What's wrong with US national debt?

[Cutlass]

Jesus Christ, what is that drop in revenue in 2001? The Bush tax cuts?

There was a minor recession, and 2 major tax cuts.

 

[Cutlass]

Charity is easier to sell than private firms. Besides, charities are greatly handcuffed on what they can do by government. Mainly because some programs would suffer. Private firms would do the best job, imho.

Charities were never prevented by anyone from working. They failed because the concept behind them failed.

You can not point to a single day in human history when private charity met the basic needs of the needy. Not one day in 6000 years. And now charitable giving for poor relief is lower than ever.

 

[El_Machinae]

Here's why ratios matter, in growth economies.





Are we having success or failure between 1979 and 1990?

 

[Hygro]

I see no moral reason to assume we need to be rewarding sitting on cash. Inflation should be the cost of sitting on cash. And no, I don't care if it's a "sympathetic" wealthy party sitting on cash in the form of an endowment or a 401k. Capital should not be as "sticky" as it is. Bear in mind, I'm not advocating bashing in capital with massively punishing taxes(though I think they're probably too low for median Americans, and definitely too low the farther up the ladder you go): merely suggesting that inflation is a good rate at which to let it decay.

Another way of saying what you're saying is not inflation but lowering interest rates. Interest rates can't go below 0% by design, but not by necessity. i.e. with electronic money or making cash go obsolete in phases based on its serial number, we can make the nominal interest rate be anything we want.

It's a bold plan but whether you up inflation or drop interest rates, it's still within the system. I'm not sure why you denigrate 401k holders or endowment fund recipients, though. We're talking about wage earners and financial aid beneficiaries--not exactly our capitalist overlords.

Sorry if this is removed from the flow of the current conversation, but how does this effect the ability of the US to continue to roll over its debt? The idea being that with another trustworthy international currency to choose from, countries will diversify away from the dollar and our debt will become more onerous.

I personally think the euro was a bigger challenge (who can slight the commitment to currency orthodoxy of the ECB?), but I'm seeing some "sky is falling" commentary on the horizon.

What do you think Mr. Hygro?

It's an interesting article. Dim Sum Bonds make me think of eurodollars, which are USD traded in London banks. Side note, but important, I think that because dollars are the world currency, but because a lot of them are purchased as eurodollars which, being privately held, makes them finite, is a big reason why a lot of European economists seem in practice to think that money is nominally limited. Just a hunch.

Remember that the value of a currency though is a function of the total economy and the amount of currency. It's also a function of interest and inflation. And other stuff. The mistake a lot of pundits make is assuming that a rising currency against another currency means that its a sign that the rising currency will overtake the other one for international dominance. But in actuality it means that their economy relative to their money supply is bigger than it used to be.

So you're probably right, there will be "sky is falling commentary" which is just another way of saying that you can make some money going long on the US economy (but not necessarily on the dollar exchange rate, who knows) if you know how the fools are going to bet short.

I think it should be noted that hyperinflation is not an accident, it is a policy. So people talking about falling into a hyperinflation don't understand the terms that they are using.

I'm not sure I understand that. Are you arguing that the crises of Zimbabwe and Weimar Germany were intentional?

Absolutely. The difference is that the Germans just had to get their factories back, whereas the Zimbabweans were relying on unskilled farmers becoming skilled farmers in a short time frame, which is obviously a much dodgier strategy

The Weimar Republic wanted to do its damnedest to maintain actual living standards in terms of real world physical wealth while their economic output was crushed by French occupation mixed with anti-occupation worker strikes. Obviously it doesn't work, but the purpose was to prevent things from getting as bad as they would if the market was allowed to dictate a deflationary-death spiral.

The moment the Weimar Republic wanted the inflation to end they introduced a new currency that took hold immediately. Inflation over. The entire thing was completely orchestrated. Also, inflation is a brilliant tool of backdoor socialism because it's inherently anti-hoarding unless bank interest rates keep pace. The idea that hyperinflation was the cause of Germany's economic problems-cum-Nazis is a myth that I imagine the Nazis themselves were fond of spreading. There was a good half decade between the end of the hyperinflation and the beginning of the worldwide Great Depression.

I think it’s reasonable to assume that in the long run, actual output is strongly correlated with potential output. Output falls short of potential output because in the short run wages are sticky. Where’s the evidence that wages are sticky in the long run? If that’s not the case, then the correlation between output and potential output in the long run isn’t contingent on the government constantly taking measures to close the gap.

I’m not sure what you mean by “business as a rule underinvests”. Are you saying businesses tend to be risk averse and don’t always make investments with a positive expected value? Why would this prevent us from reaching full employment?

You can prove it with microeconomic externality theory, interestingly, though I'm not sure why exactly zero people I've ever read bother. By definition, something with positive externalities are underproduced by the market and thus require some kind of push (subsidies). Investment/employment have major positive externalities, therefore the market underproduces. One might argue that the externality is that it creates more employment, but I think that's a cop-out.

More important though is that businesses underinvesting is 100% integral to the existence of macroeconomics as a field. This is not about individual firms underinvesting relative to their own potential profits in the context of their markets but underinvesting in aggregate for output and total economic profit.

The further we are from full employment the truer that is, too. No firm wants to hire more folk when there are not enough customers hired by other firms to buy from one another. So they all hold back when they should all, in unison, move forward. Enter government to fix the distortion.



Sticky wages are only part of the story btw, and I need to do some rereading to remember why. But perhaps its worth saying that we are more or less always in the short run, so short run rules always apply, and long run rules are for after the fact trend spotting. But that's my own cop-out, for now, and you deserve a better answer.

