Stimulus first, austerity later
Via Alex Tabarrok, a recent study by Richard Evans, Laurence Kotiloff, and Kerk Philips at VoxEU examines the effects of long-term large-scale redistribution of young Americans’ savings to the elderly:
[T]he young, because they have longer remaining lifespans than the old, have much lower propensities to consume out of their remaining lifetime resources. This prediction is strongly confirmed for the US by Gokhale et al (1996).
Hence, in taking from young savers and giving to old spenders, which Uncle Sam has spent six decades doing on a massive scale, the lifecycle model predicts a major decline in US net national saving associated with a major rise in the absolute and relative consumption of the elderly. This is precisely what the data show.
In 1965, the US net national saving was 15.6% of net national income. Last year, it was just 0.9%. And, according to Gokhale et al (1996) and Lee and Mason (2012), the secular demise in US saving has coincided with a spectacular rise in the consumption of older Americans relative to that of younger Americans.
As Feldstein and Horioka (1980) document, US net domestic saving tracks US net national saving. Hence, postwar intergenerational redistribution has not only lowered net national saving; it has also reduced net domestic investment, from 14.0% of national income in 1965 to just 3.6% in 2011. This decline in the rate of net domestic investment is, no doubt, playing a major role in the slow growth in US wages. Indeed, the level of private-sector average real earnings per hour, exclusive of fringe benefits, is lower today than it was 40 years ago.
Kevin Drum objects that the VoxEU study comes off as overly pessimistic. The study reports that simulations suggest that massive young-to-old redistributions take on average a century to reach 100% confiscation. To which Drum demurs: “Say what?”
Putting aside economic predictions of when it will be “game over,” it can hardly be denied that our present course is headed to ruin. We cannot expect the young to save and invest given existing structural political incentives to let the government worry about the future for you. “Stimulus now, austerity later” is a fine mantra if you can believe austerity will ever come. But our leaders have given us little reason to think so. As Garrett Jones puts it, “the best way to prove you’ll do something later is to do it now.” “Once your politicians have built a good reputation, you can do quantitative easing without setting off inflation, you can run massive deficits without scaring bondholders. But reputations get spent.” Like the budget, Washington’s credibility has long been running a deficit for some time.
The game, then, is finding new ways of pushing austerity out into the indeterminate future without looking like it’s because you’re unwilling to endure the harshness of fiscal reality. Just say, like Drum does, that we’re too reliant on foreign oil and we need to invest in renewable energy before we think about austerity. And education. And healthcare. And pensions. Just fix all that, then we’ll be austere. Promise.
It doesn’t take an economist to see this is the camel following its nose into the tent. Private decisions regarding spending and investing play a large role in whether banks lend, whether new businesses will begin and existing ones expand, whether new jobs will be created and employees’ compensation increased, and so on. Programs like social security that distort underlying private decisions upset the entire ecosystem. They warp incentives and deprive the marketplace of accurate signals. This in turn warps the predicates: frozen lending systems and stalled job markets are wrongly labeled “market failure” and subjected to new government programs.
The issue ultimately is one of a house divided. Can free market principles co-exist with planned economy aspirations? I don’t think we have to be all one thing or all the other, but we have to be presumptively one thing or the other.
I think the issue is deeper than credibility. The reason why your politicians won’t engage in austerity, now or later, is that the incentives are wrong. People like getting money and don’t like having it taken off them, and the American electorate (like many electorates around the world) believes the government can do the former without doing the latter. That more than anything else is the problem.Report
James,
I disagree that Americans believe they can import more tax dollars than they export. At least, they don’t go into political discussions thinking that. I might walk onto a car lot having reasonable expectations about what kind of car I’m going to get, but I might get all turned around after listening to a bunch of nonsense sales puff. I frequently come back to the example of FDR acknowledging that social security, though a tax-and-spend program, was effectively sold as a trust fund to the American people and thus could never be repealed.Report
No offense, but I see a lot of pontificating and moralizing but not a single wit of policy here.
What’s your solution? Or is it just a “tsk, tsk, shame on you for distorting the market”?Report
Less pithily.
The entire study is chock full of begged questions and shoddy assumptions and perhaps more importantly their data 1. has a relatively weak correlation, 2. has timescale problems and 3. doesn’t seem to match findings from other countries. Now one might possibly make the case that the US economy is absolutely unique compared to other modern industrialized economies that this shouldn’t matter, but to me this signals a substantial problem with their findings.
Moreover that they either dismiss or completely neglect the presence of things like the inflation rates of the 70s, and the advent of increasingly large numbers of consumer debt products and financial products outside of savings seems to suggest this is a problematic paper.
I just don’t buy what they’re selling. Now if the argument is that the way the economy, with a substantial portion of it being dedicated to medical services and other types of services will increase the propensity for elderly to consume, then we can start talking about intergenerational wealth transfers…this and things like increased life expectancy.Report
Being presumptively a market economy could well mean that we would not have programs like Social Security. But it wouldn’t necessarily have to. I’m not sure how to cash out what it must mean to be presumptively a market economy rather than being closer to halfway between that and a planned economy.Report
The very point of Social Security was to transfer income from workers to the old. Telling us that it succeeded may not be an effective way of indicting it. And you will need a little evidence to convince anyone that Social Security caused a decline in the savings rate. That both happened in the same century may not do it.
Do you understand the idea behind stimulus during a weak economy? Because you show no sign of any such understanding. The purpose is not to convince Garrett Jones that anyone is going to do anything now vs. later. The point of stimulus is to stimulate a weak economy, not to reassure Garrett Jones. And since you quote him approvingly about “scaring bondholders”, maybe you could provide some evidence of scared bondholders.
Finally, can you explain why this post keeps switching between the subjects of Social Security and stimulus? They have nothing to do with each other.Report
I prefer to blame it on the Pill. I mean, look at what happened at the same time. Birth control invented, decline in the savings rate. 🙂Report
Clearly it was the designated hitter rule.Report
When Connecticut instituted an MFA in the Marionette Arts.Report
“Do you understand the idea behind stimulus during a weak economy? Because you show no sign of any such understanding.”
