I was recently led to reread this article because it was referred to by a recent opinion piece at another newspaper. This paragraph jumps out at me in light of our current high inflation:
"Ms. Kelton, who went from her early research on debt to advise Senator Bernie Sanders and other politicians on the left, argues that a currency-issuing government needn’t worry that deficits will lead to a fiscal crisis. Rather, inflation becomes a risk if spending outpaces the finite supply of workers and productive capacity."
I think we may have managed to outpace our current worker and productive capacity.
An accepted role of government is to pull the country out of crisis even if it means incurring debt. It's not an accepted role of government to incur debt in order to transfer wealth to the rich.
1
Look at the debt as % of GDP going back to the end of WWII.
In 1980 when Reagan was elected it was about 32%. By the end of his administration is was **50%**. THAT’S A HUGE JUMP in only 8 years.
The Clinton Administration was the only Presidency in modern times where the debt as % of GDP FELL!
As we transitioned from Bush Jr to Obama (in the middle of the worst market crash and recession since the Great Depression), in ONE YEAR, the debt went from 68% to 82% of GDP and then jumped again the following year to 90% before rising to 100% in the following two years. It was not until 2013 before things stabilized a little and it dropped just below 100% again.
Denial is not only a river in Egypt.
The Republicans always drive up the debt and crash the economy. It is the only constant since Eisenhower.
4
Here’s one American who not only doesn’t love a deficit AND deeply resents the past and current administrations for dramatically increasing the deficit.
More “quantitative easing” helps the deficit get paid back but makes our currency worthless. DUMB DUMB DUMB.
1
Here's a novel idea. How about cutting spending and not demanding so much from a central government from craddle to grave. If Democrats would EVER agree to spending cuts to entitlement programs...maybe we could get a handle on the deficit. But Democrats (and many Republicans) have never seen a government program they don't like...
2
How about equal cuts to defense spending. The right’s own entitlement project.
3
Although I am not a religious man, this always brings to mind the pharaoh's dreams in Genesis 41. Seven scrawny cattle came and ate the seven fat cattle in one dream, and seven worthless heads of grain sprouted from seven good heads of grain in the second. Joseph interpreted that as G_d's warning to Egypt to save grain for the seven coming years of famine. Running deficits in good times seems like a way to make the bad times worse.
For another agricultural metaphor, call it "eating your seed corn."
3
The article mentions that the Clinton Administration ran surpluses. That is misleading because the Social Security payroll tax revenues were used to "balance the budget", so to speak. Had the social security surpluses been segregated and put away into the Social Security Trust Fund, the federal government would have ran deficits. What most people do not realize is that there is no real cash in the social security trust fund, it only contains IOU's from Treasury. This means that if Congress does not increase the debt limit to continue funding government spending, social security is immediately bankrupt.
3
If debt doesn’t matter, then let’s reduce or even eliminate all taxes and dramatically increase our expenditure for defense, infrastructure, and social spending.
In for a trillion, in for a quadrillion.
3
“And private debt, they said, is more dangerous than the public kind; private borrowers cannot create money from thin air.”
Well then, the solution is obvious.
The federal government can create money from thin air and use it to pay off all private debts.
A world without limits is good indeed.
2
This article hints to but never arrives at a simple truth: sooner or later you have to pay what you owe. Currently the United States spends 364 billion dollars a year just servicing the federal debt. The more you borrow the worse this number gets. Before long most of the revenue you pull in will go right back out to creditors which forces you to borrow even more just to keep the lights on never mind pay for fancy new things.
Now I'm not saying a nation shouldn't invest in it's future, but it must be done in a fiscally responsible way so you don't burden future generations with crippling amounts of debt. That's something that both Republicans and Democrats seem to have lost sight of.
5
@Scott McElroy
Take a look again at Len Charlap's many posts in this thread and address his recurring argument.
Deficits don't matter until one day they do. Those times of reckoning can cause the December, 2018 stock market selloff looking tame.
When you are speeding towards a cliff everything is fine until you reach the cliff.
2
Based on this logic we shouldn't bother to tax anything.
1
In 2008 the US experienced the largest financial collapse since the Great Depression. Since that time, the US FED has provided Wall St with circa $4 Trillion of ultra-cheap money to sustain [still] insolvent banks and for share buybacks to inflate equities. The party has continued with the windfall large corporations received from Trump’s 2017 tax cuts, with a lot of this money (circa $1 trillion) being used for more share buybacks. As a result, US federal deficits now exceed $22 trillion (does not include municipal, corporate or consumer debt) and are growing around $1 trillion/year. Despite the FEDs financial largess, none of the structural economic problems which gave rise to the 2008 financial crash- multiple tax cuts for the wealthy, job outsourcing, financial deregulation, lack of investment in public and manufacturing infrastructure and spending $ trillions of taxpayer money on the Pentagon and strategic debacles in Afghanistan (longest running war in US history), Iraq, Libya, Syria, Yemen (Venezuela and Iran next?) have been resolved. Rather, the world’s major Central Banks have gone on an orgy of debt creation which has inflated equities, bond markets and trendy real estate in Boston, NYC, SF, London, etc. to stratospheric levels. Debt levels of this magnitude can only continue so long as the debt service can be paid, which is contingent on low interest rates. When the day or reckoning comes, it will make 2008 look like a Sunday picnic by comparison.
2
The role of the Fed in enabling all of this is deficit spending is pretty much ignored in this article. The author points to interest rates not increasing as evidence that deficits do not matter and ignores the fact that the Fed's QE program kept rates down by buying trillions of government securities through money created out of thin air. The QE program is basically the saem as "printing money." Throughout history over the long-run governments that attempted to solve their problems by printing more money have not fared well.
The bottom line is that the US dollar, US treasuries and the US economy represent by far the greatest investment in the world. We should all rejoice that China has spurned free market economics in favor of its constant manipulation of its own market. Our stock market is also more transparent and regulated than any in the world. The European markets are far too fragmented and crippled by the UK's see-saw participation in the EU. There are simply no better investments out there in the world, allowing the US to spend freely until a better global competitors arise (which looks highly unlikely for several years to come).
3
This is an expected position and someone had to write it. Of course as the interest on our national debt crowds out the availability of funds for everything else annually in the budget, there is a need to say " hey its OK to just print more." This only works because the US dollar is the world reserve currency and the rest of the world is far less stable than the US on a daily basis. My question? Do we expect these conditions to last forever? If our answer collectively is "probably not," then we should do our best to look at significant spending cuts on the public side, and especially at the federal level. There are three areas I would focus on: 1. Drug spending -- 200 billion lost overall to all parties due to price/overpay. Solution -- allow re-importation now and Medicare sets REIMBURSEMENTS to European levels with no negotiation needed on pricing. 2. Work with the military to cut very large dollars from the military budget. What do we absolutely need to defend? How can we do it more cheaply? China isn't going to invade our shores and we aren't going to invade theirs either--start there and work backwards. 50% reduction in foreign/forward base troop numbers? WW2 is over. Cyber-defense/missiles/intelligence/AI....after that....not sure we need to continue at current levels with everything else. 3. Lower the cost of living for all Americans - focus on internet/cell phone/transportation/healthcare...we can spend less and reduce tensions between us and the "rich" among us.
1
The amount of debt as compared to GDP is an important ratio, which is not even discussed in this article. When we reach a point where the amount of tax revenue is not even paying for the interest on our national debt, that’s a serious problem and we are headed in that direction. That needs to be addressed and discussed by economists and put into your reporting.
1
'They say that in this environment — with low interest rates to the horizon, no evident inflation pressures, and with worthwhile policies that could enhance the nation’s long-term outlook — it’s foolish not to borrow money.'
Excuse me, but my Republican father, a very well educated Masters in Economics engineer, would have vehemently disagreed. Just because borrowing rates sit at 3% vs. 6.5, that is still 3% interest that requires payback. Pretending that eighteen years of borrowing taxpayer monies without sufficient payback balancing, either in tax rate increases or by shuttering expensive corporate welfare loopholes and trimming wasteful military programs, is a recipe for disaster, not so much for the wealthy and corporate class, but rather for the rest of us, who can't afford to liquidate millions the billionaire class can when things go south.
I would also like to remind this writer that no where in his pro-business article does he mention the fact that with all this manic borrowing, none of it is spent on- revamping our increasingly inflationary and usurious medical system. All of this borrowing by business to 'compete' despite the fact that
they've dumped most if not all health care obligations they used to be required to carry and that kept my parents generations costs down, squarely into the laps of- individuals. Where's the rationality in that.
All of this borrowing, all of these profits, but I ask, - where IS all of the money going???
3
@RLC, whether its 3% or 6.5%, that debt is paid back in dollars that the feds can create out of thin air (actually the feds have the commercial banks do the creating but that's a tad too complex for this forum); the feds are not going to run out of "thin air." The question is whether those interest payments are going to result in more spending/demand and whether that additional spending, when added to all other spending (private and public), will exceed the ability of economy to supply - that can increase prices, i.e., inflation. By far, most interest payments on federal debt gets rolled over into buying more federal debt, i.e,. most is not spent. Moreover, even if most of it was spent, it would be minuscule compared to what is spent every day, and there by has little if any impact on inflation.
You're right, however, about the medical system. But just keep in mind if the feds pay for medical care, that will (and already has) inflate the prices for that care unless the feds also impose price controls of some means, i.e., ration care. A lot of people don't like that idea. I know people that will spend 10s of $1000s to keep their pet alive; that makes for very expensive vet costs for the rest of us. If its your mom or your child, do you really want the govt to tell you when enough is enough?
1
@Salsabob
In a previous post in this thread, I have already discussed how commercial banks create dollars "out of 'thin air'".
1
One cannot have a mutually-informing conversation with a MMTer if one insists on revolving that discussion around federal deficits/debt; at best, the MMTer will just sit with that self-congratulatory knowing smile of suffering another numbskull who has no idea how our monetary system actually works. In turn, the MMTer will then never be confronted with the real vulnerability of their worldview – sectoral inflation. There’s no mystery why inflationary pressure in health care, higher education, and defense sector make other sectors’ inflation a joke – just look at the percent of federal spending in the comparative sectors. The level of government control is already relatively high to try to mitigate some of the inflationary spending by the monetary sovereign in those sectors; to what extreme levels and approach of government price controls would be required in these sectors to counter the magnified government spending imagined by MMTers. I’m not saying that such mitigation measures would necessarily be wrong or impossible, but as long as the federal deficit/debt fetish is blindly adhered to by the non-MMTer, one will never get a MMTer to have a serious pragmatic conversation of the real consequences of applying their theory.
1
The pain of the deficits have been spread among the non-1%ers. During the 2007 financial crisis, by all rules of capitalism, the profligate borrowers needed to go bankrupt. However, only the lowly borrowers suffered and the FED came and "rescued" the 1%.
With the new money "generated out of thin air", only the privileged benefited. Instead we should look at the other side of the equation.. perhaps the population at large would now be experiencing wage gains, lower taxes and better public policy if we had NOT borrowed for "bad" investments like wars and bailouts. Instead, if we had invested in education, infrastructure and climate policy we would be 10 times better off as a nation and with a more equal society at large.
2
@Sam, you've hit the nail on the head. Basically, MMT is saying that there is enormous power in our monetary system to do much more good. It just requires adults in the room. Problem is - there are no adults in the room.
1
Modern Monetary Theory = lipstick on a pig. Devil talk. Con man jibber jabber.
Very sad.
Gotta pay your debts.
3
@John McMahon, yes, John, you and I need to pay our debts as well as any other person, business or local/state government. However, since its inception, our federal government has only paid off its debt once - that was under Andrew Jackson - we don't have much economic data from that time but what we do have indicates that the country suffered an economic contraction that made the 1930s Great Depression look like a cake walk.
1
One of the main problems with MMT is that people don't really get it. It runs so counter to conventional thinking that many people who read it initially can't deal with it. They can't believe it is possible. Then there is the other group who just smear it for political purposes. The latter group will never accept it. The former group will eventually because the genie is out of the bottle and it is not going away.
1
@John, reminds me of the "nuclear genie" - great power to create and great power to destroy. Let's be careful what we wish for.
1
Has no one noticed that Republican fiscal and monetary policies are indeed designed to bury Democratic presidents in debt that is so deep that they can't dig themselves out of it in one term, and can be roundly criticized by Republicans for being so inept at trying?
Republicans are currently also very active at degrading American public education, while building large new private schools, which will exclude the majority of Americans - the result: a new medieval period that will guarantee privileges for the 1% while making it very difficult for the rest of us to reach any kind of parity, ever!
4
@Kim Gyr, yep, it's not so much that the federal govt has great power to spend much more; its what that spending is directed at that counts. The MMT genie comes with enormous potential for good at enormous risks.
1
Public Debt should only be incurred if future tax revenues, directly related to the debt can repay it. Otherwise it is a wealth transfer from future generations to the current beneficiaries of the program funded by that debt.
Once public debt gets too big you find that the country that borrowed starts having “lost decades.” If you don’t believe me ask any Argentine.
If the US Dollar wasn’t the world’s reserve currency, we would already know this. It may take a bit longer, but ask the Brits how it went for them when the Pound was dethroned.
2
@Jim Miller, the US is a monetary sovereign, Argentina is not. The entire US federal debt is in a currency that it can produce out of thin air; it can never go bankrupt. Argentina owes its debt in foreign currency, mostly US dollars, and yes, it can go bankrupt. US federal deficit spending can be a problem, if that spending, when added to ALL other dollar spending exceeds the economy's capacity to supply, resulting in price increases, i.e., inflation. Is there something now or in the foreseeable future that you believe the global economy can't supply to meet demand? With robots, AI and other technology on the horizon is there going to be something that can't be supplied to meet demand? Like what? On the other hand, do enough people have enough money to buy what the economy offers? If not, then prices go down and we get deflation, if depression. Which do you think is more likely in the future?
2
Significant public debt is only tolerable if the economy grows constantly. When growth stops or stagnates, as it is almost certain to do, then our debt will be a problem.
The debt we have added lately has done nothing for the common cause, but it will help to shield the wealthy from what they know is inevitable.
Economics pundits are notoriously short on actual information in their articles. They talk in simple terms that don't fully elucidate the issues. It is often platitudes and bumper sticker sayings.
On the other hand, a great economic depression could potentially slow the impacts of global warming and possibly help to allow us time to adjust our lives to be more sustainable. Endless growth itself is surely going to destroy humans. So, we can continue to grow and sustain our debt and thus also destroy the planet or we can have an economic collapse and perhaps allow humans the time to learn to live sustainably. Neither case will make the greedy people happy, so they will try to punish everyone. As they are doing now with the leaders they have purchased and the policies they pursue. The future will not be good for the greedy and they have started punishing us for that already. Note, Trump, the immoral GOP, and the corrupt supreme court who now rules for the wealthy in every case. Also, note that enough of the DFL is "centrist" such that the DFL is a neutered/spayed party too frightened to stand up for the people.
2
@Chris, most economic growth results from population growth - did you want to stop that? Exactly how?
1
Increase taxes on the wealthy. Get out of the Middle East wars. Establish single-payer health care. Think, Congress. Think!
1
Are you saying that debt and deficit are good? If so, why are people who cannot pay their credit card debt and loans declaring bankruptcy, their assets being seized by banks and collection agencies?
1
@Dodurgali
You should read the article more closely. As Ms. Kelton said private debt and its potential for insolvency is very much a problem. This is in contrast to a sovereign public debt which doesn't work in the same way as a sovereign govt (like the US federal govt) is not a household. The household must acquire and can only spend currency. A sovereign fiat currency- issuing govt can actually create it and as such cannot become insolvent by obligations in its own currency. While there may be constraints to a country's economic productivity, where inflation is risked by too much spending (the govt and private consumers putting to much demand on the private sector), it is still the case that the sovereign fiat currency-issuing govt can never run out of its own money.
1
The fallacy of debt not mattering is based on two big lies. The first being low inflation, an outright lie, there is real inflation in things people must buy or rent to survive just not on the cherry picked components of the Feds “ Beige Book” from which they read the tea leaves and dazzle the masses with their brilliance. The second big lie is “low interest rates”, low those rates may be but they are allowed to be so by a system that is rigged and an economy of smoke and mirrors that depend on keeping the rates low, for lack of a better phrase today’s interest rates should be referred to as “ artificially low interest rates”. The reality is when rates are nudged up to anything approximating a fair rate of return the market goes into a brutal free fall as it did in December when Powell aired his correct point of view that we should belatedly begin the long overdue process of weaning our economy off of those artificially low rates. Trump and both parties cried foul so sure are they that our economy is nothing more than a house of mirrors dependent on artificially low rates that push those with cash to seek yield in any form whether in an overpriced stocks or a housing market in which investors are increasingly buying into the ponzi scheme to rent or sell homes to each other: sound familiar, it should, no less a luminary than The Times Paul Krugman quipped over a decade ago “ they’re selling each other condos down in Florida” in his prescient observation of a housing bubble.
3
I'm looking forward to Paul Krugman's opinion regarding 'good debt' verses 'bad debt'. I'm confident he will acknowledge 'bad debt' is bad!
2
Had you chosen a subtitle, it might have been something light and lyrical, like, "On the Road to Venezuela-North."
2
Just watch. If Democrats elect a president in 2020, the debt will suddenly be the most important issue on the national agenda, at least according to Republicans. They have done this so consistently that we do not even need to wait to see. When they do, I hope Democrats will agree and offer to pay for things by taxing a high percentage of the estates of the wealthiest people in the country. The billionaires who are giving away half their wealth get a pass.
1
There is a range of circumstances in which it doesn't much matter whether we pay for government spending by taxing ourselves now or by taxing ourselves later. We are not in that range. We have a federal government debt so large that even a modest increase in interest rates would be catastrophic.
1
politicians are great at fixing things that do not need fixing. now, the republicans have reversed course and decided that lowering taxes on the very rich was more important than attempting to keep the deficit in check. of course, the democrats will love spending more taxpayer money.
both parties are now firmly in not worrying about deficits.
1
It seems to me that this is not so complicated. As wealthy individuals and institutions create more wealth, they need to put it somewhere. The USA economy and bonds were good places because of their relative robustness. After all, where would you put your money to keep it growing?
The problem is that this growth in essentially private wealth does not make much of a contribution to the common good, either in the form of wages that keep pace with inflation, or public capital in the form of public roads, public education, public health, etc.
By substantially cutting taxes or creating loop-holes for the .01% we exagerated their wealth and make it more difficult for them to find places to put it. Mechanisms like derivatives are the result. What we should be doing is setting taxes to increase the public welfare in proportion to the private benefits of a growing economy.
2
The reason we do not see such borrowing crowding out the private sector is that we have a global savings glut chasing too few investment opportunities. Global growth has slowed and productivity is dismal. Technologies such as AI may offer great returns down the road but they do not require huge capital investments. This is all yet another reason for government to start investing in the productive capacity of this country - both physical infrastructure and the education/skills of its workers.
Unfortunately, we have already run up huge deficits on spending that is not investment. Our obligations for Medicare and SS are going to increase as the population ages - this is also spending that is not investment.
I see inflation down the road, even if we have avoided it for now.
1
Thanks to the tax cuts and interest rates no longer being rock bottom, the fastest growing category of federal spending is interest on the national debt. It consumes over 8 percent of our federal budget. It is equal to what we spend on anti-poverty programs. Without them, the CBPP estimates 25 percent of the people would be below the poverty line instead of about 14 percent.
This debt is equal to what the federal government spends on infrastructure, scientific research and education, combined.
Investments with strong economic and social returns should be done, but this growing black hole in our budget must be addressed.
1
Rather than talk about debt maybe it might be easier to understand if we talked about money and where it comes from. Unlike an individual who has to trade his labor to acquire money and unlike gold which requires human labor to produce and is a limited commodity and can be manipulated, the US dollar is created by our government. It requires no labor to produce beside the press of a keyboard, and there is no limit to the creation or destruction of it. And because our government says the dollar can be used in exchange for our labor and we accept it, there is no longer anything to limit what our labor can produce. Because there is no limit to the amount of money which our government can create. And while natural resources will always be limited and subject to inflation or manipulation, there is never a shortage of new ideas and finding ways around the problems we face with our government's ability to create money. And if in the future we find there is too much money in the system our government can just as easily remove money from the system to balance our labor with the right amount of money. So in the end debt matters less than what our human labor and our creative energy can produce, we just have to find the right balance.
2
Entitlements are eating up our economy. There is a problem with reproductive freedom. There are too many people who consume but do nothing to contribute to our country. Every child born now is entitled to food stamps, housing assistance and free medical care. Maybe you should have to post a bond in order to have a child.
3
Debt for long-term capital improvements are necessary. As is an investment that needs to be made quickly, though debt for investment is very risky. All other debt just means you cannot satiate your appetite, buying votes and voters and donors through lies today that will haunt the future.
1
Here is an idea: Instead of borrowing money via the bond market, why don't we just print some money every year that goes into needed investments for infrastructure, health care etc. If you limit the amount of new money to let's say 3% of GDP you could do a lot of good without stoking too much inflation. And we also know that some inflation is a good thing for the economy. With printing money I mean we create new money out of thin air that will never have to be paid back, so it will not increase the deficit.
1
The thing that makes all this difficult to understand - especially to older readers - is that they were educated in the days of "Closed Economic Circular Flow" theory. It all made relative sense. Simple math. In today's global reality, it is more like solving a giant, open-ended, ever changing, simultaneous algebraic equation. Nothing is anchored. That pretty much ended with Bretton Woods all of which took flight following WWII - anything to keep the economy buzzing, accelerating. Money became free floating, adjustable to the whims of world needs. Ever expanding as new players came on line. Cheap labor driving it all to provide endless supply of goods and services - inflation seemingly impossible. How far this all can go is up for conjecture. Wear your seat belts.
2
Low interest rates created the mortgage boom, that created the housing bust? Actually it was government guaranteed mortgage loans, a program that eventually spread to the subprime sector. So in fact this is actually just another example of the government taking over the debt market.
As a small business owner I promise you, obtaining credit is more difficult than ever - except, you guessed it, through the SBA loan program, another government tentacle.
Not the first time I’ve been stunned by the ineptitude of business columnists at the New York Times, and highly confident it won’t be the last.