In what ways do you think income inequality creates unemployment?

Many. Ultimately, an inefficient distribution of resources and a need for more accumulation per person to be a socially-validated actor together means less investment finds profitable opportunity and savings instead route towards the hoarding of financial assets, creating an in-virtuous cycle that perpetuates higher levels of frictional unemployment than otherwise.

We know that spending drives employment. This is the same as saying investment drives employment. We know that at the base of economic pyramid people have higher MPCs. When the money is more spread out you have more eyes and ears for investment opportunities and more efficient distribution for getting money to where it needs to go. You also have more diverse demand needs that can match up more skills with more requests.

There's obviously some economy-of-scale benefits to having banks because they are in theory good at discerning profits against risk so capital accumulation is useful but my bank doesn't know how to evaluate the economic returns of giving someone a loan to acquire ritalin et al, drugs which wouldn't exist without enough people having the surplus wealth to see doctors for their problems. (Those doctors would be out a job, too) Even though the ROI is pretty arithmetically one-two. Nor does it know how to drive money to battered women leaving their husbands. But family members with enough cash would. And a few select rich folk can only be enticed to donate to the charities they find compelling, which is to say, not necessarily the ones in need.

The point is that we have more optimal levels of output with more optimal distribution of investment coming from a more optimal distribution of wealth. Unfettered, the capitalist system drives wealth to the top which undercuts that optimal distribution. Not coincidentally every libertarian utopia assumes we're at this optimal distribution and have high levels of equality. Too bad their system prevents it.

If you assume away all of the supply-side negative effects of inflation then hyperinflation does lead to slightly lower unemployment. However, I think it’s reasonable to say that the various “shoe-leather” and “menu” costs of inflation can, in effect, function as a negative supply shock and the breakdown in the economy from hyperinflation could make unemployment even worse. Maybe the politicians responsible for hyperinflation thought the alternative would lead to higher unemployment, but they weren’t necessarily right.

I agree. The point at which demand-driven inflation causes its own output loss greater than the gains from pushing demand is going to be different for each economy, but I'd wager we don't need to worry about inflation below 20% economically speaking. The only argument I found compelling said inflation up to 40% has no adverse economic effects, but I haven't studied the issue enough to take a position. It would be annoying to have higher inflation, but annoyance isn't worse than poverty.

Generally, the policy lags for fiscal policy are going to be worse than the policy lag for monetary policy, unless you’re talking about automatic stabilizers…?

Yes but fiscal policy is far more effective at handling demand shortages. Monetary policy is very dependent on preexisting circumstances: if the Bank of Japan raised rates 10%, given that regular folk own BoJ treasuries and the debt size is so damn huge, the interest income could be far more stimulative than increased cost of borrowing is austere. Not so sure that's true for the US (it might be) because the debt is owned much higher up the economic ladder. Fiscal policy can just give money to whomever for whatever it wants.

Monetary policy doesn’t win wars- of course not. But I think the decision to devalue the dollar relative to gold was the most effective measure in combatting the Great Depression. Also, it wouldn’t surprise me if the next generation decides to treat all situations like liquidity traps, but that’s because people have a tendency to fight the last war.

That's true about "fighting the last war" and it is a big problem in economics, though what I meant was that it makes sense to conduct IS-MP-IA (investment/savings, monetary policy, and inflation) with a horizontal MP curve but recognize that the curve can't drop below nominal 0, rather than having a diagonal MP curve that kinks horizontal at 0.

It seems that the desire to include neoclassical micro models in the keynesian synthesis is why we have to differentiate between a liquidity trap and outside of one. AKA the cool kids from MIT were doing it in the 1980s. Basically they got to say that the neoclassical models were right, so long as the Fed used real Keynesianism at the same time. But really all it meant was the Keynesian models were right the whole time and the neoclassical ones only work when they aren't being challenged (at the zero lower bound, the liquidity trap). The logic of liquidity trap economics seems to actually pertain to economies outside of liquidity traps as well. I might eat these words later but that's where my head is at.


I might be inclined to agree that dropping the gold standard was the most important thing the US did to fight the Great Depression but I don't agree that the dollar's devaluation was so key. It helped, but our recovery was not primarily export driven. Direct Federal employment, veteran benefits, bank recapitalization, cutting interest rates, all the things a fiat currency can sponsor and all drivers of domestic demand were more important. But none of that was possible while tied strictly to gold.

Is it really a “choice” when the alternatives are much worse? That’s like saying “work or starve” or “give me your wallet or I’ll shoot you” is a choice. The only choice central banks have is to either set the correct targets, or set the wrong targets and get results that are much worse. And no, central banks shouldn’t be in the business of trying to pop “bubbles”, at least not if the efficient market hypothesis holds water.

Forget EMH for a second, though a valid point. Bubbles have many causes. The last two have corresponded with tax revenues being greater than outlays and yes that is at least partially causal (aggregate investment greater than savings, or, leveraged spending).

But chief among them is when there's insufficient buying power for general investments, when the perceived ROI on financial assets is greater than in making more consumable goods. In other words bubbles are a sign that the fundamentals of the economy are weak. Raising interest rates in the face of bubbles is just the most ass-backward response in that case. 2005-2007 was a perfect example: to stop rich people from bidding up mortgages, we made poor people default on mortgages.

Stimulus is appropriate after a crash but it's also appropriate during a bubble to stop the bubble by fixing the underlying economic weakness. I know that seems counter productive and unfortunately we don't have much practice getting it right because no one is ballsy enough to try.