If stimulus during a recession works, then we’d never have another recession, because all we’d need to do is set the formula by which when private spending goes down, government spending goes up to the amount necessary to maintain the GDP at a pretermined level we find necessary for acceptable economic growth and employment.Report
Right. What you’re describing is known as nominal GDP targeting, though the mechanism advanced to accomplish growth smoothing is usually monetary rather than fiscal.Report
The perfect admission from a Dem, “Unemployed Will Vote For Obama To Keep “Their Benefits.”
http://www.realclearpolitics.com/video/2012/04/25/house_dem_unemployed_will_vote_for_obama_to_keep_their_benefits.html
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Yes, people who can’t find a job thanks to an economy tanked by Wall Street probably won’t vote for someone to cut their benefits to pay for tax cuts.Report
Jesse:
The Dems have learned that they can get votes by promising bread and circuses, take Barry’s recent student loan pander.Report
Would that be he same one Romney backs?Report
Yes, he needed to follow Barry’s pandering lest he be accused of wanting to kill college students by the Dems. Really can you blame him? I heard on NPR that the cut in rates would cost the gov’t $6 billion but who cares b/c it can just be added to the deficit.Report
I’m not sure any of that matters. The important thing is Romeny is doing it because he’s so awesome and cares about people, and Barry’s doing it because he’s so evil and wants them in chains.Report
Of course it matters, how else is Barry going to convince college kids to vote for him? I doubt Barry is going to tout their job prospects in his growing economy.Report
Good point. When you think of the hip youth vote, it’s hard not to think of Mitt.Report
RTod, you can’t have a pander gap.
Gore promised a prescription drug benefit. Dubya called the bet.
Bill Clinton, that lovable rascal, was called the “pander bear” by Paul Tsongas, who would have got my vote.
And of course, you’re well aware of JFK and the “missile gap.” Vice President Nixon and the Republicans were weak on defense, you see.
you can’t have a pander gap.
There’s a valuable point there. Pandering is the suboptimal equilibrium of democratic politics. There’s a word for political candidates who don’t pander–losers.
That said, Scott’s suggestion that Obama is wicked and Mitt’s just a poor helpless victim forced to go along is pure team-red/team-blue BS, devoid of any attempt at serious thought.Report
James:
Where did I suggest the Barry is “wicked?” No, I only suggested that Barry is pandering for votes. Do you really believe that this isn’t pandering? If Mitt doesn’t follow, the Dems will accuse him of hating college students. I can see it now, Barry announces that the Repubs have declared a war on leaning. They want you to be uneducated and to live in a van down by the river.Report
“you can’t have a pander gap.”
And no one seems to mind as long as their side wins. If we establish that pandering (lying, war-mongering, profligate spending, cronyism, ect.) is bad, then it’s bad if Romney does or if Obama does it, and both should have to pay the consequences for doing it (in Romney’s case, with the other ills of a sitting President, that he would do it), but, they don’t pay, because each side says they both do it, so, there you have it. This lowering of standards is pathetic.Report
The Ron Paul newsletters wee a particularly vile form pf pandering.Report
“The Ron Paul newsletters wee a particularly vile form pf pandering.”
Oh my, you got me. I’ve been praising the newsletters as Objective pieces of wisdom which transcend partisan politics hoping that no one would catch me. I am so ashamed of my mendacity.Report
Yes, that was directed at you, which is why it was entitled Got you, Farmer! Nyah, nyah, nyah!
But If you want to discuss the point that politicians of all stripes, including those who call themselves libertarians, pander, don’t let me stop you.Report
Barry announces that the Repubs have declared a war on leaning.
Is this why my mom was always on me about my posture?Report
I find that statement incredibly funny.
Re-phrased:
If, perhaps, you are long-term unemployed, you should vote for the guy to fill his cabinet from Goldman-Sachs.
Because the Republicans just aren’t going to give away enough to Wall Street.Report
Will:
Would you really have us believe that Barry hasn’t benefited from Wall Street money? The facts seem to suggest otherwise.
http://www.politico.com/news/stories/1111/67770.html
Funny that you mention Goldman when folks from Goldman combined to be Barry’s second largest campaign contributor. JP Morgan and Citigroup were also in the top ten.
http://www.opensecrets.org/pres08/contrib.php?cid=N00009638
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Yeah, that’s what I was getting at:
[P]eople who can’t find a job thanks to an economy tanked by Wall Street…
It’s like saying that if you’re out of toilet paper, it’s time to eat the thing that gave you diarrhea last.
I don’t get it.Report
Do you think there were any Halliburton employees who voted for McCain to keep the wars going?Report
I am willing to run all the way with this analogy if you are.Report
There were no elections there after 1933.Report
A big problem with these kinds of arguments is the reification of money. Since we operate in a monetized economy where all values are expressed monetarily, we begin to think of money as actually somehow being equivalent to the actual goods and services that can be purchased. It is not. Ultimately it’s just numbers in a database.
Presumably folks like the author believe it would be better somehow — more affordable to the economy — if people stashed money away during their working lives to fund their own retirements. Okay. But what happens when you retire? You quit working but you continue to spend money — either from private savings, a private pension plan (less common any more), or from a public pension program. In any of those cases, as the baby boomers retire we face the situation of having approximately two active workers supplying the goods and services for themselves plus one retiree. The only difference is how the numbers (money) in the databases get shuffled around. It’s not as if saving for retirement involved putting actual stuff — food, clothing, etc. — in huge warehouses to be consumed later. We live in a “just in time” economy.
The only real issue is whether the economy as a whole can produce the goods and services required by the populace with the labor and capital existing at any given time. Considering that we are currently experiencing something like 15 to 20% real un- and under-employment and steadily increasing productivity I really don’t see what all the sturm and drang is about. Hell, the best possible thing for the economy right now would be a glut of retirees.
It just requires us to not be stupid.Report
When it comes to money, I’m a populist crank who believes it represents something real, and that what you’re suggesting all comes under the heading of “tricks on paper.” I understand that we cranks lost that battle a long time ago. But you economist types still have to pretend it’s not all just “numbers in a database.” That’s the sort of realization that, if everyone believed it, would blow the floor out of an economy.Report
Nice post, Tim. Good to have you back.Report
Really, from all those of the Lefty persuasion that can be counted on to pipe up for any Lefty cause, I’m surprised we haven’t heard this one floated about. So I’ll do it.
SS removed older, higher-compensated, less productive workers from the employment pool to open up jobs for younger workers at lower wages, boosting American productivity.
Of course, the idea that the government might be taking over the role of the family and diminishing personal responsibility are to be seen as benefits by the Left.
In fact, I’m fairly certain that a great many of them would support the illegalization of any manner of role for the family, as well as legislation prohibiting recognition of personal responsibility on any level. Tell them that it would make us more like Sweden, and they would think it was Christmas, denying God the whole while.Report
There’s two parts to a government sponsored pension/retirement. One: It does free up productivity and thins the labor pool allowing for more turnover. Second, though, is the fact that seniors have a much higher propensity to consume than younger citizens. In an economy that’s built around services and based on consumption, that’s a vital part of your economic growth. It’s not a coincidence that the fastest growing sector of the economy is medical care.
…why oh why do you feel the consistent need to make this sort of irrelevant and baseless snipe against “leftists” everytime you make a substantive post?Report
why oh why do you feel the consistent need to make this sort of irrelevant and baseless snipe against “leftists” everytime you make a substantive post?