2
@Steve Slayton
This understanding of events is very incorrect. The NY Times has this right--the low-interest rates induced during the 2000 - 2001 recession was the catalyst that gave us the housing bubble and then the bust. To blame govt guaranteed loans as the primary cause is the very odious let's blame the poors for the predations of the rich. As abetted by low interest rates (and the fetish of govt deregulation as the market can always do this itself--until it can't), it was Wall Street's love of CDOs and CMOs that allowed them to package risky debt (MBSs) into gold-plated AAA securities--with which ratings agencies went along to stay cozy with the banks
While Fanny and Freddie did acquire these securities, they were just getting in the game that began in the private sector (abetted by the financial media touting this as the glories of capitalism--until it blew up and the hypocritical morality scolding of the non-rich began)--they did not create this problem. Private sector greed did. There are certainly legitimate points to be debated about govt housing policy for the disadvantaged, but let's stop the nonsense that poor people have the same economic power as rich people to use the US economy as its plaything.
1
So there is a free lunch, or is it just a lunch that today's children pay for with interest X years down the road?
1
My God.
I've been old enough to hear multiple versions of "the old rules don't apply anymore." They do, every single time. That's why they are old: Time and tested; tested with real pain. I remember a PIMCO portfolio manager ("manager of the year" at the time) responding to a question from CNBC of whether a P/E ratio of 350 wasn't a bit too much for PALM during the dotcom boom. His answer: Old rules didn't apply any more. We all know where PALM is today.
And P/E is a joke compared to the king of metrics: Debt. It has ruined whole empires. It has changed the course of history. Multiple times.
I highly recommend the book "Eight Hundred Years of Financial Folly." The title speaks for itself.
2
Deficit spending is acceptable for capital projects, but ongoing deficit spending for operating budgets is unsustainable... a fool's errand.
Very simple.
3
People, especially wealthy people, hate paying taxes. So instead of them paying taxes, they voluntarily loan the government money, for which they get peanut size interest payments. But so long as they are getting more than the rate of inflation, they seem happy.
With all this debt money available for the government to borrow, one wonders why there are no better investments paying higher returns that the lenders might prefer. What is really mystifying is that other central banks have lowered interest rates, in some cases, to negative levels. Meaning you are paying a fee to have your money stored, without an actual return on it.
This all seems to move along. What is strange to me is, if there is a financial crisis, the investors get panicky, draw their money out of other investments, such as equity investments, and make even more money available for the government to borrow in a "flight to safety".
Borrowing from Peter to pay Paul is as old as the hills. Just ask Bernie Madoff.
3
The Baby Boomer Generation is the first in US history not to pass on the values of their parents to the next generation: risk aversion. Our parents were born in the Great Depression and fought a war that touched every class of American. They insisted on repaying their own debt, and were resistant to debt. Now they are mostly gone.
One percentage point on a $22 trillion debt is equal to more than $150 billion a year, it adds up fast.
America is headed to consumption taxes which are very regressive in addition to income taxes which cannot keep up with the spending at any level.
2
Republicans use debt to fund war and tax breaks. Democrats use debt to fund war and social policies.
We'd be a heck of a lot better off if both sides could lay off the war just a bit, and fund infrastructure instead.
5
This essay provokes a lot of thought. I read it earlier today and believe that the U.S. needs to invest in more advanced fundamental systems for economic growth.
It seems we are in a rut on infrastructure investment and many believe we are not ready to meet the future needs of the country to move food and goods to markets.
It seems that we are falling behind an economic powerhouse like China who has been achieving faster economic growth than the U.S.
Many people project that China will pass the U.S. as a larger economic entity in this century and will change the flow of capital from the U.S. to China.
It also appears that our major economic trading partners are transforming their economies to non-fossil energy forms and the U.S. is dragging its feet.
Nature, the science journal, recently reported China has initiated a program to capture the Sun’s energy in space and beam it back to Earth.
https://www.nature.com/articles/d41586-019-00629-5
“Chinese state media reported last week that a facility to test the concept of the solar plant project is under construction in Chongqing in central China. The country hopes to have a series of small or medium-sized stations that orbit 36,000 kilometers above Earth between 2021 and 2025.”
This energy source will give China enormous international leverage. At stake is the economic and political preeminence of the United States. This energy source will define the coming century and determine the quality of life we currently enjoy.
2
The next step by the Republicans after the rich folks tax cut is obvious. They will argue that we can no longer afford the current levels of Social Security and Medicare. Unless they are rich, old people who support the Republicans are clueless.
3
As long as dollars work, the US debt can grow. Who is going to call in their loans? Duh. If major loans were called in, the US could not pay w/o printing the money [causing very bad inflation] or totally defaulting [causing very bad inflation and stoping American commerce.]
What will terminate the unicorn Merry-go-Round is the flaunting of that debt principle. Boasting about an unfair advantage never ends well.
2
As soon as we have a democratic president wishing to make things better for the working and nonworking poor and the middle class, the Republicans will make the sudden discovery that deficits matter and social benefits must be cut. Same as it ever was. WWPRD? ( What would Paul Ryan do?)
3
Modern Monetary Theory is the misguided triumph of hope over experience. When the music stops, this fiscal fantasy will not end well for the legions of poor schmoes unlucky enough to be stuck with the bill.
Advice for future generations: Don't forget to duck!
5
Deficits are used by Republicans to hammer Democrats, force them to tighten budgets, slow growth, and then blame them for the slow growth. Then they promise that cutting taxes will actually cause the economy to grow and the deficit to decline. Of course it doesn’t, growth ultimately slows, the deficit is now larger, Democrats are elected and are forced to now reduce spending because the Republicans are now against deficits. The next Democratic president will deal with another debt fueled recession and will be attacked because he doesn’t fix it quickly enough. The cycle will again repeat because we really learn very little from history.
1
All it takes is a little knowledge of the past, and some common sense, to realize that debt is destructive. There isn't an empire in all of recorded history that survived monumental debt and military overreach (the two go hand in hand). Not one.
Everything else is just noise.
4
Why tax the citizens at all. Just borrow the Federal budget each year. Greed is no longer good but apparently debt is. Oh yes, and the near $400B per year in interest payable, and we're borrowing some of that.
3
@DaveD
The tradition of filing income tax returns provides the opportunity to obtain important statistical information about the behavior of individuals , families, and corporations.
I like how Mr. Irwin compares actual Republican fiscal profligacy with an imagined or phantom Democratic equivalent that might happen should they grasp the reins of power.
The verdict is in; Democrats are better stewards of the nation's purse.
1
“...They say that in this environment — with low interest rates to the horizon, no evident inflation pressures, and with worthwhile policies that could enhance the nation’s long-term outlook — it’s foolish not to borrow money....”
The economists got it soooo correct when the 2008 big recession hit…
Depends on how much money is borrowed and the ability to pay it back obviously. Paul Krugman posted a column recently in which the clear tone was growth needed to be greater than interest rates would be key to keeping the debt from spiraling. With private and public debt being so high, it is a bit daunting that the economy depends on growth more than anything else. One pillar against collapse...yea.
Future generations are being saddled with an insoluble problem. Gen xers and millennials have more debt and weaker salaries. Growth cannot be endless as the planet is being so stressed. And nothing is being done to prepare.
1
According to Alan Freeman, University of Manitoba January 2019
GERG Data Group Working Paper, no.11, the growth trends in the industrialized North since 1946, excluding China, show that:
1) In no period before 1974 did annual average growth of the North fall significantly below 5%
(2) In no period after 1974 did it rise above 3%
(3) Since 2001 it has not risen above 2%
(4) Over the past ten years since the 2008 crash, the annual average growth of the North has been a record historic low of just under 1%.
Any discussion of debt and fiscal policy needs to refer to this trend of which the US economy is not the exception. Factors that thereby need to be considered are world output, transnational flow of capital and profits, world savings in the form of US bonds, and so on. Limitation of discussion to US fiscal policy overlooks world movement of values and their representation in money
@Enri Need to adjust for per capita growth, not raw GDP growth. Per capita is what matters. Have a look at a log graph of per capita growth for the US - it's been remarkably stable since 1870. Almost a perfect line, with the notable exception of a big dip for the Great Depression, and a bump back up after WW2. 1950s were actually below par - but for demographic reasons, nothing to do with economic policy.
1
@Chuck Berger
It’s population weighted and PPP. Check it yourself at:
https://thenextrecession.files.wordpress.com/2019/02/the_sixty-year_downward_trend_of_economi.pdf
1
@Enri
Also, if you take in consideration the average growth from 1950 to 2016 for the US, you get 2.5%, which obscures the trend since highest GDP growth happened after war (give and take few years lag) given the technological innovation (both in Europe and the US, but especially prominent in Japan )
1
Keynes argued that "the boom, not the slump, is the right time for austerity at the Treasury." Well, we've had a booming economy since about 2014, when we had 2.9% GDP growth for the full year and the total number of persons with jobs hit its all time record. The deficit that year was below historical average as % GDP.
So Obama was following Keynes advice. What has Trump done?
Well, in January of 2017 when Trump was inaugurated, CBO forecast that the debt additions for 2018-2027 would total $9.4 trillion. Their latest estimate is $13.0 trillion, an increase of $3.6 trillion or about 38%. Further, they forecast the deficit in 2018 would be around $500 billion, and it actually turned out around $800 billion, about a 60% increase. Revenues fell around $300 billion relative to their forecast.
These changes were because of specific policy decisions, not an economy performing worse than CBO anticipated.
So Keynes would argue we are mismanaging our fiscal policy under Trump and should start raising taxes and cutting spending, rather than the reverse.
We could start with Social Security, which has a 1.4% GDP annual gap on average over the next 75 years, roughly the size of the Trump tax cuts. According to CBO, removing the cap on the payroll tax covers about 1% GDP and affects the top 6% of wage earners (over $132,900 in 2019). That would be a good start, although I prefer to think outside the box and would divert wealth taxes instead to the program.
1
Republicans complain about Democratic borrowing, but then borrow even more wildly themselves.
Democrats don't complain about any borrowing by anyone.
That does not mean it makes sense to do what we've been doing.
It certainly doesn't mean that Republicans agree about debt -- they only agree about giving themselves borrowed public money.
4
Call me old school, but deficits used to be run during recessions.
We are in a booming economy and by the end of the year the deficit could reach 1 trillion dollars. If you cant balance the books or run a surplus now, it will be scary to think how large the deficit will be once a recession hits. This all amounts to generational theft as it will be our children and grandchildren who will be stuck with the bill.
3
American households saved at a double digit rate in the 1970s. Now we are down to low single digits. The great majority of households has received no share of productivity gains in the interim, but frozen real wage levels suggest households could manage roughly comparable savings rates. Fanciful theoretical 'innovations' aside, aren't we looking here at profound shifts in behavior? You don't have to endorse mercantilism to see that printing money is not a long-term solution to structural challenges, from automation to Chinese entry in the electric vehicle market.
1
The idea of economic orthodoxy of any kind is now a joke. There's no orthodoxy to unregulated gambling.
The real issue is taxes. People saying debt is fine who once said it wasn't are simply telling the rich what they want to hear. It needn't be true in order for someone to tell them something, it simply needs to be what they want to hear, because that's what they'll be rewarded for. The wealthy in our country have grown so anti-intellectual they they really no longer feel comfortable with varied opinions and demand orthodoxy.
Look at the unwillingness to call out the great depression, first as it slowly approached throughout 2007 to 2008, then immediately after it had stabilized. It was converted into a "Recovery" overnight and no one dared point out that few people had actually recovered and most who had were not fully recovered.
A deregulated world economy is basically little more than a casino. Once upon a time, sane people criticized the enormous size of hedge funds and the opaque nature of consolidated debt. Not any more. Everyone keepd there mouth shut and watches the little ball spinning, spinning, where will it land? Good luck folks.
What is presented as economics in the american press is politics. The policies are chosen by politicians, almost always to support what the wealthy want at the time. For various reasons, sometimes they want more debt, other times they want it paid down. It all depends on what schemes they're currently running.
2
Two things that should have been prominent in this column: Republicans never allow deficits to stop their tax-cut and war spending; and Democrats have consistently allowed their national improvement programs to be hobbled by largely Republican invective about deficits and taxes.
1
Erskine Bowles of the superlative prediction record (always wrong) was a good way to end this article?
1
Good debt, i.e., productive debt, includes whatever is needed to prevent the end of human civilization due to global heating and other causes, with its effects of sea level rising many meters and drowning coastal cities and other coasts; dessiccating the ability of the oceans to support our seafood supply; reducing the ability of our key food-producing lands to feed people; making tropical areas too dangerously hot for human life; and, moving away from heating, the poisoning of wildlife by industrial chemical farming leading to the observed collapses of insects, amphibians, bats, and ultimately all wildlife and thus human life. Debt, compared to that, is literally nothing.
1
The comparison between the rate of economic growth ("ability to pay") and prevailing interest rates (costs that must be paid to avoid compounding the debt) is only valid if we limit the growth being measured to growth in taxable transfers. If we don't tax extracted resources or wholesale goods, the growth in those items does nothing to offset the cost of paying interest on the national debt.
1
Here are some MMT related questions and comments, which I hope Mr. Irwin and Dr. Krugman address in future articles:
1. Government spending is not limited by tax revenue, as the government can print money.
2. Is this true? "Government spending is not limited by investor willingness to buy government bonds, as the government can print money (i.e., credit the account of those it is purchasing goods and services from).
3. Should too much money chase too few goods, inflation will accelerate. In response, the government can raise taxes to remove money from the system. So government spending injects money into the private sector, while taxes take it out.
4. The economy can be described as having three sectors: Government, Domestic Private, and Foreign. The sum of the balances in these three sectors must add to zero by definition.
Government: Tax Revenue - Spending or T-G
Domestic Private: Household savings - business investment or S - I
Foreign: Import purchases - Export revenue or M-X, also equal to -1 times the trade deficit.
This equation must hold true as a matter of accounting and not opinion: (T-G) + (S-I) + (M-X) = 0
5. Please verify: "Historically, periods where the domestic private sector has fallen towards deficits or into deficit (i.e., I > S) have been followed by recessions or Depressions."
6. To avoid draining money from the domestic private sector, the government budget deficit must exceed the trade deficit.
1
@David Doney - Thank you.
Here is part of the answer to 5. Until 1990 or so, the trade deficit or surplus was not a significant percentage of GDP. Therefore the only way that money could flow out of the private sector was thru federal surpluses. These surpluses reduced the federal debt. Here is what happened EVERY TIME the federal debt was reduced 10% or more:
The federal government has balanced the budget, eliminated deficits and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Let's be clear. These were not simply recessions. They were terrible depressions. A depression starts when there are 6 or more consecutive quarters of decreasing per capita GDP.
Now let's look at 6. Except for a brief period in 2003, from 1996 to 2008, the trade deficit which took money OUT of the private sector was larger than the federal deficit which put money IN. We would have had our 7th depression, but in 2008 we had a FED which could create money our of thin air. They poured TRILLIONS into the banking system. and we only had a very bad recession.
Finally as to 3., unless the economy is constrained, adding money in a reasonable way tends to RAISE prices also tends to increase production which tends to LOWER prices.
2
since the watershed moment when there were the surpluses debt has continued to mount. so has income inequality. the two are related. deficit spending is not distributed evenly throughout the economy. deficit spending favors the wealthy. deficits that are caused by tax rate reduction that favors the wealth and contributes to deficits adds additional weight to the economic factors leading to income inequality.
1
@allen - Well, let's see. In the 1920's we had 10 years of federal surpluses and very high inequality.
From 1946 to 1973 we increase the debt by 75%. We had deficits in 21 of these 29 years. Inequality was very low.
It seems your argument is weak at best. In fact, deficits and inequality are NOT related.
1
Part of the challenge with deficits is it's tough to get through the political noise to the facts.
The "enormous Obama deficits" used to help Republicans regain control of Congress had very little to do with Obama. They were mostly inherited from Bush via the financial crisis, which caused revenue to drop to record low levels as % GDP and "automatic stabilizer" spending to jump for things like unemployment compensation and food stamps. Such spending is automatic in that those who qualify get the benefits, without further action by Congress.
Obama ran a $800 billion stimulus total, roughly half the size of the Trump tax cuts, to address the financial crisis he inherited. His main deficit contribution was extending the Bush tax cuts, which were initially supposed to expire in 2010. In 2013, he let them expire for the top 1-2% of income earners, preserving about 80% of the value of those tax cuts. He also cut the payroll tax for 2010-2011.
Relative to a baseline with the tax cuts extended (a "current policy" baseline in CBO parlance) Obama cut the deficit significantly. Relative to a baseline with the tax cuts allowed to expire in 2010 (a "current law baseline"), he increased the deficit significantly.
Overall, during his years in office Bush added about $5.5 trillion to the debt trajectory he inherited from Clinton (turning surpluses into deficits) while Obama added about $3.6 trillion to the debt trajectory he inherited from Bush.
3
Is it now the editorial policy of the New York Times to mention, at least once in every story on public policy, Ms. AOC's"uncanny ability to drive public policy debates..."?
Uncanny--not quite.
It has been the immense firepower of the NYT in propelling, for no obvious reason, this freshperson Congressperson into the political limelight that is really the more interesting, even alarming, story here.
Really: beyond talking-talking-talking,and looking awfully good on cable chit-chat, what has this darling of the left actually DONE. Especially for her constituents--the folks in the Bronx who could use a Rep's intercession with the blank slab of the federal bureaucracy. That, in reality, is the basic job of every other Congressperson who wants to be reelected. The estrangement of the old dude former Congressman from his constituents is what allowed AOC to hopscotch onto the national stage.
I will buy the NYT's "uncanny" characterization once I have read a proper article on what Ms. AOC is actually DOING over there in the wilderness of the Bronx. I predict that AOC will have launched her senatorial/presidential campaign (pity she's a bit too young, minor detail) long before that happens.
2
"How I Learned to Stop Worrying and Love the National Debt" -
A Conversation with former Deputy treasury secretary Frank Newman, 2014
This event will explore common misconceptions regarding the nature of the national debt and its function in the broader context of contemporary U.S. macroeconomic policy. Questions to be addressed include:
What is the national debt comprised of?
Why is the national debt different from a personal debt?
How accurate are the assumptions behind popular fears over the sustainability of the national debt?
How can an accurate understanding of the nature and operations of money inform current debates over the national debt?
Frank Newman works as the Vice-Chairman of Asia for Global Strategic Associates, and has published two books: Six Myths that Hold Back America: And What America Can Learn from the Growth of China's Economy (2011), and Freedom from National Debt (2012).
https://www.youtube.com/watch?v=Ae7PO-j7TIc&t=1495s
1
Open your minds, people. The article factually states that all the warnings and modelings on the dangers of the national debt have failed to materialize. Deficits are not new. We have a lot of data over many decades. Maybe your “there’s no free lunch!” and “Zimbabwe!” slogans are just wrong.
4
Doesn't Neil Irwin read the NYT? Paul Krugman explained the whole thing much better just a few days ago.
2
At the opening of William Shirer's "The Rise and Fall of the Third Reich", published around 1960, there is a quote from a now dead philosopher, "Those who do not remember the past are condemned to relive it." What if the know it all US economists, bankers and billionaires are wrong and deficits do matter? They certainly mattered during the Weimar Republic years in Germany when millions of average Germans saw their savings wiped out in the high inflation of the early 1920's, followed by massive unemployment less than a decade later. The German Nazi party, which did not get many votes in the 1920's, received a plurality of the votes in two national elections in 1932 and were allowed to form a government in January1933. The people who earn their salaries promoting Holocaust remembrance have been silent as far as the US government's deteriorating financial condition. In Europe, which is also experiencing a lot of political and economic instability these days, Antisemitism has reached levels not seen since the end of WWII, according to recent news reports.
American politicians and economists are playing a dangerous game.
4
The rules haven’t changed. They died. They died with the death of the pre-baby boom generation. Since the boomers took charge it’s been nothing but spend and give tax breaks to the wealthy.
The exact opposite, economically,from what their parents and grandparents did.
One generation cared about the world they were leaving their children. The other didn’t.
3
Have no fear fellow Americans--as soon as a Democrat is President again the Republicans will claim that the world will end unless we cut taxes for the rich again while restraining spending on global warming, social programs, etc.
1
A lot of folks are writing statements like "Basic common sense says that debt and deficits matter a lot." Einstein said:
" Common sense is the collection of prejudices acquired by age eighteen."
They further elaborate with more nonsense like debt "all has to be paid back with interest." Well, each individual federal debt has to be paid back, but the writers are referring to the total federal debt which need never be paid back.
In fact, we did pay off the federal debt exactly once, in 1835, & that was followed in 1837 by the start of our longest depression. Even more telling, ALL 6 times we even just paid the federal debt down by 10% or more, that was followed by one of our 6 depressions.
On the other hand, the largest debt ratio (debt/ GDP) we ever had was in 1946. The pubic debt ratio was 47% higher than today's.
Did that rob the next generation of their future? On the contrary, the next 27 years have been called the Great Prosperity. GDP growth averaged 3.8% & real median household income surged 74%. (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the output of Europe was about the same as the US in 1946 - 1973).
Did we pay down that enormous debt? No, we had deficits for 21 years out of the 27 years & INCREASED the debt in dollars 75%.
Well, what happened to that huge debt? Since we invested in America, the economy grew so much, the debt became insignificant.
5
No, we haven't stopped worrying and learned to love deficits, we are in a wake and up not a time to be lulled back to sleep under such absurd notions. Why are we not a creditor nation, how much have American tax payers shelled out for interest payments on our debt over the years? Is our debt created to supply money for the lenders who get rich off this money being printed out of thin air? How about some talk on rescinding the recently granted corporate tax breaks, which will only increase our deficits, and set up inflationary spirals. An added tax imposed on the working people of the country.
2
This article didn't mention Vice's 2003 statement: "Reagan proved that deficits don't matter." (A position that the Republicans abandoned with lightning speed the day Obama was elected.)
1
"How America Learned to Stop Worrying and Love Deficits and Debt"
The "worrying" did not "stop," it has just been put on hold while Republicans are in power and funneling trillions to their puppetmasters in the 1%, and the corporations they own.
Republican fearmongering of the deficit, sold in a simplistic message to Americans, will be dusted off and used as soon as Republicans lose power -- to attack Social Security, Medicare and other programs they derisively refer to as "entitlements."
1
"In the US, the wealthy work to socialize their risks and privatize profits. And Congress obliges."