But to get back to your "work or starve" analogy, yes for sure they can either choose the right target or the wrong one. The right one is the one that maximizes the real economy and is best for peoples' lives. Unfortunately the Fed was lukewarm-successful at that between 1979 and 2008. The reason was that they are obsessed with inflation but not very good at understanding it from a broader context.

My statement was made based on the assumption that we’re not in a “liquidity trap”. We’re usually not, and if the central bank did its job correctly it’s possible we never would be. When we’re not in a liquidity trap, increasing the money supply increases aggregate demand whether it happens when the Fed buys treasuries from a middle man or from the Fed paying for bonds to finance deficit spending that the public is no longer willing to finance. The amount of revenue the government can actually raise from seigniorage without a large increase in inflation is pretty small, which is why it’s important for the government to not borrow so much money that people think it will never be paid back without resorting to hyperinflation.

Again, it's only "small" if we're near our aggregate supply limits. And most years throughout the business cycle, we sort of are. But only because our perpetual under-demand is holding back supply. But today with America in a slump, Japan in a slump, and Europe in a bigger slump, we could probably dial about a couple trillion dollars and see far more real output gains than we would see price rises, and not in some kind of "before-inflation-catches-up" kind of way. In the actual way I mean it.

The thing I keep stressing is that if you count bonds and cash as both equal parts "money", because they are, it doesn't really matter. New money is new money whether a bank is earning royalties on it or not. There shouldn't be an inflationary difference.

Their are more dollar expansion policies than there are things that can be bought with dollars. The Fed just happens to buy assets that are either issued by the government or backed by government guarantees. Regardless of who serves as the middle man, a monetary expansion is a monetary expansion. Fundamentally, it's not through interest rates or exchange rates or anything of that sort that monetary expansion increases aggregate demand. What we have is the "hot potato" effect, where everyone who has money must decide whether to hold the money or spend it. Nominal GDP must reach a level where the demand for money equals the supply. This is the most important principle for how monetary policy influences aggregate demand, and it's entirely possible for monetary expansion to lead to higher, not lower, long term interest rates.

Now people will argue against this by proposing other variables in the demand for money aside from income. The higher interest rate are, the higher the opportunity cost of holding money, and the lower demand for money will be. Then if we have rates near zero, it's conceivable that no amount of adding to the money supply will increase aggregate demand to any significant degree, because it's possible that as interest rates approach some lower limit the demand for money approaches infinity. I don't accept this because the central bank can influence expectations of inflation and gdp growth through forward guidance. The central bank can engage in level targeting, promising to make up for falling short of its objectives in the past by intentionally overshooting in the future.

I'm not sure why interest rates you mean. Marginal return on capital (the money people spend on the output of your machines) or return on money? If you mean money, then higher interest rates lead to higher money demand, which is why for example currencies strengthen with higher interest rates, because people want dollar assets that have higher dollar returns.

But wrt to monetary expansion I've asked 3 times now, I'll ask once more by what mechanism you think the Fed should expand the money supply. The closest we got was when you suggested they should buy private assets with new money. But if the problem is that if the private assets are bonds, that's not actually expanding the money supply that's just turning bonds into cash. Savings into checking, its all 1-for-1 money-for-money. And as we've seen, it doesn't really stimulate demand. Seems to be kind of a wash.

Buying mortgage backed securities is not dissimilar. Buying illiquid underwater ones at face value might help, but otherwise you're trading interest bearing financial assets for non-interest bearing financial assets at 1-for-1 principle values. And you're still dealing at the bank level. You've just moved those assets off the private sector and given it to the government sector, which already has infinity-pockets. This effects aggregate demand at the margins and not particularly predictably.

It would be better, then, that if the problem is a balance-sheet recession, which means we don't have enough money on our balance sheets to make the real economy work, we should get more balances without arbitrarily exchanging present balances for them.

So again, what do you recommend the fed do to actually increase the money supply?

 

[Hygro]

Hey Hygro, I'll try to break down your questions in sections.
1. How big is too big? Let me put it this way. Federal spending is triple the amount of federal spending at the height of World War II. And then we were conducting a global war campaign. We had troops in Africa, the Pacific, and Europe, all fighting. We had the Lend Lease program with the Soviet Union. The nation was fully mobilized for war. We are no longer in a global conflict. Yet we have still have nearly 200 troops in places like Greenland? Even if it was half the size it may still be too big. There is more government waste than I can even express on here. Particularly with all the interest group pandering. I would like to see term limits on Senators and Congressmembers. That would be a good start.


2. What I would cut? Holy cow! My list is long. I will hit on the first two dozen (in no particular order) and be brief so this post doesn't overwhelm:

Spoiler Holy Cow! :

1. the TSA (privatize it)

2. Federal Flood Insurance (privatize it also)

3. Eliminate the Small Business Administration (they do nothing fruitful)

4. Repeal the Davis-Bacon Rules. (for those who don't know, these rules are where the government must pay fat union-set wages to workers on federal construction projects.

5. Reduce significantly foreign aid (eliminating it is my preference, it really does us more harm than good)

6. the Department of Education (this at worst is a state and local thing, I prefer to privatize all education, give me my tax money back so use that money so I can decide where I want to send my little girl. We are spending $32,000 per student per annum on a national scale, while good private schools in Texas are no more than $35,000. I am willing to pony up the extra $3k. Reality has taught me that government "public" schools are one of the worst parts of America).