Oh, it’s not every post.
Usually, in a thread with SS as the topic, I like to talk about shoving the elderly down a flight of steps as a legitimate means of SS reform.
I decided to take a bit different tack this time.
It’s not that I’m against sending granny flying down the hallway of doom these days.
No, I’m more of a Keynesian on elderly flinging.
You see, with the government we have in place, there’s only so many elderly people we can shove down a flight of stairs these days.
Unfortunately, there were not enough senior citizens lying in broken heaps at the bottom of the stairs to have the desired economic effect.
That economic conditions have not improved substantially is proof that not enough seniors have taken the big spill.
There’s a lot of resistance these days to things that are natural and organic. And really, nothing could be more natural than dying a savage death, and especially when you’re really old and can’t fight off attackers so well.
It’s change you can believe in.Report
I don’t think I follow this. You seem to be simultaniously saying that it would be a desirable policy to kill the elderly yet also decrying the left for (you assert) wishing to do such a thing. Also the idea of the left wishing to make caring for elderly family members illegal so as to force them into government services is utterly outlandish. Do you have any examples of left/liberal politicians ever suggesting such a thing; heck do you even have an example of a leftish of any stripe proposing such a thing??Report
Ok, let me clarify this a bit for any readers which might be somewhat deficient in humor.
First, the bit about shoving the elderly down the stairs is a euphemism for reduction of services. It is humor to take the euphemism as literal.
As far as specific policy proposals go, I support implementing the COLA for SS in 3-yr increments, and capping prescription payouts through Medicaid & Medicare to $2000 annually.
Not that anyone is proposing these things other than me, and I’m just proposing them through some comment on some blog somewhere.
From there, I go into the concept of the shifting goalposts of mainline Keynesian thought a la Krugman.
Now, while the extreme of the concept of replacing the role of the family with government services might properly be described as “utterly outlandish,” a distinct and pronounced tendency in that general direction is notable. Again, humor; this time by exaggeration of an existing thing.
And while I don’t have any handy examples regarding seniors, I do have an example of a grandmother in Michigan having her granddaughter removed from her home by the state for the offer of a cookie to hurry up and finish her dinner. Title IV is all about big business– the big business of government.Report
Well far be it for me to decry hyperbole Will; but for hyperbole to be even remotely fair I’d hope you’d have some actual examples of the movement in that direction. Entire political wings don’t quietly sneak up on dramatic policy shifts; they go like a parade with politicians giving speeches and promises, pundits throwing confetti and bands tootling away about how awesome this new idea is.
But hey, I’m down with funny so I’ll just consider the matter withdrawn; I’m easy like Sunday morning (it’s true, just ask my Husband).Report
Thoughtful post though somewhat disingenuous since it draws targets only on those forms of government programs favored by the left and implies that austerity ideally should come only in the form of cuts to such programs as if this is a matter of fact.
I’d note also that the timing is off considering how we’re currently looking on as our neighbors across the pond appear to be sinking into a double dip recession (England) and a austerity death spiral (the continent) both largely because of subscriptions to austerity first policies.
What all the kerfluffle (admissibly from both wings) seems to conceal is that it’s patently obvious (and politically unpleasant) what needs to be done to resolve the American fiscal concerns. That is that generally austerity does need to be deferred but such deferrals must be accompanied by structural reforms to the current system which will both increase revenues (toxic to the right) and moderate spending on government programs (toxic to the left and in cases of defense and red state subsidies the right as well).Report
I’m pretty sure the notion that the left refuses to moderate spending on government programs is… not true. I mean, how much of “the left” was howling about the IPAB during the health care bill shenanigans? None, I think. We (I’m speaking for the left for some reason) want to slash military spending, reduce any number of government subsidies, and switch to single-payer. On the latter: we want universal health care for moral reasons; we have largely settled on single-payer for fiscal ones.
Accusing the left of profligate fiscal irresponsibility is a nice talking point, but I don’t think it comports with reality all that well.Report
Ryan, the left has certainly been unhappy about spending decreases yes. Just because they haven’t maintained the rigid dogmatic opposition to spending cuts that the right has sustained against revenue increases doesn’t mean the left isn’t still generally hostile to spending cuts; just not insanely hostile. I’d submit this is one reason why the right is currently doing more poorly than the left in public perception; the right looks like zealots. I left it out of my original analysis because I felt it clouded the issue.Report
Ryan and North,
Has there really been austerity in Europe? Has spending actually gone down? Or are we defining austerity as not going up as much as we would like?
And Ryan, I will definitely accuse the left of profligate fiscal irresponsibility. Kudos on military spending, but my experience with the left is that they will support any subsidy they can find for any group that will vote for them… The retired, the poor, the middle class, minorities, students, disabled, agribusiness, big finance, government workers, unions, crony capitalists, homeowners, the AMA, alternative energy producers, and so on.
If single payer proved to be more expensive and less efficient, I am pretty sure the left would still support it. It is what they are.Report
How are we defining the left here? I’m going to need some evidence that the left is interested in subsidies for agribusiness, big finance, crony capitalists, and the AMA, just to pick out the members of your example list that strike me as the most insane. And when is the last time anyone voted for the left? Russ Feingold lost in Wisconsin, if you’ll remember.Report
If you start playing that game, you’re going to have to deal with people arguing that Dubya was not representative of The Right.Report
To be fair, I think he wasn’t! If we’re going to hold up individuals, Paul Ryan seems much more like “the right” to me than GWB was.
We can have a separate conversation about the relative merits of the Democratic Party (few) and the Republican Party (literally none), but that’s not a terribly interesting conversation – and I think it’s going to get us almost nowhere, since the vast majority of the regulars here are not invested in that kind of team sport.Report
So let’s abandon the team stuff. How much overlap is there between the not-left and the not-right?
Is there a name we can give the overlap (assuming its existence)?
To what extent is the overlap interested in subsidies for agribusiness, big finance, crony capitalists, and the AMA?Report
We’re talking about the center, right? (Not the center-right.)
I should think the center is almost totally defined by its eagerness to subsidize those interests, plus also the war-making ones.Report
This, of course, lays bare all of the conceits we construct around our policy disputes: it’s not the left that’s allergic to budget cuts and the right that’s allergic to tax hikes (although I would argue that the vast majority of the actual right really is allergic to tax hikes of most any kind), it’s the center that is opposed to both. And, you know, large majorities of the American public.Report
So we need a new center.Report
So you’re saying we need a new electoate?Report
It’s not the left that’s allergic to budget cuts and the right that’s allergic to tax hikes… it’s the center that is opposed to both. And, you know, large majorities of the American public.