2
Imagine you have a shop in a small village. You trade with other shop owners and sell things to the inhabitants of the village.
Now imagine there is one shop owner, twice as tall as all the others, who carries a baseball bat. He is nice to almost all the other shop owners, but occasionally he walks into a shop whose owner has displeased him and smashes everything to bits. No one can do a thing about it.
The unlimited supply of money that the US is able to borrow needs to be understood in light of its military capabilities, and willingness to use them whenever it pleases.
@Turgid - But what about the unlimited supply of money the US can create out of thin air?
1
Anyone who can think and read has known for some time that the national debt problem was a hoax for the reasons stated in the article. The main reason Americans have stopped worrying about the debt is because Fox news and the Republicans have stopped fear mongering about the debt, because we have a Republican administration. If tribal leaders fear monger about something, then the media take it seriously and the meme spreads, regardless of any facts.
2
This is why I am glad I do not have kids as I approach 50 years old: The future of this nation has been mortgaged for awhile now, all to fill the pockets of the 1%, as many people have pointed out in the last 30-plus years since Reagan ruined the nation's moral integrity for the sake of the almighty dollar.
1
If unbridled debt and creating money out of thin air is not a problem, then we should all set up some printing presses and start printing as many dollars as we need.
Then Uncle Sam won't have to work so hard.
2
@medianone - If the gov needs to create too much money to do the things we want it to do, we may not be able to make enough stuff to soak that money up & will have too much money chasing not enough stuff, i.e. excessive inflation. This is rare & is usually caused by shortages, e,g, of oil.
But that's easy to solve & where taxes come in. Taxes allow the gov to take back the excess money & prevent inflation. The purpose of taxes is to adjust the amount of money in the private sector. The more we can produce, the lower taxes can be.
1
@medianone
We did - it's called QE.
1
Irwin claims that "everyone — liberals and conservatives, politicians and economists — has become so comfortable with debt."
He's wrong, of course.
Republicans have once again blown out the deficit, and when a Democrat gets into the White House again, he will, once again, have to reduce it.
The consequences are long-term, and will be devastating. Democrats are not comfortable with this, and the claim that we are is simply Republican nonsense.
1
It looks like everyone will continue to print currency, keep easy money and fuel expansion until the world economy collapses. Love those unfettered markets! History shows us this doesn't work.
4
The Us is 22 trillion dollars in debt, there are only 10.5 trillion dollars in existance. The bill will come due.
2
@Pat - Thru the FED, the US can create as much money as it needs out of thin air. It will run out of dollars the day after the NFL runs out of points.
1
The idea that Americans have suddenly learned something, or that "economic orthodoxy" used to say one thing, but is now somehow different is bunk. Republicans have always cynically used fear of the debt to push for cuts in social spending, while no amount of spending on for the military, elective wars, or tax cuts was ever enough. The scary part is that many Democrats are now so tightly entangled with finance that they are now starting to make "pay as you go" noises. It's disgusting. I'm talking to you Nancy Pelosi.
Galbraith pretty much put the lie to deficit fears back in the thirties, particularly for deficits incurred during recessions that were used to jump-start the economy. These are pretty much a no brainer and are only opposed by those sitting on hoards of cash that want to buy up everyone else's property at fire sale prices.
It is true that there are limits to deficit spending, and there are bad ways and good ways to incur a deficit. Taking a loan in order to buy cocaine is very different than investing in a small business in the same way that spending more on the already bloated military or on tax breaks for the already insanely wealthy is different from spending those funds on public healthcare or infrastructure.
As long as our government is almost completely controlled by huge financial interests, it will never make sane choices.
1
There's a much simpler, one-sentence explanation:
The hypocritical Republicans denounce deficits/debt whenever Dems propose anything, but find it acceptable when their own party's in power.
1
In 20-30 years, its paying to bail out coastal America as it goes underwater that will be the financial burden on our country, not a few hundred billion here or there right now.
1
“It puts your party at a disadvantage if we’re the ones saying you have to eat your spinach all the time.”
With the twits on the edges of both parties, yes. Not with me, not with many I know and classify in the reasonable center (which Krugman and co now say do not exist but I have no problem meeting). For us the shreds of enlightenment morals clinging to the Democrats is what moved our hands to them in the voting booth.
We have squandered 25 years on gross stupidity where technology and peace has conspired to privilege the thoughtless and the quick-fingered on the extremes (since the 1994 Gingrich appearance). The right went first with the tea party and ended up with Trump and McConnell and a complete abnegation of every principle -- it seems now the left wants to follow suit to get their time slurping at the trough of ignorance, with the same mistaken idea that giving just a wee bit of free rein to the far left will give them control, and, you know, the inmates ain't going to end up run the show (see again, Trump et al before).
Once disaster has been at bay for a while, or reality fails to assert itself, theories spring up like weeds to explain the new new. In 1999 it was eyeballs not dollars (then crash). Pre 2008 it was theories on risk and copulas and tranche management -- then ka-boom.
It is never that different. If it takes more than the back of an envelope to explain, watch out. And MMT doesn't fit on the back of an envelope.
1
@fc123 - I can get this on the back of an envelope:
1. We need money to conduct commerce.
2, As the economy grows we need more money.
3. Money can come to the private sector from 2 places--the federal government or from a favorable trade balance.
4. Money comes from the federal government by spending. Taxes takes some back.
5. Net federal spending is measured by the federal deficit, i.e. the deficit measures the net flow of money to people, businesses and state & local govs.
6. Thus in order to get the new money the private sector needs, the federal deficit must be larger than the trade deficit. We have a large trade deficit. We need a large deficit.
1
One wonders when Erskine Bowles is going to get the memo that austerity does not work.
1
Deficit spending was always demonized by the Republicans in Congress as a way to disable President Obama and cut spending and investments and basically starve the beast they govern. The dislike of deficits was more a weapon, not a principle, not derived from any understanding of economics. Trickle-down is another such conservative tenet used to justify tax breaks for the rich and crony capitalism for their donors. It is no wonder, that every Republican administration has increased deficits and even taken the economy off the rails with wanton deregulation. I am a business man and Republican economics is at best in service of their patrons and will ruin this country in the long run. Like their science ...or blindness to it! This is NOT what made America great and never will.
2
Deficits don't matter... until they matter a lot. Ask Greece, Puerto Rico, Argentina, or any heroin user. Nothing matters until the time of reckoning, when the faux reality ends.
Think of the Pied Piper of Hamlin "child's story" Really a parable that when the debt has to be paid for public benefits, the choice is to painfully pay or lose our children. The wisdom learned from borrowing in the twenties was learning in the Great Depression. Now forgotten... for a little while. Politicians and people with short term attention spans don't care about tomorrow or the children.
Many people laugh since they love their children: and they laugh when they see bumper stickers saying "I am spending my children's inheritance." Heartless, thoughtless, simple mammals. Like drunks at a bar, only getting angry when the bar closes, with no thoughts of tomorrow, hangovers, reality!
1
One’s position on Empire reflects one’s position on economics — and wars, defense contractors (aka) “Merchants of Death”, fossil fuel corporations, financial alchemy, and failure to understand (or even mention) ‘negative externality cost dumping’.
2
A little over a decade ago, it was smart to lend money to people without jobs - so that they could buy homes beyond their reach. The advocates were not part or organized thuggery, they were the likes of Alan Greenspan. Sub-prime, they said, was the savior. We had a bit of trouble with that - if you recall.
A decade prior to that, sages suggested that internet based companies were re-writing the rules. Products could be given away for free - because in the new economy - everything was new. Revenue was a too gauche. Did not work out well, but a lot of bankers made some real money at the nation's expense.
You sir are peddling similar nonsense.
Wish our debt had gone to pay for world class infrastructure, uniformly good schools, energy grids, sustainable energy. It didn't. It paid for welfare (social security, medicare, medicaid), wars, and highway robbery (bankers, derivative traders). Debt is now the way to swindle the unsuspecting, uneducated American.
Macroeconomics has now acquired the same credentials as politics, astrology, alchemy, and other cleverly designed ways of thinking and speaking in gobbledygook, to defraud the nation.
Because you think debt is good, how about you fork over all you've got to me. My grandchildren will repay your grandchildren, maybe. And if you are not willing to do that, which is called "put money where your mouth is" or "having skin in the game" - kindly reconsider your hocus focus.
For shame.
1
@Kalidan - The largest debt ratio (debt/ GDP) we ever had was in 1946. The pubic debt ratio was 47% higher than today's.
Did that rob the next generation of their future? On the contrary, the next 27 years have been called the Great Prosperity. GDP growth averaged 3.8% and real median household income surged 74%. (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the output of Europe was about the same as the US in the Great Prosperity 1946 - 1973).
Did we pay down that enormous debt? No, we had deficits for 21 years out of the 27 and INCREASED the debt in dollars 75%.
Well, what happened to that huge debt? Since we invested in America (see above), the economy grew so much, the debt became insignificant.
It way past time people begin to realize that their personal finances are nothing like those of a huge, long lived country that can print the currency its debts are in and which has to supply the money to conduct commerce.
2
When expert economists roll out their newest theories we should all beware. “Expert” Summers thought mortgage derivatives would be a good idea. We all saw how that turned out.
1
'Do I wish we had not turned around and voted for $2 trillion in spending that was unpaid for?' -- No, of course not! These are Republican deficits, not Democrat ones, so they won't cause any problems until a Democrat is elected President.
1
Doesn't anyone at the Times ever read Paul Krugman? None of this is new - and, by the way, when a Democrat is once again president, Republicans will immediately - and I mean "immediately"- regain their fear of deficits and debt. (You will note that they have problems with it now to the extent that they like to suggest that we should cut social programs that benefit, you know, "people." See, e.g., S.S., Medicare, Medicaid, etc.)
1
We live near the border but ours is a different world. Our economy is the best it has ever been and when our leader tells us it is the best it has ever been it is because it is because it is.
Truth is the only thing that will ever bring America back to life. If all day is cynicism it is painful to get out of bed.
2
Watch how fast we start hearing the words debt and deficit again from our Republican friends (and maybe even a reappearance of the Tea Party) when Democrats are back in office.....
2
Economics is not a science.
The so called "dismal science" is part ignorance and stupidity. Ignorance is not knowing that 2+2=4. Stupidity is knowing that 2+2= 5. Ignorance can be cured by curiosity. Stupidity is incurable and terminal.
There are too many variables and unknowns to craft the double-blind experimental tests that provide predictable and repeatable results. Economics is gender, color aka race, ethnicity, national origin, faith, sociology, anthropology, psychology, politics, education and history plus arithmetic.
There is no Nobel Prize in Economics. There is the Swedish National Bank Prize in Memory of Alfred Nobel. America has learned to live with the nonsense called economics.
There should be the Alfred E. Neuman Prize in economics. Named after the fictional Mad Magazine character and Jared Kushner lookalike.
2
It’s really quite simple.
* Democrats understand debt and economics - and Republicans don’t - and have no interest in learning.
* Republicans love Republican debt, especially debt that benefits large corporate donors and the Super Rich.
* Republicans love creating debt that they can later blame Democrats for - and then shriek about how Democrats are destroying America’s future under unsustainable debt.
* Republicans LOATH all Democratic debt!
* Most important: Republicans have largely controlled the national conversation and functional realities of debt for most of the last 40 years - regardless of who is in office or power.
Democrats have lost their way in this discussion, and have become passive, defensive, and reactive to Republican spin! MESSAGE UNITY and a policy of NATIONAL EDUCATION on how a nation’s debt really works is essential, if Democrats are going to regain any control, and the moral high ground. Until then, Republicans and their lying hype will continue to control the conversation.
2
What you smoking?
The only reason the Republicans hated the debt under Obama was because it was something to attack him for. Please note they did this despite holding a controlling majority in Congress for 6 of Obama's 8 years, meaning the GOP criticized Obama for something the Republicans themselves were doing.
Congress, not the president, sets the spending.
What is absolutely amazing is that their gambit worked.
2
"How Republicans Learned to Stop Worrying and Love Hypocrisy, Duplicity, Sexism, Racism, Guns, Deficits, Debt, and Lies"
1
Reminds me of the conversations about climate change 20-25 years ago. Let's just put it off until it's too late but at least it won't be too late for us, just future generations.
A strategy of let's be just as stupid and irresponsible as Republicans to get votes personifies the unwillingness of this butter soft country to confront anything that requires sacrifice and common effort.
Debt doesn't matter? Unbelievable.
1
C.Don't worry,once there's a democrat in the White house, the Tea party will rise form the dead and demand we save their grandchildren from debt again. Like Dick Cheney said, "Reagan proved Republican deficits don't matter'. To Republicans, anyways.But we have to thant Rump for eliminating so many of the GOP's bogus claims, like being the" party of" fiscal conservatism, law and order and, of course,family values.
2
The problem is, it doesn't mean anything to voters. If you told me that half my tax bill every year was going to pay down debts - not to fund our military, our education system, build roads, & take care of children & the elderly, then I might care. If all I see is a tax bill, what differences does it make to me?
1
@Mr. Adams - There have been 6 periods in US history during which the feeral debt was paid down 10% or more. Each ended in a terrible depression. In fact, ALL of our depressions were preceded by such a period.
Still want to pay down the debt?
1
Republican policy - lower taxes, deregulation (allowing all sorts of consolidation in health, pharmaceuticals, airlines and even cable) and wars - have driven up costs (healthcare) and the deficit.
1
Sooner or later, they will have to inflate the value of the debt down. It might start in 5 years, or in 20 years, just don't be holding cash in a bank after it starts, because after 10 years of the inflation coming, its value will be cut at least in half, if not much more.
1
Eventually the bill will come due and depending on whether we default, cut back, or suffer extreme inflation, it is NOT going to be pretty.
It's not a matter of "IF" it's a matter of "WHEN" and I for one am not concerned with which way it goes but how to best prepare for the event itself.
2
@horace Greeley - When did we pay off the much larger (as a percentage of GDP) debt from WWII?
As we grew the economy, if just became insignificant.
1
So-called modern monetary theory only works as long as the world believes in and trusts your currency. It is a theory unique to the United States because of the dollar's status as the world's reserve currency. But at some point debt overwhelms this confidence. The world will no longer believe we can pay the debt back. At that point the house of cards comes crashing down. The financial crisis was a mini example around our mortgage-backed securities. Imagine a pile of debt 10 times larger than that.
3
@Ken L
It is not unique to the United States. Japan,China,and the UK are also using it.
1
@Ken L - We don't have to pay the debt. Read my reply to the next comment.
1
I am not an economist, so take this for the little it is worth. I remember very well when interest rates were 15%. This caused a host of problems. For example, people with variable rate debt got clobbered. So, my sense is that long term, low fixed rate debt for infrastructure makes a lot of sense. Borrowing for worthless Middle East wars does not make sense. No long term benefit. So, I am not sure it is as simple as spend more and all is well. Long term benefit and low, fixed interest rates are part of the equation.
2
There's no question that we have a fair amount of latitude to borrow long term for infrastructure type projects, especially in the current global interest rate environment. We deceive ourselves if we think the current situation will prevail indefinitely. For other things, a moderate amount of fiscal responsibility remains the sensible course. The market stress test? For structural changes in taxation or health care or wealth distribution or pension liabilities - fund the transitions through long term 30 year bonds.
2
The GOP throws fiscal responsibility to the wind when they are in power, and then they blame the Democrats for driving up the nation debt and the deficit when Republicans are no longer in the majority. How strange is it that Democrats are coming up w/ policy ideas that are paid for while the Republicans refuse to give those ideas credence at the same time they enact their own, non-funded priorities like tax cuts they argue anecdotally will 'pay for themselves.'
2
Whatever. The only sure thing in the economic policy world is, the rich will find a rationale for staying rich, no matter how badly that affects the rest of us. It's all smoke and mirrors.
2
There needs to be an indepth article about the persons and governments who own USA debt and the reason why they bought such debt. In my opinion, if wealthy persons and foreign governments own your nations debt then they can influence policies of that nation and that could be to the detriment of the legal citizens of that nation, and not in the nations best interest.
In NZ 20% of the richest people own 80% of all the wealth. Never used to be like that and it is government policies that allow that to happen.
2
@CK
The article which you request would likely be written by a national intelligence agency and held in greatest confidence.
See my response to Woof in this thread, three comments earlier.
Forgetting about pubic debt, private debt has been rising since 1352 and exploded in the mid-20th century. That tells me capitalism is struggling to grow via new products like the industrial revolution. In that regard, that explains why public debt has risen.
Basically the only growth that is available is established markets and for consumers to spend is the only growth model, businesses to profit, debt has had to surge across all corners.
I think capitalism is dying frankly. Unless there is another IR that can make low debt levels turn into high rates of growth, I just don't see the future for this system. It will collapse and die.
1
the United States has been a long term beneficiary of being the dominant power, economically, politically and militarily. This position is ending, or has ended already, depending on your point of view. Once the dollar ceases to be the reserve currency of the world, the reality will assert itself: Americans will be living in Argentina. Argentina has her own currency as well, which emphatically does not stop, or prevent, the currency crisis. Look south of the border for clues to what may happen here. Once it begins to happen, it make take the better part of this century to right this ship. Or, it may never right itself and simply break apart. It did once already. Hopefully, this time around, without a shooting war.
2
Re: Debt Interest rates.
Start here
How much does the US have to pay in interest relative to other countries ?
Country Interest rate 10 yr Gvt bond
US 2.7%
Germany 0.1%
That is, the US pays 27 times as Germany
That matters.
he current interest on the National debt is $364 billion
Would the US have as responsible a fiscal policy as Germany , taking the 10 yr bond as first order measure, the US debt payment would be reduced $ 13 Billion, leaving 351 Billion to spend on social programs
For comparison, the entire 2019 budget for NIH is less than $ 35 Billion.
Summary
Relative to Western European countries with responsible fiscal policies (Sweden pays 0.3%, the Netherlands pay 0.2, Switzerland pays -0.2%) the US interest rate is high, just like conventional economics predict.
9
@Woof
It is my understanding that the US deliberately pays a higher interest rate on its bonds relative to other nations in order to attract investment income. This makes other nations and private investors dependent upon the US. This is a matter of psychological warfare.
1
@Woof Germany currently has almost no economic growth. The difference you point out has existed for decades and yet Germans aren't richer than Americans.
If we had a balanced budget, we wouldn't have the $364 billion to spend because right now we borrow a lot more than that so the reality is we would have to cut spending even if we had no debt to service. For individuals the chicken invariably come home to roost as you understand, but this is because individuals get old and die. But the country's economy seems to just keep getting bigger and the effect of the debt keeps diminishing due to inflation and the growing economy.
One important thing to mention. This works because the economy grows. A lot of this growth is because of increasing population from whatever source. Reducing immigration reduces long term growth and thus reduces our ability to safely borrow.
2
@Woof - And Japan's debt is 250% of their GDP and they pay NEGATIVE interets rates.
Would you like to go cherry picking some time?
1
This is a really important debate to have and it's great to see Stephanie Kelton and the late Wynne Godley get some well-deserved coverage.
When you understand why a government budget deficit should be larger than the trade deficit, you're on the road to understanding Godley's work and MMT more generally.
In short, government budget surpluses and trade deficits remove money from the domestic private sector. Too much of that historically has resulted in recessions or Depressions. We want the domestic private sector to have a surplus.
Further, with very high income and wealth inequality, we only have to tax a few to get enormous amounts of money. For example, U.S. net worth is about $110 trillion and the top 1% own about 40% of that. So our $22 trillion national debt and $1 trillion annual deficit can be readily addressed by taxing them should need arise.
Let's start with forgiving student loans and paying for college and trade school tuition. Let's see if that causes inflation. If it does, we enact the tax hikes on the rich.
3
Senator Warren is correct, the GOP only gets fiscal religion when they are in the opposition.
The debate should be centered on just what type of deficit spending is preferable and where we are in the business cycle. The proper metric for this is the money multiplier.
Most honest economists agree that the multiplier (how much of the largess from deficit spending finds its way back into the economy) is highest when low income segments of society are recipients and lowest when the rich get tax cuts they don't need. Even military spending has a higher multiplier than tax cuts for high net worth individuals! Infrastructure spending (roads,bridges,tunnels,airports,schools,etc.) is harder to measure but most likely higher than military spending but below handouts to the working class and poor.
A note of caution: We have never seen a 14 percentage point corporate tax cut done in one fell swoop before. Companies in highly competitive industries (that is, almost all of them) may have chosen to quietly use their tax cut windfall to maintain or even cut product prices. That would explain our persistently low inflation (are you listening Fed?). The problem is this impact will eventually work its way out of the y/y inflation data and when it does....a possible spike in inflation??
1
Deficits and the national debt only matter when Democrats are in power. Otherwise, it's freewheeling spending and slashing revenues without a thought for how to pay for it. (See: Bush tax cuts, 2 wars, Medicare Part D and a ballooned deficit /debt).
2
I’m in my forties, and have already seen several iterations of “the business cycle no longer applies!”
What goes up, must come down. And by the way, those Nordic countries we all love and admire, what with their fabulous public healthcare and education? They have debt ratios of ~35% of GDP. We have >100% of GDP. Our budget would disqualify us from joining the E.U.
Debt doesn’t matter, until it does. And by definition, it matters when you aren’t prepared to address it. And just like with climate change, our grandchildren will be left holding the bag.
3
Debt is less important depending on
the use of borrowed money. As Larry
Summer says if invested in education,infrastructure, it is a
good use of debt. However if it is
used to pay for military build up and fight wars overseas it is waste of borrowed money and most likely create
problem. Unfortunately, low interest
rates, which fed was forced to sustain,
are bad. With low cost of money bad
decisions get made. As this report
points out that interest rates were
low in early 2000s which led to
housing frenzy, creating the bubble
that burst in 2007-08 with huge
problems of foreclosures and layoffs.
Are we ready to repeat the lesson?
There is bubble in stock market now
partly due to low cost of borrowing and
making high return in equities. The
market forced fed to keep rate low
so they could continue with their
money making spree. Watch out when
market crashes! It could be worse
than 2008.
2
Why can the US run up a debt that would ruin other countries? As with any loan, Mr. Erwin, it is
Credit worthiness
How long it will lasts, for the richest Nation on Earth, that is the question
3
A lot of folks are writing statements like "Every one knows that the purpose of taxes is to raise revenue." I have learned that "Everyone knows" means "the following assertion is false so I won't even try to prove it."