7. End Social Security. (Putting money into Social Security is currently my worst investment in my portfolio. The rate of return won't beat inflation by the time I start collecting. Shoot, there may be no money left in the trust by the time I hit collecting age)

8. Industry and niche subsidies. (It promotes crony capitalism rather than free market capitalism)

9. Health Care Insurance regulations, such as Obamacare. (Health Care insurance should be more like car insurance. Only cover catastrophic losses. I mean, companies purchase Stop-Loss Insurance for their regular insurance plans. Insurance for insurance? That's absurd. I bet you don't know how much doctor visits, surgical procedures, or CAT scans really cost. Can you imagine if we have Food Insurance? Where we purchase food and an insurance plan covers 85% of the cost? Milk would be as expensive as jewelry.)

10. Nation building endeavors. (Exhibit A: Latin America. Exhibit B: In more detail, in June 2004 the US Military loaded $12Billion in shrinkwrapped $100 bills, weighing almost 400 tons, onto planes headed to Iraq. That money is now missing, and nobody knows. Military officials do this when then they are asked -> )

11. Food Stamps. (This is where charities come in, folks won't go hungry in this country. If you make at least $30k a year that puts you in the top 2% of wage earners in the WORLD. We do not need government to help our neighbors, we as private citizens will do so, through charity, because it is in our nature)

12. Useless programs like Head Start, (which has been an expensive faliure)

13. US postal service. (Privatize it)

14. End the War on Drugs. (Because Prohibition worked so well. I don't do drugs, I think drugs are destructive to society, but the black market it creates is worse. Legalize all drugs, and treat them like cigarettes and make some serious money off the potential TAXES!)

15. the A1 Abrams retrofitting programs (its cheaper to buy new tanks than to retro fit these antiquated tanks, and sell/recycle the scrap metal. They haven't done that because it would close an Army base and the district's congressman and lobbying group puts the breaks on it. I wish I could remember their names, sorry.)

16. Worthless grants like the $150k comedy tour in India a few years ago (we got no tangible or intangible gain from that)

17. Gun control programs (all they are doing is disarming law abiding citizens, as criminals will use them regardless, the Nazi's were the first to institute full gun control. Once they disarmed the citizenry, it became easier to oppress.)

18. Narrow the US Military's mission. It will better serve our troops and save billions in tax money.

19. Cut Medicare and Medicaid. (It will save us $441 billion. If we gave every man woman and child $1M to cover a lifetime of medical expenses, it would still be less money. It will also give consumers incentive to price compare amongst doctors and pharmaceutical companies. This will invariable nurture innovation which often leads to price drops)

20. Get rid of OSHA. (workplace injuries and deaths were already declining and the rate did not decline at a faster rate after the inception of OSHA)

21. Bank bailouts (there is no such thing as too big to fail, that is a scam).

22. Deregulation of industries ("Congress should be judged on how many laws they repeal not how many they pass" - John Boehner (one of his too few sensible quotes))

23. Public transportation (Privatize it. The private sector does a better job.)

24. Tariffs. (All they do is hurt economies at home and abroad, and other governments impose their own to "punish" us.)

That is not possible. The only way that would happen is if there was extreme corruption and waste.

the debt will not magically disappear over night after cutting government, but I can assure you the US Government will be able to pay it off at an incredible rate, it will make Congress's head spin.

Every dollar does not go to the private sector, to think it does, is an absurd conclusion. Here are a couple of examples where it goes other than our private sector. It lines foreign leader's personal coffers, it ends up in our enemies's hands, and it is not used to further our economy and society. Government Payrolls: I guarantee you that some of the money some government workers get from their wages, goes to illicit drug use, oversees to relatives, personal savings in places not at banks or investment firms (think underneath mattresses, jars, etc where they lose value based on inflation).

The money that does go to the private sector may also not be benefiting the economy and society. Think opportunity cost and efficiency.
Sorry this is a long post. I will stop now. <<steps off soap box>>

Mac Attack, I appreciate you took the time! I won't argue with your list in this thread--that's your take. What instead I want to focus on is everything you wrote afterward, because that's where we can discuss actual cause-effect.

There are a minimum of 3 sectors in macroeconomics: public, private, and foreign. Private can be subdivided into household, firm, and financial (as separate from firm). But for our purposes we don't have to.

There are stocks and there are flows. Stocks are accumulated values, flows are all values in a given period. We will use 1-year flows because that's how we measure GDP.

For any one sector to be running a surplus during a flow period, at least one other sector has to run a deficit. This is because the money has to come from somewhere.

The foreign sector is really just other public-private divides using other currencies. We can for the moment pretend it doesn't exist because ultimately it maintains the same logic.

If the government is running a surplus that surplus has to come from somewhere. You already said "eliminate tariffs" and I said "let's pretend the foreign sector doesn't exist for the moment". This means that for the government to run a surplus the private sector has to run a deficit. (The last two times the private sector briefly ran a deficit the peaks were around 2000 and 2007....)

When the government spends a dollar, by definition that dollar is entering the private sector (or foreign sector if its a direct purchase/transfer from our gov't to a foreign party). It goes to someone as wages, or to a firm as contracts, etc. It doesn't really matter if that person buys drugs or shares of a company or stashes it in a pillow or whatever. If the money goes overseas, then it left the private sector and goes to the foreign sector.

So we can shrink our government to zero but we'd still have an outstanding national debt. To pay that national debt via government surplus we necessarily have to pull those dollars out of the private sector. And to get new dollars into the system, to account for growth, savings, etc, the government has to spend more than it taxes.

 

[Farm Boy]

Denigrate? Ew. I don't think I'm "denigrating" 401k holders or endowments. I'm merely recognizing that an individual or endowment sitting on a lump sum of cash is in an admirable position. We do not need to reward being in an admirable position. Capitalism itself already rewards those who are in admirable positions.

If you want to see me "denigrate(criticize unfairly, disparage)" a cross section of the economy, how about the leeches on the system that write the lightning fast high volume trading algorithms, or speculators?