Everyone I know who claims the label “centrist” is for both tax hikes and spending cuts. YMMV when it comes to “everyone you know who claims the label ‘centrist’.”Report
I think what’s being referred to is multiple polls showing that American’s (even Tea Partiers) don’t want cuts to Medicare/Social Security/etc. nor an increase in taxes on themselves, the middle class. Now, you may be friends with a truly selfless group of people, but most people aren’t going to agree to the idea of, “I’m perfectly OK with paying more taxes for less services.”Report
Indeed. And it’s even harder when you tell people they have to list specific taxes they want increased and specific government expenditures they want cut.Report
Specific taxes I want increased:
The ones other people pay
Specific services I want cut:
The ones other people getReport
Bingo.Report
Ryan,
Fair enough. Let’s define the left however you would like. Other than the military, what would YOU cut, and how would you cut it?
Jaybird and I can give our lists, but I wonder how ours will compare to yours.Report
Speaking only for the left, I think you could get fairly broad agreement to cut the military and homeland security (including TSA, etc), border patrol, the parts of DOJ or the FBI that handle drug crimes, the Bureau of Prisons, Gitmo, agriculture subsidies, fossil fuel subsidies. You would likely get large sections to agree to remove tons of loopholes from the tax code, including the mortgage deduction and the employer health insurance credit, in exchange for a lowering of overall rates (although not all of the left would agree 100%).
If you want the parts I’d throw on top of that, you can include basically every penny we spend on ATF, a general shift away from overt regulation to Pigovian taxes (which would likely reduce spending to some degree), and a privatization or partial privatization of the operational functions of the FAA. I’d probably also cut the Export-Import Bank, and I’d be open to means-testing Social Security and reducing spending on Medicare through mechanisms like the IPAB and the “doc fix”. This second list is not meant to include all liberals or members of the left.Report
Thanks Ryan,
I like your suggestions. As a classical liberal, my list would be even larger and deeper.
Give me 5 minutes and a napkin and I can eliminate the budget deficit, substantially reduce tax rates and improve services to the poor. What I can’t do is get elected with my napkin. Ever.Report
If single payer proved to be more expensive and less efficient
More expensive and less efficient than what, according to what metrics? To say that the left would support a policy despite it’s not maximizing efficiency isn’t a criticism of the left. It pretty much defines the left.
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Stillwater,
All cynicism aside, my point is that I define the left as believing that problems are solved proactively with wise, rationally designed government solutions. Some on the left believe this is the best way to solve most problems, some on the left fail to recognize the potential for other ways to solve problems, and some on the left thrive on the power implicit in solving problems this way.
I believe that if a decentralized, bottoms up and competitive system of health care delivered better and cheaper health care to more people, that the machinery of the left would work full time to weave a rationalization of why we need a single payer system. Someone would become famous for his new theory proving how decentralization is harmful, pundits would get popular peddling the idea to the masses, who would come to believe it, and politicians would succeed running on it.
Note I am saying nothing about the right. That is intentional. Also, I am not saying the left is even wrong on single payer. I am saying if they were wrong by any reasonable metric, their defense mechanisms would build a complex rationalization that redefined the argument. They are going to try to solve the problem in a centralized way, that is what the left does.Report
Roger, on what do you base this assertion? Just curious here; I know that currently the metrics generally favor single payer so the left doesn’t have to confront this problem.
I’d note that current history of the modern left doesn’t support your premise. Welfare reform was enacted over the protests of the left in general (though with assistance from some leftists) and produced positive outcomes and results. The left certainly hasn’t done a mea culpa on this (who would expect them to; the right never mea culpa’d race) but there’s been no serious attempt or advocacy to reverse those reforms. Heck, communism was demonstrated as a failed means of government and the left (despite being deeply invested in it) has pretty much entirely abandoned it. Under your theory they should have roared “screw the data, onward”. So based on those data points at least your assertion is flat out falsified.
Can you give an example of a policy the left has pushed that has been empirically and unambiguously refuted and the response was “nevertheless we support it anyhow”? Or is this just hippie punching?Report
North,
It really is definitional — that is according to the definitions I am using. The discussion above shows we can each define the left differently. I agree there are some definitions which would contradict my assertion.
Let me be as clear as possible. I see the left — aka progressives — as believing that problems are solved via proactive, collective governmental design. Welfare reform was an issue where Clinton triangulated against his progressive element.
I believe progressives will do everything in their power to resurrect socialism, to rewrite the history of socialism, or create new forms of central problem solving that reinvent it in a better form. The data points show that governmental problem solving has generally been rising except in those places which imploded (the Soviet and Chinese spheres) because of overreach. This reveals that progressives are pretty effective. The world they want is the one we are moving toward.
I predict it will end badly. We too will over reach, and have to regroup. I am pretty sure progressives will disagree with me. They believe it is the better course.Report
Then you’re arguing against a straw man. It’s not our job to pretend to match your description of us in order to help you win an argument.Report
Ryan,
I’m not sure I was arguing with anyone. I was telling you how I define the progressive left. Feel free to correct me and tell me that this is incorrect, and that those on the left don’t believe in the power of collective, rational government problem solving.
If someone told me a person believed in active, government designed solutions to the environment, equality, justice, elimination of poverty, march of prosperity, control of unemployment and so on I would make the assumption that this person was of the left. What would you assume?Report
If the person believed in government solutions to those things, or to only government solutions to all things? You’re playing fast and loose with definitions here. It is manifestly the case that those on the left believe that SOME “problems are solved via proactive, collective governmental design”, but that’s not the statement you made initially. Which one are you trying to argue for?
Also, you seem to be having some necessary/sufficient problems. If you said someone believes that all problems are to be solved by the state, that would certainly be sufficient to place that person on the left. But is it necessary? That’s the key problem with your approach here.Report
Ryan,
Yes, of course I am being fast and loose. These are blog comments.
So, let me follow your advice and try to be slower and tighter. I do not believe any ideology containing a wide population of people is ever going to be black or white. There will always be exceptions, but at any given time there are certain propensities and general characteristics. I am sure not every conservative believes in lower taxes, and I am sure not every leftist believes in the need for government-run social security, and not every tiger has stripes.
I believe that a defining and useful classification of “the left” is a strongly pronounced tendency to solve important social problems via rational governmental design. Do you agree or disagree, and why?Report
That’s a pretty far cry from “I believe progressives will do everything in their power to resurrect socialism”.Report
Roger, part of your assertion was that if a given situation was demonstrated to be better solved without government programs that the left would choose government programs instead even though that was the inferior option.Report
Ryan,
See my clarification below to Stillwater where I convert it to a more neutral term, ie libertarianism.
The political movement that believes in government solutions will continue to believe in government solutions. Members may come and go. But with 7 billion people, there will always be a group that believes this. There will always be a hierarchy within the group, and a major part of achieving status within the group will come from defending the ideology from attacks and failures, even ones caused by the ideology itself.