The idea that the federal gov has to pay for things, good & bad, with taxes or borrowing is just plain wrong.
The gov doesn't need your money. It can (thru the FED) create as much as it needs out of thin air. Just think about where money you pay your taxes with came from in the first place. Unless you have a printing press in your basement, it originally came from the federal gov.
But there's a catch. If the gov needs to create too much money to do the things we want it to do, we may not be able to make enough stuff to soak that money up & will have too much money chasing not enough stuff, i.e. excessive inflation. This is rare & is usually caused by shortages, e,g, of oil.
Taxes allow the gov to take back the excess money & prevent inflation. The purpose of taxes is to adjust the amount of money in the private sector. The more we can produce, the lower taxes can be.
So the way to run things is to spend money in a way that facilitate production. Fix roads and bridges, for example, does that. Cutting Daddy Warbuck's taxes so he can buy more credit default swaps does not.
Just remember, the federal gov will run out of money when the NFL runs out of points.
3
Yes, money is created by the Federal Reserve Bank, via “quantitative easing”, an obscure label for purchasing federal debt.
1
@Steve BolgerThe - Well actually Steve, QE was a rather exceptional program to deal with the 2008 financial crisis. The FED bought dodgy securities from banks to shore up the banking system.
Another more common way is for the FED to simply create money to purchase Treasury bonds (thru a complicated system) and the Treasury spends the money into the private sector.
1
Neil states that democrats like Warren want to raise taxes to reduce inequality. He is of course correct, but everyone knows that tax rates are primarily designed to raise $. Now if you can kill 2 birds with 1 stone, is that not better? Increasing fuel taxes would have the added benefit of reducing vehicle mass (since efficiency is associated with weight). Roads will be safer when there's less disparity in vehicle sizes and weights. The GOP certainly believes in using the same principles, albeit often for benefit programs (work requirements for food stamps/Medicaid reduce $ spending while providing dignity to recipients). They also believe that reducing tax rates will encourage investment and grow the economy.
1
@Dan G - I do not believe "tax rates are primarily designed to raise $."
Answer me this Dan, where did the money you use to pay your taxes come from in the first place?
1
Having no hard knowledge in matters of economics, it is hard for me to judge positions such as the one pointed in this article. I understand that everything is dynamics and financial imbalances have to continually be reassessed.
I worry about something I do not know how to evaluate. It has to do with the preeminent position the U.S. have enjoyed since the beginning of the 20th century, climaxing may be in the seventies. All the international institutions (IMF, etc) and the dollar being the de facto international currency were pretty much supported by this country and this has created enormous inherent advantages that I cannot quantitatively explain.
If we lose that preeminence with continual bad debts, I am afraid that the backdraft is going to be compounded by the fact that we will not be setting the rules of the game anymore. Other countries will be in position of great international financial leverage.
That may be a time when retribution may be heaviest than normal because we forgot to be magnanimous somewhere along the way!
2
The Euro never achieved the global currency status of the US dollar, and China is not trusted to keep its monetary policy favorable to capitalism.
3
And if some day lenders demand 6% or 8% from bonds, as a risk premium? It's all psychology and mass opinion, and those change, unpredictably.
Even now, it is wrong to say that the economy is growing faster than long term Treasury bond rates. They're both about 3%.
3
The problem is not that government debt squeezes out other types of investments, it is that servicing the debt becomes an ever larger share of the government's expenditures, constraining its ability to fund items, like infrastructure, that help the economy to grow and create jobs. And are we to assume that the Chinese will be ok with being our bankers indefinitely? That's a pretty risky assumption.
3
When the Fed buys federal debt for credits to banks, it effectively terminates obligation to service it.
1
Basically, the United States has been printing money, and countries such as China are making goods that give that currency value. If suddenly, the imports stopped, the department store shelves would be bare and we would have all the symptoms of an underdeveloped country (which we are). Almost all the countries we trade with have trade surpluses, and they take their dollars (which we printed) and invest them in United States assets (such as land, treasury notes, etc.) Once again, it looks good on the surface.
We are also under investing in human capital (not enough advanced degrees), infrastructure (no bullet trains, etc.), and manufacturing capacity. A lot of our economic surplus is also spent in areas that do not promote economic development. For instance, a gun store and church on every street corner leaves us with lots of gun injuries (and fatalities), and a depleted tax base (churches do not pay taxes). When we are actually making socially useful goods and services, much of the economic surplus is not plowed back into better goods and services. It is distributed to the wealthy in excessive executive wages and dividend payments.
If we want to become a first world country, the status quo will not cut it.
6
We dropped the old rules,when the average citizen-consumer decided accumulating debt was their means to living The Dream.
Granted we didn't have much choice, what with wages stagnate for decades now, and the cost of living rising faster then our collective blood-pressures - accumulating (near)crushing debt is now a normal way of life in the US.
SO in this case it was trickle up, not down.
Good debt, bad debt...its all graded on variables that shift and waver from decade to decade...
2
"Currency-issuing governments' needn't worry that deficits will lead to a fiscal crisis. Really?? How about the lessons learned from Weimar Germany in the early 30'? Argentina in the 70's and 80's? Zimbabwe in the 90's? Venezuela today? Rampant hyper inflation occurs when governments decide to pay off their debt by printing money. And they end up printing money when investors aren't interested in their gov't debt. And if deficits/debt are of so little concern in this new monetary theory, why does the US Gov't even need a budget? Why even vote on one? Why not just pay as we go into eternity? But we don't because we need to know how spending lines up with tax revenue so that we also know how much deb't to issue. If we take our deb't seriously, so will investors in buying it, because they know we will not default. MMT is cavalier about long term debt. Beware.
6
All the countries you cite has dysfunctional governments before they had hyperinflation.
Let me offer a counterexample: Japan’s national debt is 200% of GDP, and the economy’s problem remains the threat of deflation.
Large deficits don’t automatically lead to hyperinflation. Other things have to fall apart first.
2
@Rick Morris - Prices depend inversely on the value of production of a country. Since WWI the CAUSE of all examples of excess inflation has been a fall in the value of production, NOT the printing of money.
Here are some of the examples.
During and right after WWI over 1,000,000 Germans died from starvation. Germany simply did not have enough arable land to feed its people and the allied sea blockade prevented it buying it elsewhere. Food prices went through the roof. Then there were reparations in kind which required Germany to send steel and cattle to France. But these were the only things that Germany was producing in any quantity. When Germany failed to send the steel, in 1923, France invaded the Ruhr and seized the steel mills. They forced the workers to work without pay and took the steel back to France. Production was reduced. But people were starving. So the Weimar government began to print money. Of course, this raised prices further and we got 1,000,000,000 mark stamps. But it is important to note that inflation caused the printing of money. Then the printing of money caused more inflation.
In Venezuela, oil was practically their only product. When the price of oil fell 60%, they got instant hyperinflation which they exacerbated by printing more money.
In Zimbabwe, the farms were taken from those who knew how to run them and given to those who didn't. Production fell, and printing more money could not increase it.
1
The problem with the current deficit is that it invests on the margin only in corporate welfare, the wealthy and the military. So all of the things we should be investing in: education, infrastructure and other investments that improve productivity are languishing. That lack of productivity as well as personal savings will come back and haunt us.
It's the opportunity costs of current policy that are so unfortunate.
3
There is deficit spending and then there is deficit spending. Trump’s deficit explosion is a fundamental element of his political,strategy. His tax cut, fossil fuel exploitation, increased military spending and even his wall obsession are focused on juicing the economy so that a foundering economy will not impede reelection. On the other hand Obama’s Keynesian spending was aimed at preventing a depression due to the paucity of private funds in the economy while strengthening the safety net for those victims of the meltdown.
No matter how high in the sky AOC’s Green New Deal spending wish list may appear, it’s underlying logic is not to preserve the status quo by pumping stimulus into a humming economy, but that deficit spending should benefit society as a future asset. Climate change amelioration, universal healthcare, improved educational opportunity, modernizing our deteriorating infrastructure will add to a fiscal deficit...but improve the future of our existence in this country and the world. The Trump deficit spending may get him re-elected...and who could deal with four more years of his b/s?
1
The aspiration of the Green New Deal is reasonable and really is morally correct based upon our ethical tradition but it is wrong headed in that it ignores the real limits and consequences of what we can do even with all of our resources and ability to adapt to the challenges we have faced. That makes it a bad proposal, one that will work against realizing the good intentions that it represents.
1
"...the old rules simply seem not to apply (any longer)...."
That's what uninformed, greedy investors said during the late-90's tech bubble: that "earnings don't matter any longer."
Well, earnings did matter, it turned out. And the same is likely to be true for the debt. Just because we've had a run of strong growth with low inflation and incredibly low interest rates, that is no guarantee that rates and growth will not return to historic norms. And if -- when -- they do, interest on the national debt will become a crushing burden, on both the U.S. economy and the world's.
We current taxpayers may not have to deal with it in this generation. But my grandchildren are very likely to.
Rely on an old, inviolate truth: "There is no free lunch."
4
Borrowing to make money from an endeavor is only a loser when the anticipated returns are not realized. Deficit spending is okay provided revenues do pay for it in a timely manner. When they don’t, the interest payments or the willingness of lenders to support more debt can hamper government services or burden the credit market with demand that exceeds supply.
In fact, spending with borrowed money by governments is subject to great uncertainties. The U.S. has borrowed vast amounts of money and rarely has suffered from an inability to serve that debt. Venezuela has sunk into economic collapse from borrowing far less but in far too great a proportion to it’s productivity. When American politicians misunderstand the costs of borrowing money, either by thinking of government as an entity that it’s not like a family budget or with limitless resources. The results can be very big problems.
Trump’s tax cut was a huge blunder of public policy. It strips the country of control over enough revenues to manage it’s needs now and in the future to about a trillion dollars. It was done for two purpose, to allow the very rich to keep control over their money and to make the so called entitlement programs unaffordable so that they must be terminated. The wealthy seem to think that their wealth comes to them from some source that is not the rest of mankind and if they can control how their money is spent, their wealth will increase even faster.
3
Let's suppose, just for the sake of discussion, that all of the needs of our citizens were being met at current spending levels. There was no need for new or bigger government programs. Would political policy makers still want to spend more on newer and better programs. Yes of course they would which is why we need to loosely tie spending to revenue. There is no doubt that we are spending all that is necessary on social programs. The problem is we are spending far more than we can wisely manage, there is waste galore, redundant programs, old ineffective programs and money being paid to political cronies. When spending has no constraint the pals of those passing out the money will get it all, those most needing government help will be the excuse but it is only the cronies who will be helped, largely so. The elephant in the room is, without a doubt is interest rates. Today interest on the national debt is about 25% of annual spending, if interest rates normalize any time soon, interest expense could account for 50% of annual spending. Would we cut other programs? Likely not, we are in a bubble and it will burst at some point. The important question is can we grow the economy faster than interest expense in order to remain solvent. All policy needs to encourage GDP growth first, redistribution is a distant second.
1
The costs of government rise because human activities are increasing and everything that is used wears out and must be replaced. In addition, there are and will always be the needs to change how things are done because humans are always addressing uncertainties and unexpected circumstances.
1
Uh, while you're doing all that cutting, could you include the defence budget? Oh, and maybe raise the tax rates on m/billionaires.
1
Recall Dick Cheney who had better things to do than go fight in Vietnam [that is let poor youth die in his place] said
Ronald Reagan proved deficits do not matter.
2
Irwin focuses on public debt, leaving aside the massive increase in private debt.
The subprime mortgage crisis occurred in a single subsection of one national financial market, and within weeks, it blew up into a global financial crisis. How? Why? Read Crashed, How a Decade of Financial Crises Changed the World by Adam Tooze. The 'innovations' of Wall Street -- deceptive derivatives, collateralized debt, credit default swaps, shadow banking, short-term repo markets, -- all these profitable inventions resulted in a global credit crisis and a deep recession, bailed out by a massive infusion of liquidity from central banks, led by the Fed.
Now we have interest rates so low that the Fed and other major Western central banks cannot counter the next recession with monetary stimulus by dropping interest rates, Their only recourse will be more "quantitative easing" -- more and more debt on the balance sheets of central banks. So the private debt crisis becomes a crisis of public indebtedness, as the fiscal and monetary levers of Keynesian are enfeebled by the failure to use periods of growth to pay down debt.
The lack of meaningful financial regulation post crisis, in the midst of skyrocketing indebtedness, private and public, sets us up for the next credit crisis. We can't foresee where it will start, but we can predict that it will spread like wildfire, just as the last one did.
7
All of these financial games depend on uncertainty about the risk adjusted time value of money under erratic monetary policy.
1
@Wally - "use periods of growth to pay down debt."
Let;s see gow that has worked out in the past when we did as you desire:
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Still want to pay down the debt?
1
David Brooks wrote a fabulous column, June 10, 2008..."The Great Seduction". He discusses how the very foundation of our society advocated by Benjamin Franklin (hard work, temperance, frugality) has been shredded. In its place are institutions advocating debt and live for the moment.
One result, according to a report Mr. Brooks cites, has been the polarization of our society into the investor class and the lottery class...i.e. wealth inequality. This was 3 years prior to #OWS popularizing a campaign against 1% wealth. In the years since, the wealth inequality gap has only widened and shows no signs of narrowing.
Granted, the wealth inequality gap is absolutely and literally killing a large segment of our population. But it's outlandishly rewarding the smaller investor class segment. (see DJIA, S&P, etc.)
Debt has become the way we live, from individuals, to cities, states, and countries. And other than the wealth inequality gap, there seems to be no downside ramifications. Even Warren Buffet, in his latest shareholder letter, admitted he was wrong to preach doom because of government budget deficits. He points out that the U.S debt has increased 40,000% yet none of the dire predictions have materialized.
Since we have the world's reserve currency, and can never run out of dollars, maybe we can just continue on. It won't matter if we spend $1 Trillion / year just in interest, we can borrow most of what we need and print the rest. Only time will tell.
3
It's not difficult. Tax the rich more and the middle class less and finance the societal infrastructure that gives the poor and lower middle class a chance to get into the solid middle class. Also, you don't want to tax income and investment too much, rather go after static wealth. On the spending side, don't go to war if you can avoid it, don't finance projects too much, pay for them, avoid corruption and conflicts of interest. In good times, save, in bad times, invest in infrastructure. There's no wonder diet.
1
Static wealth doesn’t produce income to pay taxes.
1
I would say this and it’s 100% accurate for all credit crisises. Debt doesn’t matter until it matters and then it’s the only thing that matters.
I don’t think it’s a question of if these high debt levels will create a credit crisis, it’s just a matter of when. And when that day comes, it will be the only thing we focus on.
Think I’m wrong? Does anybody remember September 2008 through 2009? What was the only thing that really mattered?
9
That was private debt.
1
My father, one of the "Greatest Generation," said money was not only a medium of exchange but also a storehouse of value. He said he had seen farms change hands for a piece of a gold coin. He saw inflation so high that workers were paid twice a day. Once paid, they bought anything, knowing the price was going up on a daily, even hourly, basis. In both cases, currency no longer served as a reliable storehouse of value or even a medium of exchange.
Is it that the global reserve status of the dollar has protected us from such experiences? Is it that the U.S. dollar is the "cleanest of the dirty shirts" among other currencies? I don't know.
But It seems that no one at a national policy-making level has had the same experience or worries about what my father lived through in other countries. And there is no mention of the 20-percent interest rates I've experienced in during the 70s and early 80s.
I fear that all these politically rewarding tax cuts and huge (yes) deficits are the smoke that will quickly flare up into a fire. There is no such thing as a free lunch.
9
oh yes, there is! if you play your cards right, you can get all the free lunch you can stuff down, plus a doggie bag! here are a few examples: farm subsidies for agribusiness giants, oil depletion allowances and other fossil fuel subsidies, multi-billion dollar no-bid contracts for your own company to service military needs in a war you started, tax exemption for church properties, carried interest tax rates. I am sure you can come up with an even more expanded menu with very little effort, ut rigt now, gotta go - it's lunchtime!
1
Deficits are good when they arise from tax cuts for the rich.
Deficits are bad when we need an excuse to cut social programs especially when the social programs did not cause the deficits that the Bush Reagan Trump tax cuts caused.
5
The 2008 financial callapse taught a dark lesson. We avoided the pain of poor financial management by printing enough money for everybody to get paid. Business learned that bad decisions don't have consequences. Politicians learned how to get themseves elected. We all learned that the government's printing presses can save us. But all we really did in 2008 was to put off the pain. It will still bite us eventually. Economists must paint a believable picture of where we are heading.
6
@jdp
We were paying down those debts from 2008, till the tax cuts came along. With that, many of the 2008 culprits were rewarded even more and now many are crying "We can't afford this or that". 2008 won't bite us, 2017 will. That's when we rewarded the wealthiest with even more wealth.
1
@jdp - Please point to a period in all of US history when a too high federal debt bit us.
1
@DLuke - The federal government has had deficits every year since 2008 so we were NOT paying down the debts.
1
MMT proponents would have us believe that the world will remain in stasis, yet we know the only constant is change. Whether we enter a period of deflation or inflation, total debt, and we now have over $100T when agencies are counted, will matter. The world is awash in debt since ‘08. Could it continue for awhile, of course? Could it ultimately explode in our face, of course! It took Germany over 100 years to pay off the debts from the Weimar Republic. Think about it. People only buy your debt if they think they will be repaid in relatively constant dollars and at a profit. Only 4 areas justify big debts: education, required infrastructure, R&D and a defensive war. There is no free lunch.
123
@Ask Better Questions
Saying "the world is awash in debt" isn't really saying anything. Money, in fact, *is* debt. It's a unit of account for what is "owed." A US dollar is literally a tax *credit*. Germany's debt from WWI was not denominated in Germany's currency. This is what makes the "debt" of a currency issuer different from the debt of a mere currency user. Germany was rendered a "user" in terms of its WWI debt.
All of the US government's debt is denominated in US dollars. Moreover, none of it ever had to be issued in the first place. This is the real insight of MMT. *All* government spending is "financed" by currency issuance. The government is constantly issuing US dollars ex nihilo every time it spends. It is also constantly revoking US dollars previously spent (you know this as "taxation"). There is therefore an always-ongoing process of currency issuance and revocation occurring.
A net issuance is what you call a "deficit." A net revocation is what you call a "surplus." A private sector that is growing in population and output requires a growing supply of financial assets to continue growing. Thus, if you look at the history of government spending, you will see a long history of annual deficits. This is how the private sector is "funded."
19
@Jared -- Interesting way to shed light on how wealth inequality comes about.
By taxing wages at a higher rate than investment income the govt is constantly revoking wealth creation by earning wages and favoring wealth creation by investment income.
38
@medianone Exactly!
This is how you encourage growth and investment.
Now we just need a really effective way to cycle the wealth back to the society, Such as an inheritance tax that will apply when the inequality becomes absurd.
That way each generation can get a fresh start on making their contribution.
6
Is there good debt? Apparently so, according to the newer economists, but the problem is that it all has to be paid back with interest. And now the U.S. is Ok with skyrocketing debt, concerned only with paying the interest. That works as long as the lenders keep lining up, and interest and inflation rates remain low, but when that stops, watch out for the fall, it will be dramatic, sharp and fast. Then what? Interest rates will skyrocket, inflation will be high and the economy will crash. The fall coming will be catastrophic. But don't worry, it has not happened yet. Like climate change, when will the responsible silent majority decide that the debt world is not flat?
78
The difference between good and bad debt is that when your income rises due to the investment, the extra interest payments won't be a problem. But when you throw away money without getting anything back, as the GOP did in 2017, this will be a problem. It's that simple.
43
@Charles Ruff "Is there good debt?"
Spending bills could have the equivalent of an environmental impact study done to determine how much the bill will impact not just in initial dollar spending, but the continued benefit and velocity in future years.
Teasing out those programs that have the biggest bang for the buck benefit.
3
@Charles Ruff: US federal "debt" does not and will not be "paid back." The best that can happen is for the increase in federal bond issues to be held at a rate that is less than the rate of increase in GDP. Thus as in the decades that immediately followed WWII, the national debt dropped in its ratio to GDP.
The national debt, federal bonds, cannot be paid off, for the simple reason that those bonds are redeemable only in US dollars, which the government can create at will. That is accomplished simply by "selling" more bonds to the Federal Reserve -- which is in everything but name part of the same government. The Fed then creates bank accounts (new dollars) for the Treasury based on nothing more than those bonds.
When others buy those bonds they are simply exchanging US dollars, which are one form of government IOU for another. The same happens if they then have those bonds redeemed (paid back) with more dollars.
US dollars and US bonds are just different names attached to government IOUs. They represent nothing but themselves. Pay back with what -- the same thing called by another name?
7
Basic common sense says that debt and deficits matter a lot.
Respected economists need to start talking about this in ways that people can understand. Economic mumbo jumbo will not magically erase this debt.
They need to emphasize that fair taxation is a benefit to society. Tax breaks for the wealthy do not pay for themselves.
Once it sinks in that all this money will need to be repaid, the politicians can start to address that in their platforms.
The people need to be educated so that they will demand action from the politicians.
85
@one-eighty
The net cost of the government's bond spending program--which is just a benefits program that offers risk-free savings vehicles to the public--is less than 1.5% of GDP, which is not burdensome in the least. At the same time, we should recognize that bond sales do not finance the spending of a currency-issuing government, and if we wish to continue the benefits program offering risk-free savings vehicles, we should set the size of that program directly instead of its being arbitrarily and needlessly tethered to net currency issuance (what you know as "deficit spending").
https://fred.stlouisfed.org/series/FYOIGDA188S
5
@one-eighty -- the dozens of cruise missiles fired at an empty air field in Syria cost how many billions.
Manufactured with tax dollars that went into private pockets was arguably good for the domestic economy.
But then they all went bang and the economic velocity stopped.
Unlike if those billions would have built new bridges or schools, or expanded airports or etc, etc. The money would have gone to private pockets (arguably good) but then the finished products (instead of going bang and dying) would continue adding years of benefit going forward.
23
See if this is free enough of mumbo jumbo.
1. We need money to conduct commerce.
2, As the economy grows we need more money.
3. Money can come to the private sector from 2 places--the federal government or from a favorable trade balance.
4. Money comes from the federal government by spending. Taxes takes some back.
5. Net federal spending is measured by the federal deficit, i.e. the deficit measures the net flow of money to people, businesses and state & local govs.