 

[Hygro]

Denigrate? Ew. I don't think I'm "denigrating" 401k holders or endowments. I'm merely recognizing that an individual or endowment sitting on a lump sum of cash is in an admirable position. We do not need to reward being in an admirable position. Capitalism itself already rewards those who are in admirable positions.

If you want to see me "denigrate(criticize unfairly, disparage)" a cross section of the economy, how about the leeches on the system that write the lightning fast high volume trading algorithms, or speculators?

Well it's pretty awful if your financial aid or market-based state-government pension disappears because without treasuries there is literally no cash instrument that protects you against market swings. I'd hardly call that being in an admirable (or privileged) position. More like being stiffed out of a more equitable system in the first place.

 

[Farm Boy]

Well, if cementing power and privilege even more than it naturally is constitutes the acceptable price and tool for the security of the upper middle class being able to make sure they stay more upper middle class than those they're beating: it makes sense that you'd argue that! One could say that cementing power and privilege is, in fact, the desired policy goal itself.

 

[Hygro]

I'm talking about poor kids going to college and wage earners having more than social security before they die.

 

[Farm Boy]

So inflation is undesirable now? Or, it's desirable, but only if people that already possess positive cash wealth have a government subsidy to make sure it doesn't bite them? Gotta subsidize that wealth! And no, I'm not sympathetic to the dream of upper-earning wage-laborers being able to invest in houses, leave their accumulated wealth to their offspring, and still be able to live comfortably and significantly over social security income levels in retirement for two decades without cannibalizing their life's work. #Richpeoplesproblems

If you want poor kids that can't pay for university to be able to attend university, we could, you know, actually fund and subsidize poor kids going to university instead of this Reganomics subsidization approach where we make sure that helping poor kids helps rich old men more.

 

[Hygro]

I'm not talking about inflation. I'm talking about how there are only a few types of assets we can use to pay for things and all of them are subject to the market except treasuries. You can fight for more government pensions and scholarships (which, btw, are a hard sell for covering private school tuition) and that's cool but in the absence of that, accumulated private wealth is what we've got.

And if I understand your position correctly, this is your order of preference:
1) Direct government subsidies (pensions/tuition/etc), no treasuries
2) no government subsidies, no treasuries
3) no government subsidies, treasuries

If our real world is #3 in our abstraction, you'd still prefer #2, which is basically like 1929 status with people losing their life savings because someone six degrees of separation away crashed a trade that wound its way back to your bank closing.

Because not having an insured money asset means that your college experience or retirement is 100% connected to banking and trading activity which means that you're subject to market swings. So you could stuff your mattress, and risk getting robbed. Or you could stick it in a bank, and risk getting robbed.

Or we could have money accounts called treasuries where we keep our hard earned cash safe. It means any private charity, any university public or private, any municipal government, whatever, can keep their assets separate from the market.

 

[Farm Boy]

I think I'd be mollified if we maintained lowish and steady inflation and treasuries charged for safekeeping. I still wouldn't particularly like it, no.

 

[MacAttack]

Mac Attack, I appreciate you took the time! I won't argue with your list in this thread--that's your take. What instead I want to focus on is everything you wrote afterward, because that's where we can discuss actual cause-effect.

There are a minimum of 3 sectors in macroeconomics: public, private, and foreign. Private can be subdivided into household, firm, and financial (as separate from firm). But for our purposes we don't have to.

There are stocks and there are flows. Stocks are accumulated values, flows are all values in a given period. We will use 1-year flows because that's how we measure GDP.

For any one sector to be running a surplus during a flow period, at least one other sector has to run a deficit. This is because the money has to come from somewhere.

The foreign sector is really just other public-private divides using other currencies. We can for the moment pretend it doesn't exist because ultimately it maintains the same logic.

If the government is running a surplus that surplus has to come from somewhere. You already said "eliminate tariffs" and I said "let's pretend the foreign sector doesn't exist for the moment". This means that for the government to run a surplus the private sector has to run a deficit. (The last two times the private sector briefly ran a deficit the peaks were around 2000 and 2007....)

When the government spends a dollar, by definition that dollar is entering the private sector (or foreign sector if its a direct purchase/transfer from our gov't to a foreign party). It goes to someone as wages, or to a firm as contracts, etc. It doesn't really matter if that person buys drugs or shares of a company or stashes it in a pillow or whatever. If the money goes overseas, then it left the private sector and goes to the foreign sector.

So we can shrink our government to zero but we'd still have an outstanding national debt. To pay that national debt via government surplus we necessarily have to pull those dollars out of the private sector. And to get new dollars into the system, to account for growth, savings, etc, the government has to spend more than it taxes.

I hear (read) all y'all's concern and I understand what you mean regarding money spent by the government going to the private sector and how that influences the economy.

But my arguments are ways to cut the budget, and use the savings to pay off the national debt, which was what I was getting at. Then we can resume business as usual. There is no good reason for us to have debt, considering we are one of the wealthiest societies in human history. Some of the government bonds, are held by the private sector. So paying off the debt will get the money back to the private sector. There should be no bonds and the government should be able to operate off tax revenues. If that is not possible, the government must do two things, cut the budget and reform the tax code. Besides, the government having a debt is practically the same as printing more money.

On the money spent going to the private sector, you HAVE to think of the ECON 101 class basic concepts of opportunity cost. For example, instead of the government spending all those tens of millions of dollars on a failed antitrust lawsuit against Microsoft, how about use that money to buy Gate's office products to make their bureaucracies's computer systems more effective. This lawsuit did not help me choose Apple products. I chose Apple because I was sick and tired of Windows and wanted something new and different that met my needs better. Before the lawsuit, Microsoft had no lobbyists in DC. Since this lawsuit, they learned their lesson and now have a large lobbying budget, and the DOJ has not even looked their way since. Microsoft could be using those dollars on R&D (maybe the Xbox One would have been even better with extra funding?) rather than a whole Legal and Lobbying department.