You still haven’t told me how you define the left and whether you disagree with my “pronounced tendency.”Report
Your problem is that you simply aren’t dealing with why the left supports government solutions to certain problems. You act as if the only thing you need to know is that the left favors government solutions and then you can be done. As if the left favors government solutions for the sake of giving government something to do. This isn’t the case, and it’s a facile way to think about the left.Report
The thing I think you’re missing is that the left is not defined by its relationship to the power of the state. I’d say the key thing that defines the left is an emphasis on egalitarianism in social or political arrangements. Taken to the extreme, you get communism and other forms of hard egalitarianism. But even communism doesn’t technically require the power of the state, even if that’s the only way to make it work on a large scale.
Anyway, the point is that the state has little to do with an abstract definition of the left.Report
The Obama campaign’s “Life of Julia,” the womb-to-tomb love story of a girl and her government, is all the proof you need.
http://danieljmitchell.wordpress.com/2012/05/05/more-mockery-of-julia-the-uber-moocher/
The leftperson believes wherever and whenever government can make things better for people, it should. This is not necessary bad, but it is, and it is an ideology. If school lunches are good, school breakfast and school dinners are just fine too.
There is no theoretical limit to the good that government can or should do.
The libertarian, or god help us the conservative, thinks there is, or should be. And that’s the difference, a real one.Report
This will come as something of a surprise to all of those anarchists on the left, but far be it from me to correct the masturbatory fever dreams that get you through the day.Report
The Life of Julia proves the point, Ryan. You cannot shout it down or snark it away. The left’s ideology is for government to make things better for people. That isn’t a crime, but it’s a reality that can’t be smokescreened by attacking the other side.
And the Life of Julia does deserve all the mockery it gets. It has given away the game.
http://pjmedia.com/blog/the-more-precise-life-of-julia/?singlepage=true
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The existence of a counter example rather underlines the fact that the point isn’t proven.Report
You’re not saying anything, man, just denying.
STATE BANS BAKE SALES
Guess the state.
I’ll take Blatantly Obvious for $100, Alex.Report
Tell you what. You explain to me how to square the circle you’ve drawn, in which a group (the left) is defined by its reliance on government solutions to all problems while simultaneously containing the majority of anarchists who have ever lived, including a sizeable contingent currently alive.
Until you do so, I will continue to treat you as I always have: as a pathetic troll who spews right-wing bullshit and then changes the subject as soon as he is called on it. You are a mendacious asshole, a poison in this community, and if I were in charge you would be banned posthaste.
Or, if you prefer, “99” or “Yay!” or “LOL”. There is a reason you are greeted by a fair number of commenters here as an enormous joke: because you are one.Report
As a contributor, you have a duty to the blog to behave better than this, Ryan. You wouldn’t like it if I gave you back what you give out, believe me.
And to whatever substance there is to your argument, it’s incumbent on you to show the leftist anarchists who want to undo the Life of Julia and ban Head Start, school breakfasts, and all the other womb-to-tomb entitlements it entails.
Because they don’t exist. The Life of Julia is the mainstream of the American left and denying it is simple obtuse.Report
Ryan,
I have to go to a birthday party, but let me toss out a quick reply.
I totally accept that there are various “whys. the left believes in big government. I even provided three somewhere above. I am not saying the entire left is mindlessly or blindly pursuing government solutions. I am sure you could provide plenty of good reasons.
I think that if you start with social justice and egalitarianism as goals, big government is probably a reasonable path to try. And “an emphasis on political arrangements” sounds awfully close to what I am saying.Report
Tom, I don’t take behavior lessons from trolls. Respond or shut up.Report
You win, Ryan, but not fair and square. Life of Julia. Peace, I’m out.
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That Life of Julia is pretty freaking awful.
Yes, I know. Low content post but, having just seen the original, the logic failures are just staggering.Report
Tom, watch this… see, nothing in my hand except my magic want, nothing up my sleeve, but wait, what’s this behind your ear?
http://www.zcommunications.org/zmag
Sometimes, dude, I think you live on a planet where Red State and Daily Kos are the only people who exist. It’s… unfortunate.
For my next trick, I’m going to go read some Hahnel or Baldelli. That they don’t exist in your world will make my trick even more impressive, I’m sure.Report
The campaign story should have been named, “Life of Susan” after Ms. Fluke.
I too am amazed by Mass’ prohibition of bake sales. I wonder if the state will make up the difference in funds or demand money from the fed gov?Report
Ryan:
I prefer “TPoSoE”. Tom is smart enough to know that, just for instance, school teachers weren’t “shutting down state capitols” on a whim — the governor had suspended their 1st Amendment rights and they let the Powers That Be that it was not appreciated — therefore, he knows he’s bearing false witness, which is definitely evil according to his own book of rules.Report
Mr. Pyre, it’s not “Life of Julia” being dishonest or risible [tho it is in spots], but that it’s plainly a view of what government is for, the one that resides on the left side of the aisle, that the purpose of government is to make people’s lives easier and better.
Efforts to obscure that simple fact are puzzling, though nothing surprises me anymore. It’s not even a view of government that a committed leftperson needs to hide or apologize for: it’s entirely valid, albeit probably not affordable [see Europe].
As for the risibility, why should Jon Stewart get to have all the fun?
I believe progressives will do everything in their power to resurrect socialism, to rewrite the history of socialism, or create new forms of central problem solving
???
Don’t know what to make of this Roger. You seem so … I dunno … rational.
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Stillwater,
Ok I worded this poorly. Let me rephrase….
I believe if the LIBERTARIAN movement was shown to be massively and decisively wrong ( you know, we took their advice and it led to massive poverty and starvation), that LIBERTARIAN intellectuals would seek fortune and fame by rewriting and reinterpreting the event, by creating and selling new arguments , and by creating new and improved versions of LIBERTARIANISM.
My point is that political movements are populations of people and ideas with core, yet evolving beliefs. I am not saying that James, Jaybird or I would do this. But the population would. Perhaps we would even redefine ourselves as no longer being LIBERTARIANS. There would still be an ideology, and the ideology would evolve and adapt and defensively protect itself from extinction.
Is this clearer?Report
Yes. I get that.
I’d also note that libertarianism has apparently already been shown to be massively wrong cuz there sure are a bunch of new and improved versions coming out these days! 🙂Report
There is a fine line between rationale and rationalization.Report
Roger, yes agreed that Clinton triangulated against his progressive element. But by the metric you outlined what should have happened next, if your characterization of the left was accurate, was not what happened.
