Of all matters of public, policy, the debt is the easiest to demagogue. The very word "debt" is already a piece of demagogy, since it immediately confuses government finance with household finance. Using instead terms like "Treasury bills, notes, and bonds" removes much demagogic distortion, if it also puts before us the challenge of actually understanding these financial instruments and their functioning as parts of US government operations and the global (including US) economy. Talking about "the debt" amounts to a pointless exercise insofar as "the debt" has no content except as a big scary number.
Here in the UK, during the post credit-crunch austerity period, the narrative coming from government was entirely aimed at Theory #2 - for example, ministers would make comparisons between government debt and household credit card bills. This was a very effective way of justifying spending cuts that voters (who generally like our welfare state, NHS etc) pretty much waved through, because they believed that there was no other choice. So if you are a politician who dislikes social spending but doesn't want to admit it, pandering to Theory #2 seems quite effective!
I think you're giving short shrift to those who analogize government borrowing to borrowing from a household or borrowing by a firm.
Households and firms care about debt because that debt must be repaid eventually, and mathematically that is true of governments as well. And we care about that because when we have to repay that debt, we have to raise taxes or cut spending in the future.
An economist might retort that when the government raises taxes or cuts spending to pay off debt, that is just a transfer from one group of citizens to another, and that total welfare is unchanged. However, taxes have *deadweight loss*, and the marginal deadweight loss is very plausibly increasing as the amount of taxes collected increases. So just as in the case of a household or a firm, if we borrow today we really are shifting economic pain on to future 'generations.'
>>mathematically that is true of governments as well
The government already pays off its debts, *mathematically*. When a bond matures, the Treasury pays off its face value to the bondholder. Because demand for bonds remains so high, though, there is more than enough of a market for the Treasury to turn right back around and sell new bonds, often to the exact same bondholders, who bought those bonds for their stable RoR as part of a portfolio requirement, not because they were ever expecting to get "paid back".
This is what the debt ceiling authorizes: instead of Congress authorizing individual bond sales, Congress authorizes those sales up to a certain limit. When the production of new bonds outstrips the limit, we have to raise it. And demand determines the interest rate that investors are willing to pay for in the daily auctions of those bonds. So we already have a REALLY GOOD signal of what that demand is, based on how much debt we're producing (IE how much we're spending). If the market objects, they'll let us know. The biggest problem is that the market doesn't have any better way of evaluating how healthy our debt is than our policymakers do - as Noah showed, there's no rock-solid economic theory of where "the limit" is.
In a very real way, though, the domestic portion of the debt represents a large chunk of our national stock market wealth, whether institutional, corporate, or private. Without it, mutual funds and other investment portfolios would have to price in the instability of the rest of their portfolios, and we wouldn't be able to have as prosperous a stock market nor as stable a financial system.
The picture is just far more complicated than "deadweight loss".
You haven't heard about consols, British government bonds paying 3% that had no due date. They show up in 19th century novels all the time. Becky Sharpe in Vanity Fair had the hots for them. They were a financial expression of confidence in the British Empire and were often the basis for annuities starting in the late 18th century. I gather that they have all been paid back now, but, like the British Empire, they had a good run.
I think a big one you missed is “traditional cultural attitudes and moralizing about debt”. Debt’s role in various societies has varied wildly throughout history, but the one constant is that societies have tended to frame it as an individual moral failure.
Sarcastically, I'll suggest that it is the societies with no banking framework, no way to borrow to start businesses, learn a new trade or purchase a home that are the most moral. That would suggests that dynamic societies intrinsically less moral while static societies are intrinsically more moral. That doesn't gibe with popular opinion.
Why? Most societies have converged on the theory that disease is a consequence of moral failure. Most societies have converged on the theory that women are morally inferior to men. Most societies have converged on the theory that the appearance of the night sky influences the lives of individuals.
Maybe there are valid reasons for the convergence, but that doesn't make the convergence correct.
Well, yes... human psychology. People are averse to seeing others "get one over".
In most societies, debt has been a relatively simple instrument, and communications technology has never remotely been as fast as it is today. Most people would just see their neighbor defaulting on some debt, and assume the guy's an asshole. People didn't care about or notice macroeconomic conditions or even realize they existed. For most of human history, only a very tiny few would have been in a position to observe debt crises from a macro level and connect them to some root cause. And those very people would have also been those with the greatest motivation to ignore all that and pretend that society was having some great moral failure - society was controlled with morality, after all.
Having valid reasons for why people moralize about debt, doesn't make moralizing about it RIGHT.