6. Thus in order to get the new money the private sector needs, the federal deficit must be larger than the trade deficit. We have a large trade deficit. We need a large deficit.
7. If the above is correct, periods of negative deficits, surpluses, which pay down the federal debt should lead to a bad economy. They have. There have been 6 such periods that paid down the debt 10% or more in US history, They have ALL ended in a real gut wrenching depression. In fact this accounts for all of our depressions.
8. On the other hand, in 1946 we had the largest debt ratio in our history. The public debt ratio was 47% larger than today. We had deficits for 21 of the next 27 years. We increased the debt 75%.
And we had Great Prosperity.
8
The analogy of a divorced couple in which Republicans are the parent offering the kids pizza and sweets is apt. Polls show Republican policies are unpopular, yet they are able to get elected by giving voters an easy out, be it on taxes or climate change. This weak-mindedness goes back to Reagan, who chose to cut taxes but couldn't make the tough choices on budget cuts that might have lessened his popularity. We take from nature and take from government, and find rationales for not giving back. Republicans run the deficits up not only because irresponsibility is politically expedient, but also to put the next Democratic president in a fiscal straightjacket.
133
@Stephen K. Hiltner -- Republicans keep getting elected because of gerrymandering local districts and using voter suppression tactics as well.
2
it seems to work out that way, but, really, do you think Republicans are smart enough or foresighted enough to be so calculating as to hatch a plan to undermine a hypothetical administration in the future, especially when in their eyes Republican domination stretches until the end of time? and, why bother, when they have quicker, more effective techniques at their disposal, usually based on fear and superstition?
2
@Pottree
Yes. More precisely, the Republicans don't care which party administers cuts to Social Security, Medicare, and other social support programs while reducing taxes on the billionaire class; they just want to be sure they can yell about "debt debt" to justify the cuts and, if necessary, force Democrats to support them.
2
Timing is everything. Will the Fed will soon be buying treasuries again? Thanks to politicians and economists? Let's not allow the American people to escape prosecution for their governments failure. For they're at the least contributory negligent in Warshington's bankruptcy.
Interest rates are low, becasue America is so indebted it can't 'normalize' rates. Nor fund government operations out of revenues to the Treasury -- thru taxation or borrowing.
Nearly every reason given by Mr Irwin for the 'old rules' being dismissed, have the US and other Dollar influenced economies QE dependent.
2
There is good debt and bad debt. Good debt pays for investments with positive future returns. Bad debt pays for spending with no future return.
The Iraq and Afghanistan debacles are examples of bad debt, about $6 trillion and counting.
Spending on high quality education is perhaps the best example of good debt if it improves the future earning potential of households and the ability of those households to fulfill their domestic, community and civic duties. All of this ensures future returns to individuals and to fuel continued investment in good debt.
America collectively gets a "needs to improve" grade in Critical Thinking 101, as best illustrated by the fallout from the 2016 election, declining vaccination rates and the tolerance for a President who can't tell the truth about much of anything.
339
@Look Ahead. In this new era, spending on quality education will only hasten the replacement of doctors, lawyers, and many others with AI. We are in a new day, and it is disrupting our old menu.
6
@Look Ahead
All educations is productive?
7
@Look Ahead -- spending on education also helps corporate America and thousands of other businesses by giving them workers who are trained up to any given level.
Reducing the cost to businesses of themselves having to pay for much of that cost.
9
When you owe you are owned.
Public debt is a good thing for the lender as there's none more reliable for payback than someone who can print money, but the problem with that is in printing too much money... To pay off too much debt.
This 'new' theory is like arguing a little more heroin won't hurt. You're a big boy, aren't you?
2
You are so wrong.
Americans, by and large, do not love debt.
They love justice, equity, progress, they love not just gray, functional infrastructure, but inspirational, soaring, functioning and efficient infrastructure.
They love education and healthcare, and they love their cities and towns when they don't look like wastelands of decrepitude and economic and social desperation.
These things, as you cynically remind us with your bizarre editorial practice of statements like "Progressive wish-list policies", take money.
What Americans know, and you refuse to share, is that we have money. Plenty of it. With a reasonably wise national government we would have even more. We should be so lucky.
Sadly all that cash is wrapped in the pocket-lint of the very wealthy and corporations which, by law, have no responsibility for anything.
So, yes, debt becomes an important tool. It is banal, manageable, and a wise choice when used to better the lot of the people.
Debt is also a favorite tool of Republicans and Conservatives all 'round. They just hate to see all that money wasted on stupid things like the well-being of American citizens.
You need to watch your attitude.
6
A lot of optimistic drivel. As soon as a Democrat is elected, deficits will become a raging scourge that threaten mom, apple pie and the American way of life. And the media will dutifully report it as such. Mark these words.
3
@Stephen Reichard
The opposite happened in the Clinton Administration.
@Stephen Reichard You are 100% correct. Debt and deficits are a-okay as long as Republicans are in charge. Otherwise - not so much. And I'm guessing Mr. Irwin knows that.
1
All you need is a bigger population bottom pushing on the top: Growth. Mexican and Canadians welcome. Open the immigration gates to everyone with a science PhD or MD, anyone with patent or enterprise idea or $. Boom, Growth and declining deficits. Make the flyover states tax free and get dummies to move there. Boom Growth.
2
Economics should stop pretending to be a science.
3
It's an on-off switch. Ignorant voters care about the deficit when a Democrat is in office, and shrug it off when a Republican is in office. In reality, Republicans raise it and Democrats come in afterwards to lower it, and the cycle repeats.
4
MMT has an interesting take on things when a nation issues its own currency.
* Since we're no longer on the gold standard, what gives the dollar its value? Taxes! The gov't will do terrible things to you if you don't pay your taxes, and the only form of payment it will accept is the dollar. The threat of prison concentrates the mind and causes us to covet dollars.
*The books have to balance. If the gov't runs a deficit, this must mean the private sector runs a surplus of an equal amount. Politicians advocating for gov't surpluses don't understand that they're asking the gov't to make the rest of us poorer.
*The books don't have to balance! What's true for households and state and local governments, none of which can issue their own currency, is not true for the federal gov't. Any Washington politician who claims the gov't can't "afford" a spending bill should be horsewhipped. Because the gov't issues its own currency, it can buy anything it wants. Will it cause inflation?" is the sensible question to ask.
*The gov't will pay you in full when your treasuries reach maturity. It cannot and will not default unless it wants to. But it's never paying back the $22 trillion "debt," because that money would have to come from us. Imagine a 10 year plan to run $2.2 trillion annual surpluses to pay off the debt. By the 3rd year we'd all be selling our living room furniture to pay our taxes.
4
We casn just just inflate our way out of debt, the way Germany, and Argentina, and Zimbabwe, and...oh, wait.
2
Economists live in theory. In the real world Debt Matters!
Everyone wants our debt – Really!
Foreigners, in aggregate, capped their purchases of US debt in 2014 - to approx. $6 trillion.
Russia redeemed all of its holdings.
US insurance companies have been decreasing their holdings.
Intragovernmental Holdings which holds 26% of our debt is now a net purchaser of only 13%. This will continue to decline as Social Security, the largest purchaser of our debt, is now in net withdrawals.
The largest net purchasers are US individuals, brokerage firms, GSE and corporations who have no allegiance and will money instantly.
We must find a way to hold self-interested and self-enriching Elected Politicians, government officials, their staffers and operatives from both parties personally and financially liable, responsible and accountable for the lies and half-truths they have told US, their gross mismanagement of our county, our $22 T and growing national debt (105% of GDP), and our $80 T in future, unfunded liabilities jeopardizing our economic and national security, while benefiting themselves.
3
"(T)hroughout the Bush years as deficits soared, rather than being crowded out by government borrowing, capital was freely available to private borrowers — so much so that it fueled a housing bubble."
Alan Greenspan had both feet on the brakes holding interest rates artificially low.
Banks were allowed to bundle and sell off trillions in mortgages to F&F, a high percentage of them were poorly underwritten and at risk of eventual collapse.
Congress had passed legislation that blew the cap off the threshold of taxing gains from house sales from a once-in-a-lifetime $100K to an astronomical $500K every two years.
Bankers created money out of thin air in the form of mortgages, and Uncle Sam bought 99% of them. But the CDO's were still held by private investors, and when things became apparent it was heading south, well... it all collapsed.
Trump was a high flying wonder using borrowed money until he'd gone to far and US banks quit lending to him. He would have gone belly up if not for the Russians pouring money into his operations.
We now have musical chairs as long as the Fed continues to hold rates artificially low (Trump berating his Fed chair to not raise them), and the deluge of cash from the corporate tax cuts are still sloshing around.
But when those dry up (in dividends, stock buybacks, and huge CEO salaries), the music could stop if foreign investors weaponize their holdings by selling. And US consumers run out of credit and can't borrow more to fuel growth.
5
@medianone - "Uncle Sam bought 99% of them"
Huh?
Actually, almost all of the bad mortgages were sold by mortgage companies (CountryWide, etc.) not banks. They were sold to investment banks (Bear-Stearns, etc,), not Fannie and Freddie which only bought FHA approved ones. They were then bundled into CDO's and credit default swaps were take out on the CDO's
1
The greatest dangers to people hoping to set aside some money for their futures -- here as well as in Venezuela -- are public debt and inflation.
Allowed to do want he wants to do, Trump will print enough money to make Venezuela look like a responsible country.
https://mashable.com/2016/07/27/german-hyperinflation/#HKo6ZIB1Tsqy
2
"...But there remains a politically homeless group: people who see profound risks in..deficit spending..." [op cit]
--
I'm one of those, "homeless" guys: with a BA [1966] in what amounts to, "New Deal" [Keynesian] Economics.
--
My professors are all dead, but if they could deliver just one more lecture, they would roundly condemn our rapidly mounting debt.
--
Their rational [and mine] is this: Deficit spending, involving "the multiplier effect," only creates proportionately more wealth when there is excess capacity.
—
But there is no excess capacity in our economy today.
***
As Americans, we consume far more than we produce, continuing a decades long trend in negative yearly balance(s) of payments.
--
What this means, is that the dollar is well on its way to losing its status, “as a reserve currency.” And when we finally lose that “status,” the Chinese, as well as others, will be increasingly reluctant to sell to us, causing rising prices like we’ve never seen.
--
Our government also, will have lost both its fiscal and its monetary clout.
--
T-bills will have become a relatively puny debt instrument: Government borrowing will effectively cease; interest rates will skyrocket, and commercial loans will dry up.
--
The current boom will become a bust, from which we may never recover.
***
It might be useful to observe that all this has taken place numerous times in the past, and that no nation in history has ever managed to survive it.
***
…Please don’t shoot the messenger…
1
If nations borrow for investments in services for public wellbeing, the present monetary and financial system is able to deal with the debt. However, financing for the economic and social consequences of the looming climate catastrophe nationally and particularly internationally becomes a real problem for which the present global systems are not adequate. Time has come to push for a national debate on money creation and public financing.
In Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation" the conceptual, institutional, ethical and strategic dimensions are discussed to overhaul the very basic monetary/financial system to deal with the looming climate catastrophe and its disastrous consequences. It proposes to base the unjust, unsustainable and, therefore, unstable international monetary system on the carbon standard of a specific tonnage of CO2e per person with its associated global federal bank and a balance of payments system that accounts for both the financial and ecological debts and credits. Cf. www.timun.net.
Declared an outstanding economist and climate advocate about this Tierra global governance system: “The further into the global warming area we go, the more physics and politics narrows our possible paths of action. Here’s a very cogent and well-argued account of one of the remaining possibilities.” Bill McKibben, May 17, 2011
1
Dick Cheney: "Deficits don't matter"
2
Are you not sick of the system we all live in? Even if you are rich, what can you do other than spend money? Average idiots do not understand art or civics or history, never mind math or engineering. I say that is all our fault when society only aspires to money, we deserve the terrible gambling mecca our society has become...who is going to win the Oscar?
2
Rethuglicans are hypocrites intent on crippling effective government and entrenching the privileged by race, gender and money. The only question for them at any given time is which argument advances that program today.
2
When the sirens sing the song of "the old rules don't apply," it's time to do something sane, like reading this story from The Atlantic about Paul Volcker, Jimmy Carter's Fed Chairman:
https://www.theatlantic.com/business/archive/2018/10/the-volcker-rule-thou-shall-not-gamble-public-money/574327/
2
This newspaper is a great indicator of what the US is sensitive about. It evidently will not touch how monetary policy really works here.
1
The actual (and full) title of Stanley Kubrick’s radically (even Revolutionary) true anti-War film “Dr. Strangelove” was “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb”
But, now, almost exactly 55 years later, is hardly the weak, deluded, vague, and gutless title of this “Upshot article”, “How America Learned to Stop Worrying and Love Deficits and Debt” is deceitfully undershooting the truth, deluding ‘we the American people’, and further down-playing and deluding the seminal reason that the Washington Post’s mast-head banner warns Americans that “Democracy Dies In Darkness”.
Our existential, but ignored, danger to anything approaching real democracy should be titled, “How America Learned to Stop Worrying and Love this Disguised Global Capitalist EMPIRE” — an Alt-title that it is time to have the “Times” further address than “The Post” has opened the discussion on.
2
The ability of economists and politicians to rationalize whatever they want to believe is without limit and of course the hypocrisy of the GOP is even greater.
The bottom line is that as a nation we're borrowing from future generations so we can live beyond our means. At some point, real interest rates won't remain absurdly low and we'll face economic calamity. At that point, rest assured the GOP will blame the democrats for busting the budget and astounding Republicans who have the memory of a gnat and lack an ethical core will join the chorus. How pathetic!
2
@PD - The largest debt ratio (debt/ GDP) we ever had was in 1946. The pubic debt ratio was 47% higher than today's.
Did that rob the next generation of their future? On the contrary, the next 27 years have been called the Great Prosperity. GDP growth averaged 3.8% and real median household income surged 74%. (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the output of Europe was about the same as the US in the Great Prosperity 1946 - 1973).
Did we pay down that enormous debt? No, we had deficits for 21 years out of the 27 and INCREASED the debt in dollars 75%.
Well, what happened to that huge debt? Since we invested in America (see above), the economy grew so much, the debt became insignificant.
It way past time people begin to realize that their personal finances are nothing like those of a huge, long lived country that can print the currency it debts are in and which has to supply the money to conduct commerce.
1
Actually, America is bankrupt, in that it cannot pay back, even over time, its debts including pensions.
I am a nincompoop when it comes to economic theory, but even I know that simply having good credit isn't the way to solvency, nor is having people in charge who are willing to engage in a conspiracy of ignorance so they themselves can profit.
No, the way to solvency is simple and understandable by everyone. Suck it up, pay your debts, and honor those in the future who will suffer terribly if you don't. In America today that means taxing like it is 1950, cutting our military in half, and making the corporations pay.
Won't happen, of course, for America is led by Republicans, a dithering, doddering clan that lost its mind years ago.
Hugh Massengill, Eugene Oregon
2
@Hugh Massengill Go read your Paul Krugman. A government is not your family household.
1
I'm not aware of anything that requires the Treasury to sell bonds when it deficit spends. But, even if there were such a requirement, it would be a legal one that Congress could change. What's especially pernicious is the connection of "debt" with spending, when no such connection need ever be present for a currency-issuing government.
Bonds aren't sold to generate revenue or funds for the government to use. The government always just issues currency whenever it spends it. This includes the payments it makes on bonds it has sold (which is why bond sales can just be understood as an additional spending--currency issuance--program).
It would be tremendously helpful to decouple bond sales from deficit spending so that the public would no longer get confused about what government "debt" is, as people like Mr. Bowles clearly are.
3
It seems to me there are two types of debt.
One invests in the nation's future, through investments in education, infrastructure, the nation's health, and green jobs. All of those investments enter back into the economy and benefit the nation in the long run.
The other cuts taxes for those at the top and keep wars like George W's invasion and occupation of Iraq off the books as if they do not matter.
Trump and his GOP backers support the second kind of debt, building their donors' and friends' bank accounts.
As a taxpayer, I support the first kind, investing in the nation's future. To me that makes much more sense.
4
I enjoyed this article and have two comments: The first is that economists deal in theories that may or may not reflect reality. They build models that if accurate in the short term are felt to be explanatory and predictive but are often neither. Deficits seem innocuous now, but that may not hold for the future with different fiscal realities. For instance, how will the economic challenges and requirements of climate change, population growth, aging populations play out? What about the factors that I don’t recognize like AI? The second is that deficits have been weaponized by one political party along with their “starve the beast” approach and unstated rationale to their tax cutting policies. Do deficits matter? I don’t know but I am sure that we or our children will eventually find out.
1
The reason Mr. Irwin’s point seems to be lost on ordinary citizens is that while the Nation can run large, almost endless, staggering debts, most ordinary citizens cannot.
To exasperate the issue, most of us are a paycheck away from homelessness. Staggering medical bills are generally the final nail in the coffin, while politicians continue to write ‘blank checks ‘ for any and all occasions.
I can’t think of a single individual who looks upon endless debt as something to ignore or accept.
3
I am 62 years old. I remember inflation. It has not been eradicated because it’s in remission now.
3
What do we have to show for $21+ trillions of Federal debt? Crumbling infrastructure, run away healthcare expenditure with mediocre outcomes, underfunded higher education and high sky tuition, and you get the picture. It is unconscionable that we are burdening future generations with society crushing debt repayments.
The Republicans have been spreading the canard that cutting taxes on the wealthy would trickle benefits to those at the bottom. It is time that we not only raise taxes on unearned (passive) income, but also broaden it to include the near majority of people (~47%) of the population who currently who pay no personal income taxes but who consume public resources with minimal taxes.
On the spending side, aside from cutting the bloated defense spending, make Medicare and Medicaid a single PROVIDER healthcare system. The single payer system has been grossly abused by doctors and hospitals to maximize their revenues by performing unnecessary procedures, and socking their exorbitant costs on the public treasury.
The donor class will not permit any tax or healthcare reforms. They have gotten their tax cuts. The poor and the middle class struggle with their day to day existence to think about balanced budgets. The unborn future generations have no voice. The stupor goes on.
1
Independents of America have not stopped worrying about deficits and debt (D&D) as neither make any sense while neither party is making it a big issue. Both parties are big spenders on their pet projects and make a case to promote their kind of spending. Trump did make (D&D) a 2016 presidential election issue and increased revenues by beating up on NATO allies and trade defaulters. One still does not have a handle on the results of across the board tax cuts. While the tax cuts and tax filing simplification may have benefited average working class Americans who claim standard deduction may see lower taxes. Those who do itemized deductions , using all kinds of tax loop holes and have million dollar plus homes especially in expensive megacities will find their mortgage interest deduction is limited to 10,000. So far it is unclear how much the debt will be from Trump's 2 years in office beyond Obama's 20+ trillion debt when he left office in January 2017. It would have been premature for Prez Trump to mention "debt" or "deficit" in his 82-minute-long state of the union when he was expecting congress to cough up $ 5.7 billion to secure the border even though the meager request constituted less than 1% of the budget.
With regard to the speech by IMF asking govts. to spend more, who is listening? Such speeches are of insignificant value.
This article mentions AOC. Her 15 minutes of charisma are up while NYC mourns job loss. My Prediction for 2020, D&D will be a giant issue.
2
@Girish Kotwal
D&D should only be an issue if it is directed at the US government's chronic underspending of the last 20+ years. Its underspending is what created the global financial crisis. If you don't understand that the government was underspending, then you don't have an understanding of sectoral balances.
The US private sector can only get financial assets from either the government (the creator/issuer of the dollar) or from foreign countries in exchange for selling goods/services. But the US was running a very large trade deficit (current account deficit) in the late 90s and early 2000s that drained financial assets out of the private sector, and the government was not sufficiently replenishing them, causing the private sector to go into enormous debt which eventually became unstable.
Government spending is a critical component of the economy. We should always be paying attention to it, but not just from the perspective of largely illusory 'debt.' Rather, we need to make sure the government is spending enough (issuing enough currency) to optimize economic activity.
1
But in 5 or 10 years when it becomes obvious that there are serious, serious problems... and, in fact, debt is a huge, huge problem, what will people say then ?
4
Key word in "Modern monetary theory" is "theory." Personally, I think borrowing to spend way more than you earn, with no prospects for that reversing, is not a good thing, for people or countries. But that is just my "theory."
2
Near zero interest rates stagnate money. Reduced money velocity inhibits inflation
2
Inflation is only 2% why worry. Prices today will double and double again for a baby born today. Low interest rates are here because central banks the world over keep buying the debt with new money they create. How long can that continue. Who knows.
2
There is a single instance in which the deficit was mentioned relative to policy this session that I am aware of. Ivanka Trump has promoted a new model for FMLA giving parents paid family leave after the birth of their child/ren. The money comes from adding on work years and paying for the not-so-free 'paid' leave via social security contributions.
The sponsor of the bill, when questioned about the lack of real funding for the leave, replied that we have a $23 trillion deficit and how could we think of spending this on families with this amount of debt?
Only in America, as my favorite West Side Story song goes......
3
As Americans we are now taught from age that the only way you. will survive later in life is to save, save, save and then save. Just think how many times in a given day we see an ad that implores us to:
"save for our retirement"
"do you know your number"
"are you on track for a successful retirement"
"the sooner the you start saving the better off you will be"
"you do not want to run out of money in retirement"
The message is we must save early, often and always or we will become destitute in our old age, because we will run out of money.
This is where the deficit and debt scolds get their power by conflating the individual budget with the federal budget, and running the old trope that the government needs to handle money the same way a family does, which completely ignores this one fact:
Every time the federal government has run a surplus the economy immediately fell into recession or worse.
3
@Sparky -- Totally agree, but "Just think how many times in a given day we see an ad that implores us to" buy that truck, buy that vacation, that whatever.
People tune in to buying fun stuff more (likely) than they tune into being prudent and responsible. Especially as long a credit is cheap and easy.
1
So long as foreigners keep buying US treasuries and the US dollar remains the preferred currency, it doesn't matter, because we can just print more dollars to pay our debt. If that situation changes though we'd face problems similar to Latin American countries that borrow too much and can't pay back as their local currency gets cheaper and cheaper relative to the US dollar denominated debt.