Welfare reform has generally been demonstrated to have produced better outcomes than pre-welfare reforms. By your characterization the left should have a large and active element seeking to undo welfare reform because regardless of the outcomes, more government centralization is preferable to less. On the same note communism has collapsed and been discredited as yielding brittle, inefficient and non-humanitarian regimes that poorly managed their societies. Under your characterization the left should still seek to bring about global communism because, regardless of how unpleasant its outcomes, more government is preferable to less government. There is not any large active segment of the western left (and especially not the American left) that seeks this outcome.
You have also not provided an example of a situation where a government centralized solution has been unambiguously demonstrated as a failure and the left has asserted that, regardless of the outcomes, more government centralization is preferable to less.
My conclusion: the primary interest of the left is not the expansion of government programs and centralization regardless of outcome.Report
North,
I have to go somewhere, but let me knock off a quick reply.
I’ll bet there is an element of the left that is actively or subtly trying to undo welfare reform. I will look for it tomorrow…
As for large government, I think the system will pursue it.
I think you are still oversimplifying my argument. I am not saying the primary interest of the left is government expansion. That is just the dominant pathReport
North and Ryan,
My comments yesterday on the left’s propensity toward government solutions seemed to hit a nerve. Allow me clarify.
I believe that politics coalesces into ideological complexes. These are made up of various intellectuals, ideologies, and special interest groups that can loosely form around common causes. There is a left complex, a right complex and a tiny libertarian complex.
I suggested that one common defining theme of the left complex is support of government solutions. A coalition has formed around intellectuals who believe that the most important types of problems (such as social justice and equal outcomes) are those that are best solved by governments; those that believe in central, deliberate planning; the recipients of government benefits (such as poor, unions, elderly), and those gaining power by administering and controlling the solutions (bureaucrats, government employees and politicians).
These ideological complexes are adaptive systems. They try to resist disturbances and threats, adapt to changing environments, and grow in power and influence. For example, if a program, special interest group or idea supported by the ideological complex is threatened, the system will respond. Intellectuals will work full time to draft rationales why the threat is a bad idea; pundits will spread the ideas, interest groups will lobby for political cover, etc etc.
I was asked for an example. The problem is that those immersed in the system are already under the spell of the adaptive system. It is easier to illustrate for those under another system. The example I will use is one from the right.
Moral virtue is a defining element of the right. The coalition involves Christians and Christian churches. One sacred belief to the right is the belief in a a providential God. Many people in this coalition are threatened by the concept of evolution. But, as any informed person is aware, the evidence for evolution is overwhelming. There are virtually no biologists that question the essential correctness of evolution, any arguments are over the details. A biologist doubting evolution is the equivalent of an astrophysicist believing in a flat earth. Despite this, there is extensive literature and pseudoscience within the right complex in support of intelligent design. Intellectuals such as Behe are famous for pretending to refute it, great minds such as Ann Coulter write best selling books proving Darwinism is a crock of doodoo.
Exhibit A of my theory is that despite having something that is as close to a scientific fact as we can get, politicians and interest groups of the right complex actively resist the idea. I am sure a significant share of supporters of the right do not believe in evolution. If there was a right based coalition on this forum, I would be attacked for bringing this up. That is what the ideological complexes do. Defenders would send me to dozens of books and web sights proving that I am wrong. Not I am not saying everything the right complex believes in is wrong. Nor that everyone on the right believes in intelligent design. Nor even that everyone on the right coalition is a Christian fundamentalist.
The left complex does this when their ideology is threatened. All complexes do. Intellectuals will gain prestige drafting convincing arguments, pundits will get famous spreading it and reducing it down to sound bites, the beneficiaries will vote for politicians defending it.
Tom provided the perfect example of one of the central defining concepts of the left complex. Just go to the web site on Julia. Obama is laying out an entire life cycle of government solutions. From cradle to grave… Every problem solved by an active and enlightened government.
One other pushback from Ryan and North was for an example that the left complex will fail to abandon obviously bone headed ideas similar to the one I gave above on the right. My problem is that I know I am preaching against the choir. The left complex is immunized against attacks, just as the right is. I can provide examples, but will probably be attacked while doing so.
That said, here are my examples. The left complex’s support of:
Trade restrictions. This despite the fact that belief in the value of free trade is almost a given in economics.
Restrictions against self employment and entrance into professions. There are thousands of examples, from taxi medallions, to prohibitions against renting surf boards on the beach, to licenses for interior decorators, and laws against lemonade stands.
California’s hundred-billion dollar high speed rail to nowhere
Government employees unfunded pension liability
Rent controls in New York City
Minimum wage regulations for teens.
Price caps on insurance products.
These are programs that those not immersed in the left complex see as beyond idiotic. They are the left’s versions of intelligent design. Yet I would be amazed if lefties don’t start fuming with rage and point me to their Coulters and Behes. I bet I can find a hundred leftie web sites and books still defending Marxism, and we can all agree how that turned out….right?Report
Trade Restrictions:
Read the facts on the ground (aptly described over on dailykos) about the American System. I’m not saying you gotta change — but you really ought to read the argument before you go mocking people for deriding conventional wisdom.
I dunno about the “restrictions against self employment” … maybe it’s because my liberal friends (and friends of friends) are authors, entrepreneurs, comedians — and generally self-employed buskers on the internet.
Privately owned public use areas seem a decent counter to California’s high speed rail.
I’m sorry, did you fucking say minimum wage regs for TEENS? HELL< we don’t even pay them overtime in the jobs where they’re likely to get stabbed with KNIVES. Come up here to pittsburgh, I’ll show you how well those laws get enforced.
Who’s price capping? I thought it was the market down in Coastal South, where they won’t insure houses no more… Soemone understands global warming. It’s called the free market.
Dude, I can find lefties that are wanted in multiple countries (some for “non-PC speech”). Websites don’t mean dick until someone actually comes after you with tanks.
The lefties try to solve the hard problems — something I’m not always sure the libertarians are even looking for answers to — they seem to have their answers,a nd if the problem doesn’t fit, let’s start cutting the problem away. (to be fair, this applies more to libertarians who don’t think we need a strong social safety net)
What’s your solution to the negative externality of hate groups caused by the proliferation of big box stores and Walmarts?Report
When you write a check or present your debit card for payment, consider the round trip which actually moves the money from your bank account into someone else’s bank account.
Consider how money moves between banks. All of it goes through the Federal Reserve system. That’s a centralised operation which works so well you don’t even think about it.
Any time someone tries to tell you how well decentralisation works, you just shudder and get a grip on your wallet and pray to Bebby Jeezus these morons don’t get their way. We have decentralised health care already and it’s so screwed up — ask any physician or health care institution about this — that they spend more time getting paid than they do treating patients. Single payer would cure all that immediately. We don’t want to screw with the markets. We want a clearing operation just like your checking account runs through a central clearing operation.
