRblue1027
The Crown!
So effectively you either need the private sector or public sector to run a deficit and we both agree it's better for the government to do so?
Hygro
soundcloud.com/hygro/
Yeah.
KMRblue1027
The Crown!
Alright cool. Learn something new everyday. Unlike the other thread where I feel like I'm loosing my sanity trying to argue with that one guy.
Sorry, I don't know if yore deducting my point or agreeing with it, because I'm not sure what paper you're referring too.
I'm agreeing!
This is what I was talking about:
http://www.newyorker.com/online/blo...ff-and-reinhart-controversy-a-summing-up.html
http://www.nextnewdeal.net/rortybom...einhart-rogoff-and-there-are-serious-problems
Similar threads
- Locked