The real point your missing is that you need to be right forever. If you are ever wrong, and interest rates go to 5-10% (either from inflation or lack of faith) then the discretionary part of spending needs to go to paying interest. Then you will need to cut entitlements to fund interest.
If you are ever wrong we are screwed in a way I don’t think you quite get.
Not in this case. If we get high levels of inflation, taxes are indexed to that inflation (because of the 70's inflation). In the 70's 10% inflation did mean 10% more income, but no longer.
Mandatory spending is also is also indexed to inflation. Not only that, but it's indexed to the highest measures of inflation. So spending will also go up faster than income.
Interest rates also go up which mean the highly leveraged Fed budget also looks worse and worse, meaning rates go up even more to fund it.
So no, inflation will not come to our rescue.
As to my fantasies, I understand why you think that. Sadly I'm old enough to remember when these impossible things happened.
All I can say it, just remember: you voted for this. You wanted this to happen.
What exactly do you think the cause of inflation is (when it is caused by federal spending)? Do you think the Fed is buying up all of the wheat or oil? Using all the shipping containers? Possibly utilizing an unreasonable amount of healthcare?
Inflation caused by Federal spending and Monetary policy is caused by rising wages. That is why unemployment is inextricably linked to Monetary policy decisions. If everyone is already employed and you pump more money into the economy, then in order to expand, businesses must raise wages.
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
That truth of that quote depends greatly on how you define "inflation," "quantity of money," and "output." For an oil shortage caused by a war (assuming we are calling that inflation), the only "quantity of money" that is increasing is the price paid per barrel....
Standards of living went up the most in what passes today for austerity. Maybe spending so much in unproductive ways is the problem?
But we can see what happens on the current path. In Noah's twitter feed somebody posted CBO projections for interest. The baseline has a bit less than half federal income going to interest payments. The baseline +2% has ALL federal income going to interest payments.
What kind of austerity do you think will happen then?
I think the best answer is usually the simple one that people simply don't understand much about the government and how it works and so draw analogies to their personal life.
So when asked about deficits, Americans think about their credit cards. Building a big balance which you have trouble making payments on is bad; drawing down that big debt is good.
It's very simplistic, of course, for the reasons Noah lays out, but can you blame them when President Obama confirms their misguided notion by saying that the government's finances are just like those of your family? https://www.youtube.com/watch?v=oAawr9Lo7dg
I propose a another possible explanation - rational self-interest. Noah offers two opposing thought-processes. “I’d love to help you but I just don’t have the money” vs. “I wouldn’t actually love to help you because you don’t deserve more money”. I suggest the real motivation is: “I’d love to help you but I'd rather help myself."
Noah suggests the spiteful, "everyone is afraid that some other Americans are getting an unfair leg up on them, or cutting line, or getting a free handout, etc." But if scarcity in fiscal policy is an illusion, why doesn't an enterprising politician package an 0% tax rates for Republican support with Biden's child tax credit, Yang's UBI for adults (kids weren't eligible for his UBI), Elizabeth Warren's student debt forgiveness, and Bernie Sanders Medicare for All? Why not put together a package that benefits everyone equally (or in proportion to their political influence)? No one...not MMTers...not tax-cut-and-spend Trump...not Bernie Sanders...no one advocates an "all of the above" giveaway.
If only a some of these policies can be enacted without precipitating a crisis, it is rational for people without children to oppose Biden's plan, people without student debt oppose Warren's plan, people without large tax bills to oppose the Republican plan, etc. Even if Biden's child tax credit has no direct negative consequence to the childless, the money could hypothetically be diverted to benefit the childless (as evidenced by Yang's competing plan for adult UBI). Simple, rational self-interest urges voters to hold out for a plan that provides them with proportional benefit.
Noah's thoughts about artificial scarcity make sense in many contexts, such as housing. But they just don't make sense for fiscal policy. The real economy has constraints and thus people rationally compete for resources.
>>If only a some of these policies can be enacted without precipitating a crisis
Here's where you went off the rails.
The scarcity illusion isn't disproven by you proving the existence of real constraints. The illusion in fact *IS* about the magnitude of the constraints. The illusion is that the current constraints lie on the constrictive side, while in fact no one actually knows (1) what the nature and magnitude of the constraints are, nor (2) where we lie relative to the constraints.
Buying the illusion and "rational self interest" in the context of believing said illusion are really just two sides of the same coin.
I get that no one knows where the constraints lie. But given this uncertainty, policymakers universally behave as if we have constraints. You can argue that voters would be wrong to reject the "all of the above 0% tax and spend on everything plan," but that's not on the table. What is on the table is tax and spend policies that disproportionately benefit certain classes of voters. In that context, it is rational for the childless to oppose the Biden plan, kids to oppose Yang's adult UBI, and below average taxpayers to oppose tax cuts. As long as there are limits to the fiscal splurge being proposed, voters self interest is in getting a larger than average share of this splurge.