Single Payer is not Gummint Health Care. Don’t let anyone tell you otherwise. All this hooey about the Left — I’ll tell you who’s against Single Payer, the institutions which are screwing the doctors and hospitals and distorting the markets.Report
Blaise,
Are you centrally planned? Seriously…
You have over a trillion cells, each doing countless activities alone or in concert every second. Who is centrally planning you?Report
I don’t know that this is a great example. I mean, the human body could do with a tad bit of non-evolutionary direction. Not much, mind you, but some.
Also: I expect that within 50 years will see a lot more than “not much” being fairly common, whether I think it’s a good idea or not. We’ll see how that works out over the next two centuries.Report
The blueprint was established pretty early on with a pair of haploid cells.Report
To be redeemed by a single set of haploid cells.Report
I think the better metaphor is recipe rather than blueprint if I recall my Dawkins properly.
That said, there is nothing in the recipe that lays out exactly what to do any more than an ant colonies DNA lays out exactly how to adapt to changing conditions in the forest. Each cell is given a degree of autonomy to solve problems and coordinate activities. When new problems are encountered, the cells don’t all ask a central director what to do. They solve problems within their realm of autonomy. Some problems are centrally managed in a top down fashion. Whether to eat eggs or cereal for breakfast. On the other hand, some neurologists believe even conscious decisions emerge up from bottoms up processes within competing and cooperating factions of our minds.
Again, as Patrick emphasizes, most complex systems involve top down and decentralized planning and problem solving . The decentralized system can itself be planned, for example, a society can import free market rules to allow free markets to flourish. We can design decentralized problem solving systems, and centralized systems can emerge with no planning.Report
There’s a difference between “decentralized planning” and fractal operations. I might not need to think about each individual muscle fiber’s contraction in order to bend my finger, but that doesn’t mean that the muscle fibers are thinking either.Report
DD,
I am not sure I am following you. I never assumed muscle fibers thought, let alone blood cells. Could you clarify?Report
Roger, in Ireland spending has cratered in unambiguously absolute terms (they cut their spending by a fifth!). No decreases in increases sophistry there at all and they have indeed plummeted in economic growth as a result.
http://www.cbc.ca/news/business/story/2010/11/24/ireland-debt-crisis-aid-amount.html
In England it’s somewhat more ambiguous since the enacted cuts all essentially amount to decreases in increases to date but the rest of the budgeted cuts in this fiscal year will (unless reversed) amount to an actual absolute decrease in spending. Again we have recession as a result and a glaring result it is compared to the US’s recovery (anemic, yes but recovery none the less) which has occurred with the government on gridlocked autopilot. I’ll note also that the inflation that conservatives and deficit hawks have been warning about continues to remain AWOL going on five years now.
On the continent but Italy and Spain enacted significant cuts both to absolute spending and they’re descending into the death spiral (and in howling irony the bond markets are now threatening to not lend because their economies are shrinking). In France and Holland the political forces of austerity have been electorally routed again as a consequence of austerity failing to deliver the promised prosperity or even recovery. The Germans are beginning to sweat now. (Greece; as a uniquely and insanely ungovernable country I’m leaving off this list).Report
North,
I am totally out of my League on any discussions of politics or economic reality in Europe. That is why I am asking questions rather than making statements.
My thoughts though are that “austerity” is higher taxes and less spending.
I am not sure when I read your Ireland article if the problem is too much cuts, not enough cuts, too much spending in last few years (including a financial bailout), too much tax increases, or too little. Indeed, I am not sure anyone is sure on these issues.
If the problem was that these places got so deep in a hole that there is no good way out? And who decides which way is best? The government workers depending upon their rents? The voters demanding their services? The bond holders? The other countries competing and cooperating with them? In other words, are we really just saying that some countries got so fished up that they were forced into austerity, and now they are still fished up? Would Spain have been better on another course, or is this actually the best play it had? Finally, shouldn’t we step back and judge actions based upon long term results, not short term?
Lots of questions, sorry.Report
Aside from Greece, almost none of the countries currently be whacked with the sharp stick of austerity “were in a hole” prior to the massive FIRE-instigated crash of ’08. Spain and Ireland were running surpluses prior to the crash. The hole was caused by a massive recession, then they couldn’t get themselves out of the hole because unlike the US, they couldn’t borrow money.Report
Ireland’s situation is unique; their “spending” consisted pretty much entirely of a bank bailout (pushed by the countries right wing and politicians) which resulted in Ireland voluntarily (they were under no legal obligation to bail out the banks) assuming debt and then discovering after that the total debt was many times their GDP. The libertarian response would have been to refuse the bail out in the first place and arguably that would have prevented one crisis and given them a banking crisis instead. So Ireland was pretty much a right wing but not libertarian crisis.
Spain was running a budget surplus prior to the credit worries. When the Germans refused to allow the Euro to inflate or the ECB to guarantee Spain’s debt their interest rates skyrocketed and austerity forces forced through heavy budget cuts. The cuts produced spiraling unemployment and recession. Now the interest rates on Spain’s debt is skyrocketing again because the austerity is causing a recession. Again an austerity issue.
England, the example most similar to America, elected a right wing government with a significant libertarian component (the Lib-Dems). They enacted a strong austerity budget mostly consisting of spending cuts (though with some small tax increases) as a result the economy went from a mild recovery into a double dip recession. This one pretty much was a slightly milder clone of the medicine being proposed by the GOP for the US and the results have not been pretty though perhaps in the long term things will look up, we’ll see.Report
North,
Like Tim, I am in no position to argue. Over time we have a lot of countries taking a lot of actions to deal with problems, many of which they created. Over time, if we are lucky we will learn something from the experience. Some argue against austerity. Some against starving the beast. Some against bail outs. Some against ever allowing governments to get this big.
I wish Europe and China and Japan well. I hope they flourish beyond all imagination.Report
Well so do I.
Except the French, they can all sink into the sea. Bloody froggy buggers frenching up the place. Hrmph!Report
That goes without saying…Report
Roger, this is a pretty good interactive graph showing the linkages between the major economies. Will there be a domino effect? Almost certainlyReport
Y’know, even though I’m an accountant now and I know the difference between national debt/public debt and the valuations of differing currencies and that debt isn’t actually just one lump sum that is held by a single account…..etc
One does kind of wonder that, if a severe domino effect were coming, why a government couldn’t pass a law/emergency powers act taking control of all their debt, then negotiate a treaty with another country that says: “Ok, overall, we owe you $40 billion and you owe us $60 billion. Let’s agree to call $40 billion of what we owe each other null and void. This way, we’re free and clear of any effects your situation will have on us and you have $40 billion to spend on your other debts.”Report
Pyre, I hope you’re not a CPA. Recognize that country A that owes us $60B is counting on the $40B they have in their “vault” as a solid asset. We didn’t do them a favor by making it go away.