Additionally, the economy is not a zero sum game. If two parties are satisfied with a trade then they both win. I want to fly to Tahiti, but I do not have anything the airline wants except for dollars. So I trade my dollars for their service. My employer values my time and skills, but they are not a grocer, far from it as a matter of fact, so they cannot trade me food for my labor. But they do have dollars. I also value dollars, so we agreed that they would pay me X dollars annually for my skills. Now that I have dollars, I can exchange them for food at the grocer and transportation services form the airline. All of us are happy with our trades. It's like trading in Fantasy Football. You want to make a trade where both owners come out ahead. If one owner gets screwed, he will probably never trade with the guy who screwed him over again. That just negatively affected that fantasy league's trading market as other owners will be less inclined to trade with that owner now as well. Debt on the other hand is the promise that you will have something to trade in the future for the goods and/or services provided to you now. That is not good. Because when you default (Fail to make good on our promise), you screw over everybody. Whether you are John Doe or a Country. This is why credit agencies exist and issue scores, to determine who is honest and who is dishonest. The lower the score the more dishonest and irresponsible they think you are. So credit card companies are less willing to engage with you.

Thus, I have no problem with tax money going to the private sector to accomplish public needs. It is what PART of the private sector and in what capacity that concerns me. Thinking that any government spending is good for the economy is incredibly irresponsible. I do not want the government exchanging tax dollars for bullsh**. That is where the cuts come in. Just because the government is spending less money, does not mean it is bad for the economy. Once the debt is paid off, the government is fully operating at a considerable small scale, the global economy will adjust accordingly. It will get rough at first, but the upside and recovery will be so great, nothing we have ever witnessed in the past will match it.

 

[Farm Boy]

Sorry I haven't responded in greater detail to you Mac. Might have time over lunch to think about it.

The economy itself isn't zero-sum, no. But to a large extent, power is. And much of the power in our country is rooted in economics. Thus, people interested in power, like say lobbyists or politicians, very much are interested in zero-sum games within the economy. Not only goods have value. Services have value too. To put it crassly: If the average overall wealth in your city decreases a wealthy man might be able to afford slightly less goods and things. But if he's satisfied with the level of goods/things he has, it might be better for him if attractive young female nannies were also poorer, since then there would be more economic incentive for them to provide their services at more affordable rates. Or to offer additional services. The power and influence can very much be zero sum. You could put in a less horrible example if you want. Like you can build a bigger/better golf course for your country club if you're competing with less wealthy people in your area for use of the land. And so forth.

 

[El_Machinae]

There is no good reason for us to have debt, considering we are one of the wealthiest societies in human history.

I get what you're saying, but please rethink this. Consider, Google has debt. Why?

 

[Hygro]

Mac Attack, a long and thoughtful post. I look forward to getting back to it when I return today.

I get what you're saying, but please rethink this. Consider, Google has debt. Why?

An interesting question but still the wrong side of the ledger, no? Google doesn't issue sovereign currency- at least not yet

 

[Cutlass]

I hear (read) all y'all's concern and I understand what you mean regarding money spent by the government going to the private sector and how that influences the economy.

But my arguments are ways to cut the budget, and use the savings to pay off the national debt, which was what I was getting at. Then we can resume business as usual. There is no good reason for us to have debt, considering we are one of the wealthiest societies in human history. Some of the government bonds, are held by the private sector. So paying off the debt will get the money back to the private sector. There should be no bonds and the government should be able to operate off tax revenues. If that is not possible, the government must do two things, cut the budget and reform the tax code. Besides, the government having a debt is practically the same as printing more money.

On the money spent going to the private sector, you HAVE to think of the ECON 101 class basic concepts of opportunity cost. For example, instead of the government spending all those tens of millions of dollars on a failed antitrust lawsuit against Microsoft, how about use that money to buy Gate's office products to make their bureaucracies's computer systems more effective. This lawsuit did not help me choose Apple products. I chose Apple because I was sick and tired of Windows and wanted something new and different that met my needs better. Before the lawsuit, Microsoft had no lobbyists in DC. Since this lawsuit, they learned their lesson and now have a large lobbying budget, and the DOJ has not even looked their way since. Microsoft could be using those dollars on R&D (maybe the Xbox One would have been even better with extra funding?) rather than a whole Legal and Lobbying department.

Additionally, the economy is not a zero sum game. If two parties are satisfied with a trade then they both win. I want to fly to Tahiti, but I do not have anything the airline wants except for dollars. So I trade my dollars for their service. My employer values my time and skills, but they are not a grocer, far from it as a matter of fact, so they cannot trade me food for my labor. But they do have dollars. I also value dollars, so we agreed that they would pay me X dollars annually for my skills. Now that I have dollars, I can exchange them for food at the grocer and transportation services form the airline. All of us are happy with our trades. It's like trading in Fantasy Football. You want to make a trade where both owners come out ahead. If one owner gets screwed, he will probably never trade with the guy who screwed him over again. That just negatively affected that fantasy league's trading market as other owners will be less inclined to trade with that owner now as well. Debt on the other hand is the promise that you will have something to trade in the future for the goods and/or services provided to you now. That is not good. Because when you default (Fail to make good on our promise), you screw over everybody. Whether you are John Doe or a Country. This is why credit agencies exist and issue scores, to determine who is honest and who is dishonest. The lower the score the more dishonest and irresponsible they think you are. So credit card companies are less willing to engage with you.