2
MMT works perfectly fine as long as there are no bumps in the road.....like a major war. If you’re heavily in debt before the war even starts you cannot easily take on the levels of debt required to successfully prosecute said war. Then what?
Paying down the debt and enacting progressive legislation are NOT mutually exclusive objectives.
2
You left out the part where Republicans only care about debt when Democrats are in office. During the Obama administration Republicans would not allow any spending that might improve the economy, since that might reflect positively on the President. Once Trump was in office they did a 180 and began the drunken sailor routine.
I don't think it had a lot to do with finding the best fiscal policy for the country; it was more about doing whatever they could to hamstring the Obama administration.
2
Very interesting opinion piece. Not an economist and wonder what is the global economic environmental impact on the impact of US debt? Low interest rates are at least party due global capital availability and confidence that foreign investors have in the US ability to pay back debt. Competition matters. If in the future confidence in US economy and government declines then investors who buy the bonds may be less likely to do and interest rates will climb impairing US ability to pay. What are those factors that could significantly decrease confidence? Some are external, such as competition from China in key future technologies and unpredictable consequences of global warming. Some are internal such as political instability. Finally, to quote a former Sec Def there are the “Unknown unknowns”. I always remember the biblical story of Daniel who advised the king of Egypt about his dream of 14 cows representing 7 years of plenty followed by 7 years of famine. Are we prepared for a famine?
1
Money is an illusion. It is. It doesn’t bring happiness or security as it purports to.
Granted that it indeed is an illusion, yet even so this flippant attitude about debt terrifies me. As the article states, it relies on the US being able to borrow in its own currency. What if that changes through unforseen circumstances? We’re creating a massive vulnerability here that could destroy us. Like, actual destruction, on our knees, all ideals maintained at the whim of an adversary. I’m not an expert in monetary policy but it would take a lot of convincing for me to believe high debt is a good idea. Its like arguing the grass is not green but actually red, that I’m not human but actually a vole. I’m open-minded and could be convinced I guess. Magical thinking.
1
It now turns out that increased military spending wasn’t to built up the military but to create a slush fund that Trump could use at his will by declaring an emergency. Good planning GOP.
1
This paragraph needs elaboration or analysis. "Focusing on limiting public debt, they argued, had hamstrung the nation’s ability to invest in things with long-term benefits, namely education, health care and infrastructure." We're still hamstrung. I doubt the writer or any reader thinks adding to the public debt (the Trump tax giveaway) created any long-term benefit at all to education, health care or infrastructure.
2
Money is created out of debt. If all debt was repaid, there would be no money in the system. Without debt we have no economy. So, do we want the governments of the world to hold the debt or the populace? Since the US government is obligated to pay its debt “at sometime in the future “ the government can keep moving the pay off date further into the future, indefinitely.
1
The writer covers everything but what matters. In a few years, interest expense will consume about 1/2 of total income taxes and defense will take the rest. Oops!
The Treasury markets will collapse in anticipation of literally uncontrollable deficits and that will be the end of government as we know it.
1
The national debt is a large scale scam or snowball system. It works as long as enough people believe that they get a return on their treasury bonds. As longer the scam works as more people think it will never collapse. This false but growing confidence will delay the inevitable but also will be proportional to the magnitude of the collapse. We are up to a hard and rude awakening, the later the worse. This looming disaster along the consequences of climate change have the potential to end civilization. Let the band play and rearrange the deck chairs.
1
I'm in the Erskine Bowles camp; We do need to work about the deficit & the debt. and I think that the excessive government borrowing has crowded out private borrowing; the best evidence is that the rate of increase in productivity in the US has declined. It is no surprise to me that whereas 70 years ago the technological advantage the US had has now shrunk to almost nothing- the Chinese are threatening to get to 5G before us is some evidence as is their being able to land on the dark side of the moon before us.
2
There is no free lunch.
Sometimes the waiter lets you linger over coffee, but, eventually, the check will come...
4
Mr. Irwin valiantly attempts to describe the economic system we all depend on and does a very credible job of it, but ask yourself after reading his analysis if you would be ready to take a test on your understanding of how world economics works these days?
And if you were prepared to take that test, who would be qualified to grade it?
In any event, as the 2008 recession showed, all of this basically incomprehensible economic juggling can all come apart at any moment for any number of reasons. Even now forces may be afoot that will cause it all to come tumbling down, say, next week.
So, the game really is to spot where the aneurysm is that is about to pop which will put our world in crisis. Among those potential aneurysms a predictor that periodically gets my attention is the Doomsday Clock, a simple guide that never fails to terrorize.
In 2012 it was 5 minutes to Midnight, in 2016 it was 3 minutes, and today it is 2 minutes to Midnight.
And this is before Trump left for Hanoi to meet with Kim.
1
Get rid of all deductions except for the standard deduction.
Get rid of all taxes on corporate profits, recognizing corporate profits each year as income for the individual stockholders.
Return to an actual progressive income tax such as we had under (Republican) President Eisenhower, lower than now for those with a normal income, with a top rate of 70%.
Money taken from the very rich will not slow the economy, because that money wouldn't be spent anyway.
In this way our national debt, owed to the very rich, will be paid off by the very rich.
2
Public debt is created by the Treasury Department and monetized when the Federal Reserve Bank buys it back. Once the government owes the debt to itself, it costs the government nothing. “Quantitative easing” explains the lack of concern about debt. The federal debt is really only $16 trillion, because $6 trillion of it is owed to the government itself.
2
@Steve Bolger
Most of that debt is owed to Social Security. It is essentially much of America's retirement (remember, 47% of American households do not have $400 in savings) and, the reality is, that eventually (actually, soon) taxes will have to be raised (or, spending cut. Ha, ha.) to make good on that liability.
1
Dropping the names Trump and Ocasio-Cortez into the article simply elicits the scorn. But there is a corollary as it concerns our widening two party legislature. Since all spending goes through Congress, each side demands its pet causes are upped for spending each cycle to give in to the other side’s demand. It is turning out worse than old ‘pork barrel’ items. I.e. Military spending must increase for Republicans while Social spending must increase for Democrats while the sacrosanct Medicare and Social Security payouts deplete themselves per its equitation. Add in the morass of taxes covering neither the current costs nor next year’s leads to terrific compounding deficits. This chicken will come home to roost regrettably. Being the ostrich won’t work. This is NOT learning, it is avoiding, deflecting, postponing.
4
This article is the clearest harbinger yet that it's time to ensure that your personal finances are in order. We have the 'Alfred E Neuman' of economies. "What, me worry?" No one should believe that our debt fueled economy is sustainable; especially since we no longer have a middle class financially capable of paying it off once they are again stuck with the bill.
4
Sorry but one old rule of economics still applies to most of us: If you can't afford it you can't buy it. And asking an incoherent president to come up with a coherent economic policy is asking too much.
4
So the take away message of this article is that
1)fiscal irresponsibility on the part of Republicans in office has resulted in a political advantage for them, their agenda and their constituents.
2)The Democrats, in order to compete politically and ideologically, are being pressured to adopt a similarly irresponsible financial stance on government purse strings.
Perhaps it's time to consider the real possibility that having politicians set spending policy as an inherent conflict of interest and come up with a new way to manage the public purse strings.
More and more, partisan politics feels like giving the safe keeping of the national liquor cabinet to an alcoholic with the only key.
4
The debt never seems to be an issue when it comes to literally giving the military an EXTRA $80 billion that they didn't even request or $trillions in tax cuts to the upper 0.1%. Never. Yet, request funding for education, infrastructure, and healthcare (even though Medicare for All will SAVE $2trillion over 10 years) and it's ALWAYS the same question from Republicans, Democrats (PayGo Pelosi) and the corporate news media: How are you going to pay for it?
Look for the deficit to be the excuse for them to cut Social Security and Medicare. Do not think Democrats will have our backs here. Bill Clinton and Obama (Grand Bargain) have tried twice to cut these programs.
2
Ever increasing private debt is unsustainable, but national debts are different. Great Britain has had public debts for over 300 years, the U.S. for over 180 years, and total debt issued by governments typically increases with growth in their economies.
The real cost to future generations would be failure to renew our health and educational infrastructure, failure to stop climate change, and failure to provide the training and jobs that young people will need to earn their keep and contribute to society.
Footnote:
Alan Greenspan, former U.S. Federal Reserve Chairman, 1997
http://www.federalreserve.gov/boarddocs/speeches/1997/19970114.htm
"[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit."
1
It is inaccurate to say Republicans no longer care about deficits. Rather, for many decades they have taken the approach of opposing deficits whenever a Democrat is in the White House, but ignoring deficits when a Republican occupies the WH. The reasons are political and partisan, and have nothing to do with consistent economic theory. They use this tactic to try to block Democrats from presiding over a successful government.
In all likelihood, a Democrat will be elected President in 2020. And as night follows day, Republicans will then start screaming about deficits and how economically irresponsible the Democrats are for trying to implement any positive government programs.
And, sadly, much of the media will report “even-handedly” on how each party has valid economic concerns. The fact that Republicans’ views will have have changed 180 degrees from the Trump years won’t be mentioned.
It is truly ironic how the GOP hypocritically positions itself as the fiscally responsible party, but it is always on their watch that deficits expand. Democrats are caricatured as the fiscally irresponsible party, but when they are in charge, deficits usually shrink.
4
The first person not worried about our national debt was Alexander Hamilton, the creative genius of America's economic rise, economic dominance.
Against objections and subterfuge of Jefferson, Madison, Monroe and other "Republicans," Hamilton advised President Washington and Congress to increase the debt of the federal government by taking on the Revolutionary War debt of all of the states. By also creating trade related sources of federal revenues, Hamilton set America on a path to becoming the best credit risk in the history of the world.
Fast forward to the 21st Century. Hamilton's genius in finance (among so many other disciplines) is sorely missed, but so is his love of country, self-sacrifice, patriotism. Today we have Republicans who place party above nation, we have a president using his office to advance his own interests, we have Democrats who lack leadership, courage and discipline to stand up for The People.
Today's Republicans don't have the creative intelligence of Jefferson, but they certainly have his mastery of deceit, underhanded trickery and intrigue. They inflicted Trump on the nation, they are the putrid boil that needs lancing.
The issue of debt was settled 200 years ago by our greatest Founding Father - the one intentionally erased from national honor and our consciousness by Jefferson, Madison, Monroe. So long as we have reliable revenue sources our debt will keep us the world's best credit risk.
Lance the boil! End deceit! Fight for The People!
3
The arguments here are similar to those people who do not pay off their credit card. The debt builds up so they look for other people to borrow from (another credit card?).
Eventually, the people lending the money will demand their money back when the risk becomes too great. In the case of the USA these people are Arab oil nations, China, Russia and the far east.
What will happen to USA interest and GDP rates then?
2
Debt. Evil. A basic concept. Self -evident. Biblical in its simplicity. Self reliance. Pay as you go. Not, "On time."
When I was a kid, I worked in a department store in a metropolitan American city. In the tailor shop. I knew a lot about clothing construction. I was the manager of the tailor shop. One of the tailors, a quite ethnic immigrant from Yugoslavia - and a great tailor - wanted to buy a house. The stuff American dreams are made of. A place of your own where you could hang a picture of a Maserati on your son's bedroom wall.
So, he worked and worked - two jobs - day and night and saved, waiting for that miraculous day when he could pay cash for his house (which was not cheap, even in those days).
Finally, one of the suit salesman in the store, a flashy African American man, who bet the ponies, drove a Cadillac, wore Yves San Laurent suits, and was always in debt, found out what the tailor was doing: "Walter, there's this thing in America called a mortgage."
Well, the tailor got his house, and the African American man did not hit the trifecta.
2
I never cease to be amazed by how profoundly hypocritical Republicans are when it come to deficits and the debt. When they are "in charge", neither matter at all. However, as soon as the Democrats are in the majority again, someday, hopefully sooner, the Republicans will again howl about deficits / debt, to which their only solution is the destruction of the social safety net, the diminishment of Social Security and the destabilization of Medicare.
2
Hey, if debt doesn't matter, money doesn't matter. And if money doesn't matter, work doesn't matter. So why don't we all set up little printing presses - so long as it's only us Americans - and never ever have to even think about this stuff again.
1
The cost of our arms race with China and Russia isn't going to go down. Then there is our next war, which will be added cost.
1
Elected Politicians' Plans:
Plan A – campaign to responsibly manage our economy regardless of self-enrichment
Plan B – once elected advance self-interest and enrichment by being grossly negligent in giving everything to everyone ignoring deficits and massive borrowing beyond our ability to repay.
Plan C - now that the country is addicted to debt, a debt we cannot repay, find accommodating economists to reframe minds that massive deficits and debt are good, and we need more!
The US cannot stop borrowing meaningfully today or we’ll crash our, and possibly the global, economy.
We must find a way to hold self-interested and self-enriching Elected Politicians, government officials, their staffers and operatives from both parties personally and financially liable, responsible and accountable for the lies and half-truths they have told US, their gross mismanagement of our county, our $22 T and growing national debt (105% of GDP), and our $80 T in future, unfunded liabilities jeopardizing our economic and national security, while benefiting themselves.
5
Republicans have never cared about deficits. They pretended to when President Obama was in office as yet another way to resist him in every way possible.
2
In the long run, we are all dead, and in the long run, deficits matter. Yes, we have current conditions in which they seem not to matter, but they won't last. And when we -do- have to refinance and interest rates rise, that's going to cause a whole lot of misery.
Both sides, Democrat and Republican, liberal and conservative, selectively proclaim the importance or irrelevance of reducing deficits and debt, depending on whether they perceive additional spending to be to their advantage.
Currently, those who proclaim that our rising debt doesn't matter look at high employment levels, building booms in major cities, and large capital investments. They ignore $1.5 trillion in student debt that hangs like an albatross around students' necks, the high cost of housing, rising drug and medical and utility prices, the fact that corporate tax cuts have gone to stock repurchases instead of investment, our deteriorating infrastructure, and the significant concerns they once had about the significant fraction of our debt held by foreigners, mostly China. They ignore our unfunded pension liabilities, from Social Security to defined-benefit pension plans to low rates for 401ks.
In short, we're spending money on stupid stuff, not the important stuff. We're not investing in the stuff we need to invest in, and we're passing our debt on to the next generation instead of paying it back. Any party is fun when someone else has to pay for it.
4
There has been no incidence of a country, in history, that took on large debt then, in the end, did not inflate it away destroying the value of the currency and turning the middle class into the poor, the poor into the destitute and the rich into the robber barons.
Not one country.
When the USA is removed as the world's reserved currency, which will happen, then, there will be some interesting times.
Until then, the drunks can have their drunken party and cough up theories to support being drunk.
4
Our politics Republican and Democratic is phony.
That is where the huge debt and deficits come from. They are not interested in doing their basic work or managing anything.
Private debt is also huge...it is like the practice of building on earthquake fault lines or under a volcano or beneath an Atomic weapons sky. It does not matter until it does.
3
Although we cannot equate responsible private behavior with 'all goes' in the public arena, when the spending is 'willy-Nilly' irresponsible (i.e. a bloated military budget with no proper supervision to prevent contractors' fraud and abuse, and waste; instead of a rational priority in education and health, in housing and job training), we need an adult in the room explaining to our grandkids why they'll be holding the bag for our squandering. For some of us, ignorant of the great designs and philosophical arguments of Economics, one thing seems simple enough to understand: you cannot give what you don't have; and short of a profligate mounting of credit card debt, one ought not spend money we haven't earned yet. I know crooks may think differently, which brings us to consider Trumpian times as an awful discord of what we don't know vs what we choose to ignore, at our peril...and the injustice in sticking our disregard for prudence to our kids. No love here, is there?
1
Mr Irwin
".... the United States swung from a $236 billion surplus in the 2000 fiscal year..."
There was NO surplus in 2000. Last year in which there was a surplus was 1957 and debt has increased inexorably since then. Surprise - the Treasury actually keeps count:
https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm
Perhaps some non-Democrat economists should be consulted before this dangerous myth perpetuates itself further.
3
This crazy talk. The bill will come due to our children and grandchildren children if not sooner. There is no free lunch.
3
@Dennis Read Krugman, and look up how we "paid down" the massive debt incurred in fighting WWII. (Hint- we didn't.)
1
I'd say the love affair began when Reagan deemed deficit spending for the sake of the top 1% (i.e., trickle-down economics) was a good thing. Though the conservative Tea Party movement, the bane of Obama's terms in office, feigned outrage out our debit and seemingly demanded severe austerity measures to pay it down, their silence since Trump took office proves them to have been nothing but a bunch of hypocrites - what a surprise.
2
I'm an average American in this discussion. When it comes to the dithering analysis of economics I'm a clueless layman. Nor am I an astute, highly educated and "connected into everything that is going on" politician. So bear with me while I look at this simply.
All this debt being piled to the sky is, essentially, variable rate, yes? It gets rolled over with every T-bill auction and such. And to date I haven't seen a lot of the spendthrift behavior causing the debt to be doing much that is future oriented, what with tax give-away's and shareholder buybacks being done by the corporate sector. So isn't the Fed in a box?
They normalize rates in any real sense and it would be much akin to what happened to the real estate investor when all those variable rate holders got nailed to an interest rate hike cross in the 1980's. So interest rates must stay low.
That said some of what I have read projects that, if our political leadership class proceed apace, by 2025 the interest, ALONE, on that big pile of debt will be the equivalent to the entirety of our military budget. Just the interest payment on it. You're telling me our economy can absorb such a payment without an impact? Really?
Uh, huh. If you do then let me offer you a first bid on a certain bridge I own. It's in fine shape, and runs from lower Manhattan over to Brooklyn. And I'm willing to let it go, just to you, for cheap! What'da'ya say?!?
John~
American Net'Zen
3
Can’t think of a better way to cede power to China.
1
I remember when Republicans considered themselves the only fiscal conservatives. It was only when there was a Democratic president or split houses of Congress.
When the GOP held Congress and the White House, they passed a $1.5 TRILLION dollar tax cut that predominantly benefited the 1% and corporations while also adding more than $2 Trillion to the debt.
Republicans are fiscal hypocrites.
2
"Its foolish not to borrow money." I can't imagine the reaction from the self-professed King of Debt sitting in the Oval Office when he reads (I know that verb is a stretch) this. Rather than fighting for a source of money for his wall, he can just say "Charge it." Given his past multiple bankruptcies, it will be just like the good old days. What could possibly go wrong?
Being prudent is so last century.
3
LOL! Understand something: the Republican opinion on deficits is, like so many other issues with them, strictly situational.
Of course, they're not complaining about debt now! They're in power in the White House! The Tea Party? They're on a milk carton! They only care about debt when there's a Democrat in the White House.
3
If In 2020, the choice is between a 70 something year old avowed socialist and a 70 something year old blatant corrupt plutocrat I will not be optimistic about the future of our country. Sanders is not the person who will beat Trump.
1
By lumping Democrats and Republicans as equally responsible for fiscal "irresponsibility" this piece sanitizes Republican hypocrisy on debts and spending. It is now abundantly clear to all rational and fair minded Americans which party cares about the average person's welfare and the country's future, and which party is for ONLY the welfare of the .01% at the top. Check: The last four democratic presidents reduced the deficits while the last four GOP presidents all blew it up. Don't tell us ever that "fiscal conservatives" are Republicans because they ain't and never were.
3
Greece loved their deficits recently and didn't talk about them openly, then something changed. Maybe U.S. has a grander Ponzi scheme underlying this run up, with the direct recipients of trickle down pork all for it.
1
@stormy Greece doesn't have its own currency. Read Paul Krugman on this.
1
Has Erksine Bowles ever made an accurate economic prediction? Did his erstwhile sidekick, Alan Simpson?
What both were tasked to do by Mr. Obama was find an excuse to cut SS and Medicare benefits. Fortunately, they couldn't sell their snake oil.
And yet we're still talking to him. "I'm confident...."? Why are there so many second acts in American life? Too rich to fail?
3
Let's not fool ourselves - the next Democratic presidency will witness the deficit wolves baying at the moon for all they're worth.
2
Why Neil do you go into such detail when the answer is right before us? Give each of us the ability to print money. Problem solved!
2
What a lot of words to explain a simple phenomenon. The President is a Republican, and so deficits don't matter, in the immortal words of Dick Cheney.The media spinelessly follow his lead. The moment a Democrat is elected, he or she will retroactively be blamed for all the debt that the previous President ran up.
2
This is propaganda. We liberals were not allowed to enact legislation that would benefit everyone because of Trumpublicans. Now they have given $1,200,000,000 doors in tax cuts every year to the Koch brothers, as Trump took office, and will say, once the deficit balloons, that we must cut VA benefits, Medicare, Medicaid, Social security. There is no "democrats and Republicans" in this. The deficit scare will be resurrected in 2020 with a Democratic takeover. In the Trumpublican plan, after giving away that much money when Trump took office, they will 'build a road', or repair a subway-- much less than would have been done anyway, and claim that the very Ric job creators, who used the tax cuts to enrich themselves, and their innovative privatization of infrastructure, is the path to future growth. This outline presented to the US by the NYT is propaganda, fiction.
2
Green New Deal = "How you gonna pay for it?"
Tax Cuts = "Deficits do not matter!"
See how the equivalency works? Only Liberals get smacked for wanting anything. Republicans get everything and then get more. Unless and until everyone realizes the terrible mediocrity of the American experiment; maybe then we can change the constitution to work for all Americans, not just rich old white men who wrote it?
3
In just a little while the GOP will demand cuts in social programs to deal with the debt. "Groundhog Day" in the USA. They will gin up the base about abortion and socialism and people will vote against their own interests. Nothing to see here!
3
Debt denial is a strange affliction.
Just read Carmen Reinhart's and Ken Rogoff's "This Time It's Different" - a book with a sarcastic title about debt crises through the centuries.
After convincing me (again) that we'll go through an inevitable upheaval, Mr. Rogoff only a week or two ago told the WSJ that the US is not in a debt crisis and has room for more debt...
It all - our world now, our political culture, our media narratives, our public dialogue - feels so Alice in Wonderland at this point.
3
@Stephen Clark
I'm encouraged, for the the first time in a long time in reading a NYT comment section. So long, I can not recall it actually not being the first time being so encouraged.
There remains reason among a very brave -- up to this moment - 93 respondents; whom risk having their handles banished to the outer darkness of NYT commenting.
1
"This time it's different" are the five most dangerous words in economics.