Looking at real countries, the US Treasuries are considered as good as gold, they are the one solid asset everyone recognizes. The Mexican bonds? Not so much. One of the big stinks (that has yet to fester as it will) with the Dodd Frank bill was that it enjoined US banks from holding foreign debt as assets on the books. This crushed the market for those bonds. Too much to get into in a combox, perhaps if I get ambitious I’ll write up a guest post about it, or Murali could.Report
Ah, I see you have the machine that goes ping. This is my favorite. You see we lease it back from the company we sold it to and that way it comes under the monthly current budget and not the capital account.Report
Too much to get into in a combox, perhaps if I get ambitious I’ll write up a guest post about it, or Murali could.
My knowledge of foreign debt and how it works is worse than nothing. I didn’t know where anybody got the idea that I was competent to write about foreign debt except to say hat Singapore only holds a small amount for some arcane reason. Given that we have no unfunded liabilities and actually run a budget surplus every year, I don’t know what we are doing holding foreign debt.
If you want people competent in the topic, you should ask JamesK and Nob. Conversations between the two of them are always interesting and informative on the economics front. Hell, most of what I know about econs I picked up from JamesK and James Hanley when Hanley was at Positive Liberty.Report
Pretty much what Jaybird said.
” I know the difference between national debt/public debt and the valuations of differing currencies and that debt isn’t actually just one lump sum that is held by a single account…..etc”
I kinda figured that I didn’t need to explain every single international accounting principle as to why we don’t currently do just that. In fact, I would have thought that my mentioning differing currency valuations would have indicated that I am aware that some foreign bonds are considered to be worth more than others. Hell, my job is reliant on having an accounting system that piles on layer after layer of complexity. My statement was not a statement of how things currently are but more to pose a query of “Well, why can’t we do this in the face of a severe domino effect?”Report
Wardsmith, I guess we better party like its 1999Report
North,
After finally seeing the supposed austerity, I am not impressed. Seems like a whole lot of hot air and spin.
http://marginalrevolution.com/marginalrevolution/2012/05/how-savage-has-european-austerity-been.html/austerityReport
Roger, the actual austerity hasn’t kicked in yet. That’s what is going to happen when the respective governments put their bonds on the market and no one buys them. That as they say is when the smelly brown stuff hits the shiny spinning object. Governments like some businesses can become addicted to debt, which is all well and good until no one buys the debt.Report
North,
I know my weaknesses, which is why I do not opine on whether austerity is or is not actually a wise course, whether for the U.S. or Europe. Nor did I take that as Garrett Jones’s point, either. Instead, we could stipulate for the sake of argument that the U.S. economy needs stimulus. Since stimulus programs depend on a promise of future austerity, though, stimulus would be less effective where that promise lacks any credibility. Thus, stimulus presupposes a political system that subjects its people, from time to time, to some significant economic pain.Report
Tim,
Fair enough, so stipulated I can agree with what you’re saying without much reservation. Governments will be judged by the markets by what they do, not what they say.Report
“Can free market principles co-exist with planned economy aspirations?”
I would argue that the question you’re really posing is “Can democracy co-exist with planned economy aspirations?” and the answer is:
No, it cannot. The answer will always be “Stimulus now, austerity never.” This is the way it will always be.
(With this, I’m not even talking about the recent elections in Europe. If you look at the budget debates in 2010, the budget cut hawks always turned to doves when it came to their own states or their own projects. Whenever a spending cut bill actually makes it through, it usually gets overturned or offset by another bill by the time the cuts start to kick in.)
I’m not sure what’s really being proposed with this piece. We need to save and invest domestically more? Social security and programs like it are bad because they veer away from free-market principles? We’re all screwed?Report
‘No, it cannot. The answer will always be “Stimulus now, austerity never.” This is the way it will always be.’
I think the way to look at it is fiscal policy is a stick and monetary policy is a rope. You push with a stick and pull with a rope. It doesn’t work very good the other way around. It’s hard to push with monetary policy; you lower interest rates and hope people do what you want them to. That and you can’t go below zero. Fiscal policy is pretty effective push, but as you note, politically it’s very difficult — at least in the U.S. — to actually run subsidies to bring down debt.Report
Consider two countries; call them East and West Prosperia. East P. and West P. are twins; identical populations, technology levels, resources, etc. Even their currencies trade at par and they have identical GDP numbers. They are also close allies with strong cultural ties. The leaders of East and West Prosperia get together and propose to merge their countries. The people rejoice.
Question: If East and West Prosperia each have a trillion units of their respective money supplies (currency and demand accounts) prior to merging, how much of the new post-merger currency should be created to replace the old money in the newly minted nation of New Prosperia? Assume all three currencies trade at par.
The obvious answer is two trillion prospies (or whatever they call them). Also the obvious lesson here should be that in order to function smoothly, without troubling inflation or deflation, the money supply of an economy should be roughly proportional to the overall economic activity, the GDP.
So now, consider the following: In 1971 the U.S. officially abandoned the Gold Standard. (Some would also maintain we abandoned all hope. But they’re cranks.) At the time our GDP was right about $1 T. Forty years later our GDP is approximately $15T. Our National Debt is also around $14T.
Coincidence?Report
National debt is a stock. GDP is a flow. I’m not sure where you’re going with this.Report
But they’re instrumentally related. Consider another analogy: You’re using a garden hose to fill a tank. At a given pressure you’re going to get a certain flow of water through a hose. If you want to fill the tank twice as fast, ceterus paribus, you will need two hoses.
The function of money in an economy is basically to move this abstract thing we call “value”. That’s what we mean when we call it a “medium of exchange”. It’s like red blood cells moving oxygen through your body. In and of itself, money is not wealth, but from the perspective of an individual it represents wealth that you can claim when you want. From the perspective of the economy as a whole it all sort of cancels out.
So… as an economy grows, where does the new money come from to keep it running smoothly? One answer is banks. But banks can only create money (and they do this!) by creating new debt. But the (positive) money is canceled out by the (negative) debt, so over time that has to be a wash. The only way for the base money supply to increase independent of consumer and business debt is for it to be created by the government. That’s actually one of the most important things that a government does.
If you have a (relatively) fixed supply of money, e.g. a commodity like gold, the money supply tries to expand through the mechanism of bank generated loans but there’s a natural limit to that kind of money growth which leads to periodic cycles of expansion, crash, and deflation (to re-align monetary values with real values). Fiat money solves this problem, but it creates new ones at the same time.
The biggest problem is that a fiat money supply is managed differently than commodity-based money. It’s perfectly rational — required even! — that the Treasury or Central Bank simply “print up” new money consistent with economic growth to keep real and monetary values in alignment. This, we haven’t done. Instead the normal course of action is to “recycle” money by creating ever more higher-level debt instruments.
This is how economies die.Report