Thus, I have no problem with tax money going to the private sector to accomplish public needs. It is what PART of the private sector and in what capacity that concerns me. Thinking that any government spending is good for the economy is incredibly irresponsible. I do not want the government exchanging tax dollars for bullsh**. That is where the cuts come in. Just because the government is spending less money, does not mean it is bad for the economy. Once the debt is paid off, the government is fully operating at a considerable small scale, the global economy will adjust accordingly. It will get rough at first, but the upside and recovery will be so great, nothing we have ever witnessed in the past will match it.

The problem here is that you are looking at the forest, and looking at it from just one perspective, and not seeing the trees. The US has, by design, a very conservative government. Conservative in the sense that it really only makes changes at the margins. Big, consequential, changes don't happen often. Even something like Obamacare is a change at the margin, rather than at the core. Keep this in mind as you consider what the government spends money on.

For each line item of spending in the government budget, that line item had to make it past the House, the Senate, the president, and often the courts as well. This is a government designed to not easily add a line to the budget. And because of that, those lines are typically only added after a lengthy process with time for a lot of objections. But once that line is in place, it represents a broad consensus on what the government should be doing. But it is also quite difficult to remove it again.

Earlier in the thread you listed a bunch of items that you think can be removed from the budget. But those things are in the budget because the public as a whole wants them there.

This is where the current political climate in the US has broken down with regards to the budget.

It is easy to talk of cutting spending in the aggregate. Much harder to do it by line item. Those in Congress who are most talking about cutting spending are usually not willing to tackle specific spending that they want cut, and attach their name to the proposal to cut it. So instead they cut taxes, and try to force others to cut spending. But for each piece of spending, there are people who really want it there.

The current political climate is not doing the work of examining each piece of spending to determine it's value, and determine who benefits and who loses from that spending, or the change in that spending.

The budget deficit in the US federal government today is mainly political. Republicans want the benefit of having said they cut taxes without the cost of saying that they cut programs. They instead want to force Democrats to cut programs, and take the political hit for doing so. Democrats, of course, do not want to accept the political hit for cutting programs, and instead tell the Republicans to raise taxes.

My point being that if you want to talk cuts to the budget, you have to talk the specific programs you want to cut, and then build your case for each of those cuts, and then sell the case for each of those cuts. And you may, or you may not, convince others. Now you, at least, are willing to talk about specific programs you want to cut. Most of those who talk of cutting are not.

But, given that there is a consensus of what the government is going to spend, then the government has to raise that much money to spend it. Or borrow the difference. So if you cannot convince people to cut the spending, and the deficit still is a major concern of yours, then you have to talk about raising taxes.

Keep in mind that the debt we have today, and the deficits we have today, and face it the future, are mostly about the fact that we cut taxes without cutting spending.

 

[Harv]

It is easy to talk of cutting spending in the aggregate. Much harder to do it by line item.

Didn't the Canadians under the Jean Cretien Liberals do exactly this in the mid-1990's?

 

[MacAttack]

The problem here is that you are looking at the forest, and looking at it from just one perspective, and not seeing the trees. The US has, by design, a very conservative government. Conservative in the sense that it really only makes changes at the margins. Big, consequential, changes don't happen often. Even something like Obamacare is a change at the margin, rather than at the core. Keep this in mind as you consider what the government spends money on.

Cutlass, I completely understand the conservative nature of our government, and agree that the changes they make are marginal. This is precisely why I am proposing and in favor of fundamental reform of the government without shredding the Constitution.

For each line item of spending in the government budget, that line item had to make it past the House, the Senate, the president, and often the courts as well. This is a government designed to not easily add a line to the budget. And because of that, those lines are typically only added after a lengthy process with time for a lot of objections. But once that line is in place, it represents a broad consensus on what the government should be doing. But it is also quite difficult to remove it again.

Yet we manage to get new cabinet departments we don't need that use up portions of the budget unnecessarily such as the Department of Education, the Department of Energy, the Department of Homeland Security. The DHS theoretically overlaps what the Department of Defense is supposed to be doing, and thus is not necessary. The government could be using that money elsewhere. That would better serve the government's clients: Voting, taxpaying US Citizens.

Earlier in the thread you listed a bunch of items that you think can be removed from the budget. But those things are in the budget because the public as a whole wants them there.

Just because the public wants it, doesn't mean it is right or necessary for the government to do it. What intuition tempts us to believe is that when there is a problem, government should act. What reality has taught me over my lifetime, is individuals should act, not government. The public wants clothing to wear, individuals should produce it and sell it, we get to pick what we want. Government should not issue clothing because we want it. Same concept applies to a huge slew of things.

Now to avoid a hyperbole for others on here, I do think the US Government should act if China or <<insert enemy nation>> launches a military invasion on one of our shores.

This is where the current political climate in the US has broken down with regards to the budget.

It is easy to talk of cutting spending in the aggregate. Much harder to do it by line item. Those in Congress who are most talking about cutting spending are usually not willing to tackle specific spending that they want cut, and attach their name to the proposal to cut it. So instead they cut taxes, and try to force others to cut spending. But for each piece of spending, there are people who really want it there.

Some interest groups are a real pain in the rear, particularly for progress, like the teachers union. One of my favorite Albert Shanker quotes is (the late teachers union president who made the teacher union into a national political force) "When school children start paying union dues, I'll start representing the interests of school children"

I agree, talk is easy and cheap. That is why I believe that we need term limits on senators, congressmen, and congresswomen. We need folks to boldly take leadership of our country and make these hard, possibly unpopular cuts.