We have been here before, most recently in the run-up to the 2008 financial crisis when it was argued that interest only, high risk mortgages were perfectly safe - until they weren't.
Then there was the dotcom bubble when it was argued that companies that had not and often could not make money were sound investments - until they weren't.
History is replete with countries that ran up high levels of debt which ultimately led to catastrophe.
So now public debt levels are risk free - until they aren't.
5
To the writer: We, as a nation, haven't stopped worrying and don't love deficits and debt. We, the ones who will have to pay the piper one day.
It is only our political parties who have stopped worrying (when they are the ones in power anyway) and started loving deficits and debt.
5
Clearly, since the universe is infinite, we can have continuous growth forever. Sure, that will work out just fine.
How do these theories work out with crashing populations ?
5
Economics is not a science but a religion, so we can only go with beliefs, hunches and theories. None the less, it seems impossible to have economic "perpetual motion machines" that create growth and prosperity based on consumption.
10
Irwin: "How did everyone — liberals and conservatives, politicians and economists — get so comfortable with debt?"
Republicans ("conservatives") never cared about debt. They care only about power. When they control the government, its borrow and spend to give FREE STUFF to their supporters, feeding the military-industrial complex along with corporate welfare for their donors.
When Democrats control the government, suddenly the debt becomes a horror story to "conservatives". In reality, Republicans do not want the Democrats to fix the damage done to the economy by the Republican controlled government--it might hurt their chances to regain power.
It's simple and obvious to anyone willing to look: Reagan and Bush I exploded the deficit and debt; Clinton raised taxes and with the "help" of the Republican controlled congress, not only eliminated the deficit, but created four consecutive years of budget surpluses. Bush the Lesser took care of that, giving tax breaks to his buddies and starting unfunded never-ending wars. Obama rescued the economy and with the "help" of fake deficit hawks in the Republican controlled congress, brought the deficit back down. And now look where we are.
No, the real economic conservatives are Democrats.
9
Japan has a debt to GDP ratio of over 250%, while the U.S. has debt to GDP ratio of 105%. Yet, Japan's central bank (Bank of Japan) has negative interest rates. That's right. Japan is awash in red ink and is still able to loan money to borrowers at negative interest rates. Houses in Tokyo sell today for less than what they sold for in 1985, and pay next to a zero interest rate for a mortgage. Where's the runaway inflation that all this government spending causes?
How do the deficit/debt hawks explain this? Could it be that someday the U.S. would be in the same position? Will automation, AI, and technological advancement eventually lead to massive deflation? My guess is that by 2030 or 2040, deflation will be the problem not inflation, regardless of the borrowing and debt (one way or the other).
3
@Sparky Part of the answer is that virtually all Japanese debt is held by Japanese investors so the debt payments remain in the country. That is not true for the US, Although China has been offloading US debt recently it still holds about 5% of all US debt and Japan is not far behind.
3
@Sparky
Japan is a nation of savers with a savings rate of over 25% compared to American's with a 2% rate. With an aging population and the outsourcing of many jobs, Japan has seen the effects of deflation that occurs with weakening demand. On the other hand, our economy is based on unbridled consumptionism and personal debt that goes with it. And, yes, we may see a similar future, but with a very different outcome.
4
This is troubling and contains a bizarre omission or misrepresentation of history. First of all, low interest rates at the start of the century are not what allowed capital to become so freely available to home buyers that a housing bubble occurred. Secondly, Mr. Irwin presents the bubble and the subsequent financial crisis as two separate, unconnected events, which we all know is not the case. The bubble was caused by a lack of oversight. Lenders were able to sell the derived risk associated with the money they were lending out at low rates in multitude of complex, customized securities, traded in unregulated over the counter markets. It was precisely the unregulated free flow of such capital that caused the global economy to collapse. This is factual history. That collapse led to the reckless decision to increase the balance sheet of the Federal Reserve Bank by 500% in the last decade.
The cost of that recklessness will be severe when the next crisis hits because the Fed has no more bullets in the chamber, so to speak. Debt will matter and it will be ugly.
Secondly, there is no mention of the recipients of the interest on these debts and deficits. Whose pockets are we lining with that incredibly substantial increase in interest income? Does that not matter either? Secondly, how do we reconcile this "What, me worry?" approach with statements like the one made by Michael Bloomberg that medicare for all would bankrupt the nation for a long time?
7
We cannot forever spend more money than we make, and that is true for the government just like for any business or individual. A person or government can only borrow for as long as and as much as his or its good name will allow (ask Mike Tyson or any Greeks).
My only wish is for a politician to stand up and tells us we can tax people more but not that much more, and regardless we can't afford to help everyone.
But who wants to hear that?
3
Invest through borrowing in the things we should invest in: better infrastructure to move people and goods, education to unlock potential intelligence. Pay for the things that need paying for now, like more equitable health insurance and (I think anyway) climate change. Tax appropriately.
If you make over $10M in a year you should expect a high marginal tax rate. If you don’t want to pay that higher rate, put that money over $10M back into your company or invest in the community in other ways.
Stewardship seems to be the right way to think about it.
12
This glibness of this article sounds like we’re getting ominously close to the end of our current business cycle. It seems even to have forgotten business cycles exist—the discussion of Obama’s deficits doesn’t notice the decrease in income and the imperative to prevent collapse. It’s nice to know we can count on growth exceeding interest rates forever.
Republican profligacy and short-sightedness gave us the almost-depression of 2008. Their quick turnaround to budget hawks in 2010 has hurt national infrastructure of all kinds, including even education, in favor of a dramatic transfer of wealth to the rich. Trump’s tax cuts pushed that even farther.
So the Democrats are in a tough spot. The nation desperately needs fixing (e.g. Green New Deal), the Republicans have given away the store to their donors, and we’re nearing the end of the business cycle (one of the reasons interest rates stay so low is the big, bad Chinese). So all options are necessarily on the table.
It’s a difficult balancing act and not without risk. As in 2008, somebody has to do the job.
7
bowles has no idea what he is talking about. The first thing Democrats should do in 2021 is pass a very progressive tax system with all income treated alike. Then tackle climate change, health care, education and infrastructure.
6
I beg to differ with you, Mr. Irwin.
"America" didn't learn to accept debt. Good Old Chief Thief Dick Cheney tried to convince peeople it didn't matter as he designed Enron to steal from energy utilities. Rip-Em-Off markets force fed it with 15 cents on the dollar bets and hostile takeovers to enrich themselves.
The depth of greed that has overtaken OUR financial, political, legal and military systems is catastrophic.
Please, stop trying to sell the greed. The greed-driven, corrupt, morally/ethically bankrupt financial complex has nearly destroyed OUR America and OUR world.
When will you have enough? When we're all toast?
8
He worked for Halliburton , not Enron.
2
Who seriously thinks conservatives will not have sudden pressing, renewed concerns about debt and deficits the minute Democrats are in position to push for expanded child care or healthcare or green infrastructure ... when it happens, and it will, please remind your readers how the GOP treated the national debt as a checkbook for their donors.
35
This article is a primer on our various fiscal policies without a word devoted to America's military dominance. The real strength of our economy has nothing to do with our fiscal policies, which change like a chameleon, but is the world's belief in the dollar. How many economists think the dollar would still be the world's reserve currency if America's military dominance was lost? While everyone believes in the dollar, we can borrow to the hilt without fear. Let the yuan replace the dollar, and the laws of gravity that have brought Argentina, Greece and Venezuela Italy to empty cupboard depression will take over, and a second-class military power will become a third-class economic one. Only our increasing military spending will keep our economy strong, at least until or unless China dethrones us in the Pacific.
Economics is not a science, even a dismal one. Einstein's
views on relativity and Darwin's on evolution did not change every few years, as Larry Summers's views have on economics. Economics is more akin to politics, and realizing this would be a real boon for American policymakers.
15
@Madison’s mistakes
"laws of gravity that have brought Argentina, Greece and Venezuela Italy ".....
Maybe it was gravity. Whether Newtonian physics or Einstein's relativity but, it certainly had nothing to do with the military strength of any of those respective nations.
1
Evidently I didn't make my point well. Any nation that doesn't have the world's default currency, earned through its military dominance, is subject to the normal gravity of economics. If it borrows too much, it will suffer, as have those countries. The U.S. escapes that fate only because of its dominance. And I'd add, the U.S. earns that military dominance through the vigor of its ideas and prowess in science, technology and business as well as its unrelenting military spending.
1
Call me old fashioned, but I believe our ever growing debt burden will come back to haunt us. However, the challenges of our times demand bolder action to advance policies and solutions that moderate climate change and mitigate the ever-widening wealth inequality in our country. We have plenty of space to increase taxation at the top and the business innovation that will accompany such policies will advance economic growth.
9
I urge interested parties to read “This Time is Different,” sobering account of how Governments have mismanaged the public purse over time. Put simply, increased debt acts as a millstone around an economy’s neck; when the cost of servicing that debt increases, it crowds out other, more socially useful government spending. The ultimate recourse is either debt or devaluation.
Politicians are integral to the problem, as they are focused on the short term, as there are few long term consequences for them. Talking about reducing debt is unsexy and a political no go zone.
DJT is simply uninterested in the consequences of debt, he’s shown this in his previous life as a failed developer. Let the bankers and the shareholders worry about, it not me.”
Listening to AOC talk about economic theory is equivalent to listening to your hairdresser give advice on the stock market. She’s out of her depth and uninterested in the long term health of the balance sheet in the interests in weaponizing the issue for political use.
Ultimately this game of hot potato will eventually blow up, at the expense of future generations. Interesting work for historians but not many others.
8
Print the money and use that paper to exchange for food to give to those who want more but have too little money to buy. Give the money to those who spend it on education while the colleges raise their prices to share in the bounty. give the money in exchange for labor and materials to build new roads.
Well fed people are more productive; educated people are more productive; professors teach better when pay is higher; and the government never has to pay back the money.
Is that about it? Print until the cows come home, I could use more lobster instead of trout; and that degree in art was always appealing so I can up my social commentary; and that saving for college for the kids, no sweat, that is now free.
Lets party.
2
I wish fiscal policy were enacted based on proven economic models. It never has been. Politicians are not equipped to do what's required. Democrats try, for the most part. They believe in government. Republicans have given up even the pretense of making responsible policy. They believe only in political power.
My Quixotic quest is for the Fed to have the reins of fiscal policy.
5
@br But the fed is also subject to political pressure as trump as just shown by pressuring Powell to stop raising the interest rates.
1
In this world of free capital flows, U.S. debt of all types has been financed to a large extend using foreign savings. The U.S. is the world's safe haven for capital, in good times and bad, especially because the U.S. dollar has the unique advantage of being the world's reserve currency.
If we were not so introspective, Americans might ask what good uses this foreign capital might have gone to had it stayed in its own country. We might ask the long term consequences of being the world's largest debtor nation, especially if the foreign savings dries up, the U.S. dollar loses its international preeminence, and interest rates rise. Does AOC think it's fine for the U.S. to be the world's financial leech? Is it okay for us to take the world's money to use for our own Green New Deal? How will the rest of the world pay for its own cleanup of the 86% of world carbon emissions produced outside the U.S.?
1
@tanstaafl
I’m glad someone asking the right questions. There is no such a thing as “national economies” anymore. To the extent that it exists is in the realm of politics and how to preserve current privileges, as you mentioned. Flows of capital, and the labor objectified in it, does not know borders like climate change. Time to consider world outputs and how they get to be distributed (including the waste, garbage, and perchaos unnecessary consumption) from an ecological perspective
4
I’m no scholar regarding deficits or debt, but it seems to me that someone has to keep buying our obligations. And if it’s China and everyone talks about their ability to play “the long game”, the leverage they will hold over our economy may become our biggest problem.
Sure they need the US economy to support theirs. But something just doesn’t sit right with me. We need to start making some hard decisions about spending - in all areas.
3
Read Paul Krugman over time in the pages of newspaper on the non-problem of China’s relationship to our debt. As a matter of fact, I’m surprised that the author of this opinion piece did not cite Professor Krugman, who has been writing clearly and urgently on the boogeyman aspect of the fear of increased public debt for many, many years.
1
The U.S. government has borrowed more money than any government in human history. Politicians have convinced voters that government debt doesn't matter or that, by the time it does, some magical solution will present itself. The ugly truth, though, is that there simply aren't enough investors left on the planet willing to loan the U.S. government enough to maintain its spending habits. So the Federal Reserve takes up the slack. This is where things go from bad to worse, because the FED prints the money it loans.
When the Fed prints more money, every one of the dollars already in circulation, from those in people's savings accounts to those in their pockets, loses some value. Prices go up in response. That's inflation.
Back in 1975, Greece tried to jumpstart its economy through stimulus spending, which it paid for by printing money. For 15 years, the Greeks suffered 20 percent inflation. Following the breakup of the USSR, Russia printed money to keep its government apparatus running. The result was five years over which inflation averaged 750 percent and peaked at 2,500 percent. Today, in the face of a collapsing economy, Venezuela's government has resorted to printing money to pay its bills. The result is nearly 200 percent inflation, which the IMFexpects to reach 1,600 percent in 2017. And here, after the U.S. abandoned the gold standard in 1971, the Fed ramped up its money printing. The result was 10 to 15 percent inflation for much of the 1970s. It's "when", not "if."
12
Does it really matter, this debate about debt, when rapidly accelerating climate change is going to kill us all anyway? Perhaps that's something to be a bit more concerned about than the level of debt.
5
We are where we are today too many (including this author ) allow political strategy to pass as fiscal policy. From Reagan forward, what's called tax policy is, in fact. payback to large capital holders to enrich themselves. Republicans don't have a tax policy, they just trot out bills to flow money to their chums when in power and carp about debt, the size of government, the unreasonableness of a safety net, whatever when they're not. That is not fiscal policy It's not even policy at all. Its political strategy to grab power that stops at nothing.
Those not enthrall to the gop's winning for winning's sake who have tried everything to actually, you know, govern understand the only way to fight the lengths the gop takes Gingrich's no holds barred stance, now to the point of fake emergencies and handing the senate to the president, is to fight with fire.
The money exists it just needs to be re-prioritized, fewer guns more environment, less corporate welfare and more infrastructure and education, make finance pay for it's footprint on the economy to have housing and healthcare for those whom combined are the economy they make their money off of.
Until we ignore the same old, same old political operatives who spout finance and economic jargon purporting to be tax policy that is mere political strategy, we can't seriously discuss the debt or, well much of anything meaningfully.
Too bad this article, too, just recaps strategy thinking it's talking fiscal policy.
17
Debt and deficits have been politically weaponized.
When the GOP is in power they enact tax cuts to benefit the plutocrats and the multinational corporations. And not a word about the deficits they are creating.
But if the Democrats are in power, then the refrain is "we can't afford that" if it benefits the people … be it Medicare for All, free college, the Green New Deal, etc.
And, as many point out, the main idea of the deficits created by the giveaways is for the GOP to eventually cut Social Security, Medicare, and Medicaid.
In the long run, deficits and the national debt do matter. But we don't live in the long run and we have very urgent business right now. After all, did anyone say we needed to balance the budget in World War II?
7
Two things about this article are striking. The first is that Mr. Irwin continues to assert a false equivalence between the positions of the Democratic Party and the Republican Party on the debt issue. Republicans have attempted to use tax cuts and debt to reduce the power and authority of government. Democrats have worked to build a government with the power and authority to create a just and equitable society.
The second is that government debt and money are essentially equivalent. Government prints bonds and sells the bonds. Government prints money and pays off those bonds. The risk is inflation that is caused by government printing too many bond or too many dollars. Government controls inflation with a combination of taxation and interest rates.
The concern with government debt and budget deficits is really concern that government will fail to strike the correct balance needed to maintain a stable economy.
7
However, in deed, the Republicans have done little to nothing to reduce government. It has grown under their watch. They are attempting to shift the use of resources from popular programs and the intake of taxes from their rich echelons.
5
Deficits don't matter because there is no anchor holding back monetary expansion. Once Johnson then Nixon took the US off the gold standard and allowed for a free floating currency exchange the tether was broken. The doctrine of 'what's desirable is rare' became 'trust me I'm good for it' backed by the authority of the issuer to 'tax through inflation.' This is an old story.
Without the need to go to the taxpayers for permission to increase spending governments had easy access to unlimited funds through deficit spending. When inflation became too hot to handle you just changed how you measure it. From a year to years standard of living to 'substitution' hedonics. Steak>hamburger>bowl of gruel = no inflation. Then add "value" increase in products, forgetting the lower value choice are not available anymore to purchase, and you get an inflation measurement that biases to underreport. Measured inflation by a CPI did in 1980 and actual inflation has run 2-4% higher than reported. This is the real cause of demand destruction and wage replacement consumer debt.
In a fractional banking system debt growth increase the money supply. More money in circulation and fewer productive investments to absorb it, we get a savings glut and a craving for safe places to park it: See bond yields.
It's a causality loop of increasing deficits and its attendant money creation producing smaller and smaller growth and inflating bonds and stocks with little leaking into the organic economy.
9
@Veritas Odit Moras
Amen, brother. I wish every citizen would read, understand, and act on these truths.
1
What's changed is that there are right-wing governments in power in the US and the UK. Put left-wing governments in charge, and all of a sudden the people who are saying that debt isn't a problem will change their tune dramatically.
That's the longstanding pattern of the IMF and many other economic organs.
14
Buried in the article is this most important statement:
"Rather, inflation becomes a risk if spending outpaces the finite supply of workers and productive capacity."
That is the essence of this new theory that the debt funded by a currency producing nation does not matter. If this new theory is true, that turns everything we think about economics on its head. It actually creates argument taken right from proponents of supply side tax cutters.
The supply side people claim that cutting taxes on the rich, resulting in debt, will bolster the economy be freeing up capital for investment which creates growth. Of course this doesn't happen. The tax cuts just make the rich richer as they can now put more money in their pockets.
But if liberals will embrace this new theory, they can use supply side economics against the conservatives to bolster government spending.
If spending does not produce inflation so long as it is supported by worker productivity, then government spending that increases worker productivity pays for itself. If for example, we build out a huge green power system, a bit at a time, the spending would greatly increase worker productivity by creating lots of new high paying jobs. Just as conservatives claim we can tax cut our way to prosperity with debt, we should also be able to spend our way to prosperity with debt, just so long as we don't overdo it. Touche'!
7
@Bruce Rozenblit
It’s not that new. Its origins go back to 19th century France, where Proudhon proposed the abolition of money. MMT like its predecessors overlooks production and value (basically ignores Smith and Ricardo labor theory of value). Unfortunately Keynesian and neoclassical overlook value production as well and engage in magical marginalist theories, which can be reduced to individual psychological and behavioral practices associated with utilitarianism
2
I would really like to hear a newscaster ask Kevin Brady "If we are not paying down debt when we have 'the greatest economy ever" and full employment, when will we pay down the debt?"
Right after that the newscaster could ask when we will see the tax cuts start to reduce the deficit and require Brady to name the year or month.
Debt will matter and we should be financing more of it with 30 year bonds while interest rates are low to get over the baby boomer bump.
8
I believe the article too easily overlooks another, and maybe weightier, reason why debt as a problem is being overlooked. Increased polarization of the political parties has increased the thinking that the political agenda is sacrosanct at the cost of everything else. Hence ballooning disregard for debt.
7
Surely you jest. If Democrats should take control of the presidency or the senate in 2020, every conservative mouthpiece in existence will be trumpeting overwhelming concern of deficit and debt. Just look at the previous administration.
60
@tom Yes. And the hypocrisy of their position will bother them not a whit.
1
If deficits don’t matter, then deficit spending is the solution to nearly every problem that confronts society...but that obviously sounds too good to be true, which takes us back to the premise...
4
@Amstel Irwin didn't say that deficits don't matter ever at all, but that under current circumstances, they don't. Thus, deficit spending is not the solution to every problem, but to certain ones.
3
If the dollar ever ceases to be the world's trade currency, then U.S. debt could become a significant hazard.
15
The main idea that the author gets wrong is in suggesting an equivalence between the Democratic Party and the Republican Party.
No Democrat believes that debt doesn't matter, not Elizabeth Warren, not AOC; but, the Democratic Party believes in investment, things that will pay off in the long term and reduce the debt through growth, things like infrastructure and education, and yes, health care; the Erie Canal, the Tennessee Valley Authority, the Hoover Dam. Hence, Clinton was running surpluses.
The Republican Party, either through incompetence or malfeasance, run debt just to loot the place. And they approach the issue in an intellectually dishonest way intended to cover up their theft. Hence, the recent tax cut, for example, and astronomical debt that will eventually be a drag on the economy and make it impossible to spend our way out of the Trump recession next year.
106
@PNBlanco Malfeasance.
3
@PNBlanco
Agree wholeheartedly
2
@PNBlanco -- Since two thirds of GDP is consumer spending, it would have made more sense to hand out the borrowed money of the tax cut (because it is all borrowed money) and give it directly to people.
Like Bush did with his $300 check. Only this time it could had been a $10,000 check. Imagine how much that would have grown GDP.
Even if it were $5000 for two years to keep the growth spinning. We'd be seeing more consumer spending, and more tax revenue from that activity.
6
This is arcane stuff. In my opinion what the aims and purposes of the tax structure and what government spending priorities are would be the most important
elements in any economic model.
In my vision the aim would be for a fairer and more equal society with less social and income inequality.
There would be massive investments at current low interest rates in housing, infrastructure, healthcare, environmental and climate challenges, and education and job retraining.
The tax structure would be reformed with a much more progressive, not flat income tax system so that the wealthy elite pay a fairer share. Corporate tax rates would become higher with incentives for investing in job creation domestically. Payroll taxes would be strengthened with more progressive rates particularly on those with the highest income.
This would be radically different than the current Republican model with its recent tax cuts aimed at
mainly the wealthy elite and corporations. This would envision a greater role for the Federal Government to achieve a fairer society, certainly not the limited government vision of the Republicans with tax cuts for the wealthy and reduced social spending and privatization of public assets.
8
Policy and politics can mix into a toxic brew. Mr. Irwin helps us slow down and take a look at evidence and history. As Paul Krugman and other reasoning economists have pointed out, we need to look more at the outcomes rather than the inputs.