Cutting taxes is nice, and gets you votes, but the idea that it will force others to cut spending is preposterous, naive and in the end it does not happen. It is proven over and over. In comes the debt expansion.....

I think it is up to the American Public to stand up to these interest groups and force our leaders to do the right thing, and not just what pleases the loudest and the well funded. As hard as it may be in practice. It is our and our leaders' civic duty.

Besides, serving in Congress should be a privilege and not a life long career.

The current political climate is not doing the work of examining each piece of spending to determine it's value, and determine who benefits and who loses from that spending, or the change in that spending.


The budget deficit in the US federal government today is mainly political. Republicans want the benefit of having said they cut taxes without the cost of saying that they cut programs. They instead want to force Democrats to cut programs, and take the political hit for doing so. Democrats, of course, do not want to accept the political hit for cutting programs, and instead tell the Republicans to raise taxes.

Yes, I completely agree. And that is a fundamental failure in our politicians and tragically irresponsible. Both Republicans and Democrats are equally at fault.

My point being that if you want to talk cuts to the budget, you have to talk the specific programs you want to cut, and then build your case for each of those cuts, and then sell the case for each of those cuts. And you may, or you may not, convince others. Now you, at least, are willing to talk about specific programs you want to cut. Most of those who talk of cutting are not.

That is why I chimed in! I really wanted to share with y'all what I felt were things that could be cut from the budget to help address what is wrong with the US National debt. The original question posed in the thread. I just get caught up on other things as well.

But, given that there is a consensus of what the government is going to spend, then the government has to raise that much money to spend it. Or borrow the difference. So if you cannot convince people to cut the spending, and the deficit still is a major concern of yours, then you have to talk about raising taxes.

Keep in mind that the debt we have today, and the deficits we have today, and face it the future, are mostly about the fact that we cut taxes without cutting spending.

And that is a shame isn't it?

Notice I never once mentioned cutting taxes. I say cut spending first, address the debt, then explore cutting taxes. Cutting taxes should just be a byproduct of the successes of cutting spending and balancing budgets.

 

[Cutlass]

Cutlass, I completely understand the conservative nature of our government, and agree that the changes they make are marginal. This is precisely why I am proposing and in favor of fundamental reform of the government without shredding the Constitution.



Yet we manage to get new cabinet departments we don't need that use up portions of the budget unnecessarily such as the Department of Education, the Department of Energy, the Department of Homeland Security. The DHS theoretically overlaps what the Department of Defense is supposed to be doing, and thus is not necessary. The government could be using that money elsewhere. That would better serve the government's clients: Voting, taxpaying US Citizens.

You say that we don't need these things. Lots of people disagree with that.

Just because the public wants it, doesn't mean it is right or necessary for the government to do it. What intuition tempts us to believe is that when there is a problem, government should act. What reality has taught me over my lifetime, is individuals should act, not government. The public wants clothing to wear, individuals should produce it and sell it, we get to pick what we want. Government should not issue clothing because we want it. Same concept applies to a huge slew of things.

Now to avoid a hyperbole for others on here, I do think the US Government should act if China or <<insert enemy nation>> launches a military invasion on one of our shores.

The government is the servant of the population. If the population wants something, why shouldn't the government provide it?

That's not even to mention the vast number of things that the market fails to provide. Markets are not magic. They do not serve all needs.

Some interest groups are a real pain in the rear, particularly for progress, like the teachers union. One of my favorite Albert Shanker quotes is (the late teachers union president who made the teacher union into a national political force) "When school children start paying union dues, I'll start representing the interests of school children"

The problem being, without unions, there is no prosperity for the majority of the population.

I agree, talk is easy and cheap. That is why I believe that we need term limits on senators, congressmen, and congresswomen. We need folks to boldly take leadership of our country and make these hard, possibly unpopular cuts.

There's no guarantee that you'll get what you want with term limits. Term limits increase the power of the bureaucracy at the expense of the legislature. Expertise matters.

Cutting taxes is nice, and gets you votes, but the idea that it will force others to cut spending is preposterous, naive and in the end it does not happen. It is proven over and over. In comes the debt expansion.....

Nevertheless, that's the basic GOP strategy. And, as a whole, it has been a successful one for them.

I think it is up to the American Public to stand up to these interest groups and force our leaders to do the right thing, and not just what pleases the loudest and the well funded. As hard as it may be in practice. It is our and our leaders' civic duty.

The biggest obstacle to that is the huge money in politics. Congress has moved far to the right over the past 30 years because more and more it is big money interests who decide who can stand for elections. Not the general public. Special interests were not always as dominant as they are now.

Besides, serving in Congress should be a privilege and not a life long career.

I have some sympathy for the term limits idea. But it doesn't necessary solve the problems we are talking about.

Yes, I completely agree. And that is a fundamental failure in our politicians and tragically irresponsible. Both Republicans and Democrats are equally at fault.

To a large extent, it's the big money interests that are at fault. Candidates are increasingly segregated from the voters. And from each other. They talk to lobbyists and donors, not voters and colleagues.

That is why I chimed in! I really wanted to share with y'all what I felt were things that could be cut from the budget to help address what is wrong with the US National debt. The original question posed in the thread. I just get caught up on other things as well.

I see that. That puts you one up on most of Congress.

And that is a shame isn't it?

Notice I never once mentioned cutting taxes. I say cut spending first, address the debt, then explore cutting taxes. Cutting taxes should just be a byproduct of the successes of cutting spending and balancing budgets.

You're out of cinc with most of the people talking about the deficit then. They aren't willing to dirty their hands with the hard part.