The economic priorities should be:
1) what protects us (meaning family and social support services through our lives from before conception to burial, supporting personal privacy and dignity, promoting safety in our homes, schools, and public places, free access to the ballot, and—most important—what protects our planet),
2) what makes us strong as a society (universal childcare, universal healthcare, lifelong education, affordable housing, infrastructure investment, community policing, and universal suffrage—yes, it merits repeating), and
3) what gives us comfort (not luxury yachts but knowing that our children and grandchildren’s futures will not be thwarted by the yacht owners).
Mr. Irwin notes that how we pay for these may matter less than we thought, but the essay poses the next question on where our investments should go and who benefits. The few or the many?
8
President Trump stated in 2018 that the national debt was not 21 trillion but rather nearing 220 trillion and nothing happened. When there is no way out, what is there to do ? If international trade should drop out of the Dollar and that can happen overnight-
President Trump, should spend all his days and nights talking to all trying to find bridging option in case of a meltdown. Mr Bernanke produced 9 Trillion overnight for banks rescues albeit, as uncollateralized loans. Had that not been possible the alternate is not even imaginable.
Before that happens again, don't think politics, think survival. America is still the most important economy and even our adversaries don't want America to fail, I'm sure of that.
America needs a plan B,C and D in conjunction with other countries. the will to survive and continue our way of life is the main event.
6
“Quantitative easing” monetizes public debt.
2
"Private borrowers cannot create money from thin air." It's not clear that the federal government can do this either. But it's complicated. From what I understand, when the Federal Reserve creates money, they are required to loan it to private banks at relatively low interest rates. We also know from the Great Recession that the Fed can create money and loan it to the federal government via the purchase of treasury bonds. But eventually the Fed sells the the treasury bonds to private investors. In the past I've asked bankers and economists why the Fed can't just hang on to the bonds and perhaps never redeem them. In other words, just forgive the loans to the government. Bankers go apoplectic when I ask this question. They imply it's illegal, but I've never gotten a clear or straight answer. I suspect there's an element of the "emperor's new clothes" here. Perhaps the federal government CAN print money, Maybe they don't have to loan it to private banks. Maybe they can just cleverly spend it on various programs. Maybe if they muddy the waters with complicated jargon nobody will notice, and inflation will stay low. Can anyone answer my questions about this?
2
When the Federal Reserve Bank buys federal debt through quantitative easing, it is effectively extinguished with newly created currency.
1
@joe
When private banks make loans without a 100% reserve (a fractional reserve), they are creating "money from thin air".
3
@Steve Bolger
Debt is not really extinguished. It can only be diluted into an expanding economy.
1
I don't know if AOC understands monetary theory or not. I most certainly do not. Here is what I know. Since GWB the USA has spent $12 trillion on tax cuts and a war in Iraq( I did not count Afghanistan). Somehow we don't have enough to do the things domestically that need to be done like a Green New Deal or Medicare for All. Japan's debt to GDP ratio is 238%. Their bond interest rates are in negative territory. The US debt to GDP ratio is 108%. The focus of the US government cannot only be wars and tax cuts for the wealthy and large corporations.
37
@Mark -- It will only get worse as the debt interest balloons even more, cutting to the bone all domestic program spending. At which point the Chinese or other foreign investors can weaponize their treasury holdings.
1
For every action there is an equal but opposite reaction. Economic theory cannot change that.
3
It astounds me that in the areas of monetary and fiscal policy, and economics in general, so many people are intractable in their declarations in spite of counter-evidence as tangible as mathematics.
As an example, Stephen Moore, an economic and policy adviser to the Republican party and president Trump has been wrong about nearly everything for years, like how huge federal tax cuts will pay for themselves, yet never seems to fade from view. I still see Mr. Moore interviewed on all the major TV networks and NPR. Perhaps this is symptomatic of damage resulting from the post-truth conservative intellectual wasteland that gave us president Trump.
May we live to see reality returned to its rightful status in our political discourse.
50
@Alan R Brock Stephen Moore is a charleten.
3
@Alan R Brock -- Huge debt warps the natural laws just like the huge mass of a black hole.
What's that saying? You borrow $10k from the bank and the bank owns you. But borrow $10 million and you own the bank. Or something like that.
1
Few people understand that what we use as money, in all commerical transactions, is federal debt instruments-- which by law we must accept in payment of all debts public and private. That fact is printed on every banknote in our wallets, and is equally true of bank checks drawn on dollar accounts.
The federal government does not collect taxes to pay for what it spends. It creates new dollars to buy what it is authorized to buy in the Congressional budget, and then uses taxes to soak up an amount of already existing money in circulation on a reasonable par with what it intends to issue via its spending. The plan is to spend about 2% more each year than is soaked up in taxes. That causes gradually rising prices and is considered to be stimulative to the economy. Only when the so-called deficit rises beyond 2% does anyone get alarmed.
The gap between authorized spending and old money soaked up by taxes is made up by increasing the so-called national debt, which really means increasing the number of federal IOUs in circulation and being used as money -- the mandatory medium of exchange.
Those are the facts not easy to grasp when heard for the first time. I can remember the gasping of us in our college class on Goverment Economics when our prof ( a world recognized expert on the subject)) first told us that. As one grows more used to that concept, what is happening around you becomes far more understandable. Even the open-market operations of the Fed begin to make sense.
12
@Penseur
I appreciate your description but I’m having difficulty wrapping my head around it. Wouldn’t what you say mean that the yearly national deficit has a direct, 1:1 correlation, with yearly inflation? Even if one allows for some slippage from 1:1, it doesn’t does it?
1
The Federal Reserve Bank creates new currency when it exchanges bank credits for government debt securities. Taxation does not destroy currency.
1
@Scribbles: There is a close correlation often between the growth of national debt and inflation, yes. What factors in also, however, is the ratio between national debt and GDP. When the quantity of goods and services being produced grows at the same rate at which the money supply expands, then we do not see it reflected as increasing price levels. There is a equation that goes like this MV=PT. The money supply times the velocity of its turnover equals price level times the number of commercial transactions.
This is not an easy thing to explain, which is why most people prefer political diatribes to rational analysis when dealing with national debt and what it really means.
2
Deficits and debt don’t matter in the US as long as value continues to be transferred from the rest of the world. The world output has increased geometrically in the last 4 decades of globalization especially in Asia (China and India). Debt merely represents claims on future value creation (the world output of goods and services).
The US occupies a privileged center that attracts capital and its surpluses, which represent growing output from the rest of the world. It does not happen the other way around. Witness Argentina, Turkey, or other countries that depend on borrowing on currencies they don’t print (dollars and euros). Their relatively low productivity ties them up to this asymmetrical arrangement. Even England (with Brexit is realizing ) is experiencing this unpleasant dependency on the European community and especially its regional economic power, Germany.
High growth areas like Asia may continue to provide relatively low growth areas of the old industrialized North (Europe, US, and Japan) with surpluses in the form of transfers in which this premise is based. However, if China’s growth and profit rate decreases as it happens with highly industrialized (relative to human labor) countries this theory will find its limits in a dramatic and unpleasant way.
4
I think AOC is, like a lot of people like her are simply starting the conversation. Do we WANT a society that has a universal health feature? After we answer that as yes, THEN let's get down to paying for it.
And Trump didn't mention debt or deficit simply because he doesn't care. A lot of the things he does, he simply doesn't bother with thinking them through. He isn't into that stuff. He has goals but they are shallow and narrow, so he only has to say and do what is the shallow and narrow part of governing.
As a liberal myself [not afraid to say so, while hiding behind the new progressive label] I want to see certain things done, AND paid for responsibly. That covers my views of both AOC and DJT.
11
it is all too easy to be nonchalant with debt when the average interest rate on it is 2%. Over the past century that maturity-weighted average was closer to 5% on average, so maybe not in the immediate future but there will certainly come a time when the annual interest payments on US government debt will amount to 1.5-2 trillion dollars. When you look at countries whose govt interest payments surpass even 10-15% of the budget, Turkey, Argentina, South Africa, Pakistan the picture isn't pretty at all.
8
Public debt mattered and matters only when the Democrats are in power because the Republicans hammer away at the idea of fiscal responsibility by suggesting the (false) example of a family that spends beyond its means. Of course, a family is very different from a government primarily because it does not print money like the government can and does.
When the Republicans are in power, public debt does not matter because they are beholden to their ultra-rich and corporate base, both of whom have the singular goal of reducing their exposure to taxes.
So, I suggest modifying the title of this column to read "How the GOP conned America into believing that debt matters when the Democrats are in power but doesn't matter when the Republicans are in power."
159
@chickenlover - Republicans pick and choose when to pick and choose winners and losers.
This huge and increasing debt is like fiscal global warming. We can still have normal weather and even polar vortexes as the world races to a climate that will or could suddenly turn on us.
Same with the national debt. As long as the Fed holds rates artificially low, and foreign investors don't sell in mass, the bubble will still grow. But when it bursts...
1
@chickenlover
Well said, thank you.
That is what the American people need to understand.
4
Here's an exercise: List the top 5 or 6 richest and biggest economies in the world (e.g. the U.S., EU, China, Japan etc.). Now look up each to find out if these places are "in debt." (e.g the U.S. is approx $22 trillion in debt). When you realize the answer is that ALL of them are in debt, ask yourself "if all the richest economies are in debt, who's doing the lending?" That should give you a hint that the word "debt" when used in the context of sovereign entities with their own currency issuing banks isn't that same thing as the household "debt" you've been told to avoid at all costs.
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@grusilag
“Who’s doing the lending?” The millions of people who work in those countries and other low wage workers in places like Bangladesh, Vietnam, etc., whose labor becomes profits and taxes for corporations and governments especially in the political economic powerful center
6
I am always amazed at the enormous rise in the cost of everything over the years - but yet inflation is always low - its a miracle.
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@APO
LOL As a retiree I always caution fellow retirees, especially those entirely on fixed incomes. the biggest hazard in retirement is inflation . It is ever present, even when the government tells us it is under control.Try putting a new roof of shingles possibly some replacement plywood on your home. Watch civic and state governments, most of whom are broke, (can't meet their entitlements), raise real estate taxes etc. etc.
12
@APO
No, the CPI, determined by the Labor Department, is always low. As John Williams at Shadow Stats has shown, the real rate of inflation is much higher. Of course, every consumer paying any attention already knows that.
7
Debt owed owed for Treasuries with interest going to other countries, debt osed to US citizens who have invested in savings bonds, debt owed in return for payments into social security, abstract debt owed to the Fed - all of these are different in both cause and effect.
If debt is being used to build future prosperity - education, vital infrastructure, R&D - then things are going right. But since about 1980, the debt has been accelerating to fund ever larger speculation bubble cycles as US mfg. export strength dwindles. That is something to worry about.
15
10 years ago a lot of “smart” people were convinced that house prices could only go up. We all know how this story ended: the largest recession since the great depression with huge economical and political repercussions. Now, a lot of “smart” people are convinced that national deficts and debts don’t matter anymore. Is it hard to see that this story will not end well for the average citizen?
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@LA
Guess you think there are a lot of smart people with us. My takes is, our lawmakers haven't a clue what to do about debt. So, they convince themselves collectively it simply isn't a problem. The so called great recession, and bailing out too big to fail Banks and Government motors occurred, so it can occur again.I'm going to vote for Bernie Sanders as everything will be free and we will be free of worry.
3
@Dan Green - our debt crisis is a bit like global warming. All the "smart people" who drink the Kool Aid that deficits and debt don't matter are just like the people who hold the snow ball up in Congress during January and claim global warming is a hoax.
2
Debt doesn't matter, until it does.
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@abo
... and at that time it’s too late.
3
@abo -- Just like Trump, he was a high flying billionaire running on borrowed money until the US banks quit lending to him. Then it mattered.
And lucky for him the Russians became his new bankers to keep the ruse a going.
3
@abo - Well sure if the debt gets too small, disaster strikes. This has happened ALL 6 times we paid down the federal debt by 10% or more.
But as for getting too large, that will probably never happen.
3
I'm a spectator that saw theories and predictions come and go on my 55 years on about all fields, though, in science, most of them came from history lessons, but on economics many are contemporary. Temperance on pursuing the results, on all cases, was never a thing to ignore.
There are many factors that can be used to explain the good results from 90's that have nothing to do with fiscal policies and also so many bad decisions that resulted on problems for USA and the world on 2k's that also are not so easily linked to what the USA administration and the Federal Reserve did or didn't.
What made USA so special for investors? Many things, but I would put two above most:
1) the rule of law;
2) the USA dollar as the fact international currency.
The current administration is showing the world that 1 is not what we all thought it was and 2 is, on many aspects, a consequence of 1.
The way I see it, there is a high risk to things go bad but what options are on the table for international investors? When will the breaking of rules be too much to swallow?
Moderation on deficits and keeping faithful promises never hurt anyone (or mostly didn't).
13
Seems sketchy. The USA could certainly respond to rising interest rates by printing more dough, in essence taking the value from its citizens's savings account through inflation. I imagine that would make getting further loans difficult. Why would I buy treasuries, say, if I knew that in 10 years their purchasing power would be halved? Gold and silver? I dunno - those can be flaky, too, with values that often seem more dependent on the level of public paranoia than anything else. If a contractor won't take dollars to, say, repair a road, the roads will get bad.
It seems to be baked in the cake right now, though.
5
In a growing economy and market, debt expand the money supply and for all recorded history there has been mostly steady growth in population. But there is a problem- we live on a finite world and are bumping up against the limits of the physical world.
In a world where the expected annual growth will soon no longer be the norm, growing the money supply by debt does not make a lot of sense. Not sure if any or many economists have done much work on how money and debt will be changed in an economy limited by finite resources.
13
Politicians are all "prime the pump" Keynesians when times are good or bad. At some point there will be limitations on needed spending because there is too large a debt burden. Greece or Italy is an example.
Here in Canada the socialist B.C. government has started taxing capital regardless of taxpayers income. This is a result of many Chinese citizens buying Canadian citizenship and moving their family over while paying no Canadian income tax. Unlike the USA, Canada does not enforce tax collection on foreign income. So rather than address this issue the NDP socialists decided to tax assets like your house regardless if you inherited it and have a modest income.
Former Prime Minister Stephen Harper claims it is one of his biggest mistakes to allow the queue jumping using the "Immigrant Investor Program" when they found out Philipina nannies were paying more in taxes than the multi millionaire non resident businessmen.
13
@Chris Sandy
Italy and Greece are your examples of debt becoming crippling? Are you aware neither of them borrow in a currency they control?
2
@Hunter Cook
Government debt leads to inflation in Argentina, Egypt, Haiti, Ukraine, Venezuela, Nigeria, Congo, Sudan, Iran, Uzbekistan, Liberia, Angola, etc.
2
It is true that sovereign debt is a different breed of cat, but it’s best if the debt is used for investments. Infrastructure for treansportation, sustainable energy, environmental protection and education would have tremendous benefits for the economy and will grow the economy and reduce the deficit vice GDP. Ongoing operations to provide pensions and health care for all should be on a pay as we go basis, more or less.
10
Debt is an essential part of any community, but like any human interaction it requires a certain element of grace. There can be no substantive discussion of debt without including for whom that debt is owed and how it is understood.
4
President Reagan said that deficits don't matter - but only if they are caused by tax cuts. If the revenue generation due to tax cuts is as Arthur Laffer said, then the same holds true of spending increases. They both stimulate the economy.
Republicans are phony on this issue, as they are on most others. The economic concern is tax rates, and that is the only real issue to be addressed. The political issues are the balance between private and public economic activity and who benefits. All the rest is ... .
15
Republicans create / add to deficits to provide tax cuts, primarily to those who do not need them as they are already wealthy & politically connected.
Democrats create / add to deficits to provide social safety net funding, education and job training, and enhancements to the common good.
Why don't people see this and vote accordingly?
174
@GTM
I agree that republicans (nominally "conservative" - or at least they used to be) add to deficits to provide tax breaks to rich and powerful private sector, mostly corporate, interests.
However liberals add to deficits to please their base equally so, however their base is public sector employees mostly.
They do things like constantly bloat government payrolls, and incomes and benefits for people working in the public sector. This only indirectly helps the disadvantaged in the private sector if at all.
In my country 85% of government employees have defined benefit, and indexed pensions while only 15% of those in the private sector have any pension at all, let alone a solid gold defined benefit pension.
Because the two sides are very obviously out to use the political system to serve their own interests, politics itself does not actually solve problems, it only directs the spoils of taxation to one interest or another.
What is needed need are truly neutral leaders who actually are out to serve the interests of the majority of (productive) people. I don't see that happening any time soon.
15
@GTM Due to lack of access to proper education and minimum wages in the US. Vicious cycle.
6
Neil, you've skipped over an important point: This year, the federal government will pay about $400 billion for interest on the national debt. That money, which could have been used for medical care, education or even a 30% tax cut for everyone will now in fact buy nothing - because it's all going to bondholders.
Issuing debt is not without cost or risk.
160
@KLM
Inflation covers the interest?
3
@KLM
I have little doubt that the $400B is being spent on medical care and education and even buying "something" because it is going to bond holders - domestic and foreign as well. Money in circulation makes the world go 'round...
2
@Apex - Those interest payments will double over the next 8 years. A decade from now it will be $1 trillion a year. A tipping point of when debt interest crowds out spending on needed programs.
5
"“It just didn’t seem like there was any way to get to deficit neutral or revenue neutral,” said former Senator Bob Corker of Tennessee, who ultimately voted for the tax cuts after voicing deficit concerns along the way. “Do I wish it was revenue neutral? Yes. Do I wish we had not turned around and voted for $2 trillion in spending that was unpaid for? Absolutely.”"
So why did you? Corker crying crocodile tears for a bad decision he ultimately embraced (albeit regretfully).
I'm no economist, but basic common sense tells me that this non-concern for mountains of debt will be rued.
The argument seems akin to allowing a shopaholic buy as much as she wants, because "the sale prices are so low."
Sooner or later, she won't have the funds to pay for it all. And should bad times come for this country, neither will we.
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@ChristineMcM -- It was herd mentality. Corker voted for it because everyone else in his party did. We have to abandon the idea that our elected officials are rational, independent thinkers who are willing to make tough decisions. Most are just followers, riding whatever political wave is most beneficial to each personally.
8
@ChristineMcM
The Republicans voted for it because their donors were going to revolt if the Republicans didn't produce.
3
@ChristineMcM -- as noted elsewhere, the debt interest is growing, and growing fast. It would be growing even faster if Trump had not berated his Fed chair to keep holding rates low.
In the one-two punch scenario, the first punch is fueling a huge debt bubble, then waiting until it is stretched as tight as it can go (where debt payments squeeze out all other needed programs) then you suddenly allow rates to jump to where they should have been and pop goes the bubble.
1
My one great lesson of the forty past years is that when Carter was president interest rates were 12 - 15 percent, but you could buy a house for under 75 thousand dollars, then Reagan came in, interest rates went down, massive deficits began in this country, and as predicted houses started to cost 500 thousand dollars and up. And the medical industry, fully 35 per cent of our GDP continues to rack up inflation figures nearly 5 times the overall inflation rate. Economists expectations were and are correct. And today this "hidden" economic disaster continues with the only way the millenials and the x generation are paying for anything is with the distribution of the multi trillion dollar retirement savings of the baby boomers earlier than their life expectancies. What has been feared from high deficits is, in fact, happening.
42
@Tom -- People who don't understand credit will leverage their meager take home pay so they can have it all, today, instead of slowly building.
And millions of them are paying exorbitant interest rates because they fuel their spending with credit cards.
Housing looks a better deal, and it is. But human nature says to get the biggest house you can with whatever monthly amount you can afford. And cheap interest rates coupled with predatory underwriting allowed millions to buy well beyond their means (even if the numbers worked in the short term).
When the ARM rates jumped, they lost.
When they got laid off during the crisis, they again lost.
You could blame them for the ARM loss, but getting laid off was not their decision.
3
Until economic theories show some predictive value, I am not sure why we keep listening.
21
@Atm oht
You are so right. the economics profession seems to function as a modern religion. These priests of our time ask to be trusted on "faith". Only they have the ear and true understanding of the new God (money).
2
Too often it's precisely when everyone finally agrees that something is not a problem that it becomes a problem.
Good luck with creating money "out of thin air" as, eventually, those who've invested so heavily in that thin air will demand that it be backed up by ... well, at least some more thin air (i.e., higher interest rates).
36
@J. Cornelio
"When a problem becomes so big that everyone can see it, the time for remedies has passed."
- Machiavelli
6
@J. Cornelio
The time to start worrying is when you feel wonderful.
4
Republican tax cut policies that raise debt are step one in a two step strategy. Step two is to use the soaring debt as an excuse to cut entitlements.
266
@Craig Willison
But are not democratic spending increase policies step one in a two step policy? Step two being tax increases?
Either way, debt payments will ultimately mean that neither tax cuts, nor program spending increases can happen in the future. Only increased debt payments or bankruptcy can happen.
7
@Matthew
Not necessarily increased taxes per se.
Investment in infrastructure, for example, may increase tax revenues by stimulating the economy without raising tax rates. Investments in education, research, etc. would pay dividends increasing in the longer term. Conversion to green technology for energy production would stimulate both R&D and industry.
32
@Jim Hugenschmidt this is an echo of supply-siders who argued that tax cuts would not increase the deficit because they would increase investment. In other words, neither party liked to advocate tax increases per se. What is always in fashion is spending on something your constituents like and taxing something they do not like.
4
It will be interesting to see what happens as long term and short term interest rates begin to invert.
As long as oil is priced in dollars terms we may be alright for the time being.
At some point the interest debt may become over bearing for our children.
6
Debt doesn’t matter until it does. MMT adherents would put us the the same road to perdition that Venezuela is on. Of course they would counter that government would raise taxes to stop an incipient inflation. Easy to say hard to do.
19
@David Shulman Not hard to raise taxes. When inflation is low we just need to reform taxes to be indexed on the inflation rate. This should be possible when rates would be increased by the low inflation rate and should be bipartisan. Taxes pull money out of the economy as inflation increases and further control could be executed with fed policy rates.
4
@David Shulman As long as the country has a triple AAA debit rating, the highest possible, I don't see why we need to compare ourselves to bankrupt countries. People who give credit ratings stake their reputation; people who buy treasuries stake their money. They don't seem to consider Venezuela and the US equally risky. It must mean something.
12
I’m certainly no fan of socialism but Venezuela is in the state it is due to incompetence in government and general corruption. If they had instead been cutthroat capitalists, it just might have taken longer to collapse.
2