>>But given this uncertainty, policymakers universally behave as if we have constraints.
But again, they don't all agree on what the *magnitude* of the constraints are, and neither does the public.
For instance, some subset of the public, and policymakers, believes the constraints are effectively "too high to bother worrying about". (MMTers)
Some subset - the Mitts Romney of the world - believe the constraints are rather low (within the low trillions).
Another subset believes we're already far past the constraints, and... blah blah something something inflation... gold... abolish the fed.
Another subset believes we've maybe got a few trillion left before we should start to worry. (Manchinema)
And the last major subset believes we've got at least a handful of trillion left before we should start to worry. (progressives)
Just because they "universally behave as if [the] constraints [exist]", doesn't mean they agree enough to engage in the "rational self-interest" mindset. Subsets 1 and 5, for instance, clearly haven't. Subsets 2, 3, and 4 clearly do, but even then, they're engaging in the mindset to different degrees. For instance, Joe Manchin and Mitt Romney can probably make a deal about their given priorities, and the progressives and MMTers don't have to like the plan but probably consider it better than nothing, at least in the abstract.
Just a friendly suggestion, maybe back off the black-and-white thinking and have a few sips of [Earl] gray tea. It's good for you!
The article is about why people worry about deficits, not what the theoretical limit to spending is. There is $3.5 trillion on the table, not everything for everybody. Noah's option 3 explains voter resistance to the proposed spending bill as opposition to social spending in general, suggesting people are cruel, stingy, or heartless. I'm suggesting it is rational for voters to hold out for a higher share of the spending (eg. a self-interested childless voter is rational to hold out for a plan that looks more like Yang's than Biden's).
Maybe Noah's option 3 is right and people are cruel. Or maybe they are just self-interested. I don't see how one of these views is more black and white than the other.
How about this to give some shading to your Theory 3: People just don’t want more social spending? People dislike the direction the country is headed. A large portion of the population has been taught to distrust the government. And all too few people are willing to countenance any increase in taxes, even when the benefits would be obvious. And let's face it: short of the government stuffing money in your pocket, the benefits are rarely obvious. In such a world, people might be expected to grumble. But then tell people that the day will come when the bill for today's poor decisions will come due, meaning higher taxes for even fewer benefits. Well, it would seem obvious that the debt enables the government to do more of what you dislike.
While I disagree with the above reasoning, I do think it more closely describes how the average Joe perceives the situation. There are no theories on government finance nor the nature of money. And there are no Machiavellian calculations on how to best put the brakes on social change.
You have to qualify that slightly. It's about social spending that they don't get a properly huge chunk of and that might go to "those people". There's a whole keep-the-government's-hands-off-my-medicare crowd.
I would look at Japan, their BOJ has monetized over half of the national debt, over 100% of GDP, so net debt is fraction of gross debt, yet no inflation to speak of. The underlying forces of secular stagnation have prevented inflation despite massive budget deficits for two decades. I think we also need to think about monetized debt as a balance sheet not an income statement item. If the Fed purchases 8 trillion dollars in bonds, that's not actually an 8 trillion dollar one burst of spending. It is an asset purchase in an economy that has total assets well in excess of 100 trillion dollars. Buying up those 8 trillion dollars puts cash in investors hands, much of which gets pushed out into new investments in riskier assets, but is not actually spent such that no giant pulse of aggregate demand occurs. The effect is muted. Now if the Fed financed a deficit spending binge of 30 trillion dollars in a single year, of course we would get inflation. But a couple trillion in 2020 and 2021 for pandemic relief in a depressed economy isnt going to do it. Fiscal policy will tighten sharply in relative terms in next two years.
Households equate government debt to their personal debt. When they take out a loan, say a 30 yr mortgage, they pay a little off each year because when they retire their income falls. Their debt to income ratio falls over their life span. The government doesn't retire (unless we have a right wing coup.) The Federal debt to income ratio falls as long as national income grows faster than the Federal debt--which it has historically.
That's because most people realize that they are going to die at some time and plan accordingly. The government can't work that way. Maybe ancient kingdoms could cancel all debts every seven years or reset the economy whenever a new king was crowned, but a modern government can't just hold a going out of business sale on July 4th, 2076. The government has to assume continued existence across many human lifetimes, and that means there is no reason to juggle its debt to income ratio over its lifespan.
Corporations are immortal. They have to carry debt to do business. Even companies with huge cash flows and reserves borrow money for new ventures or to reward shareholders. If there isn't something big coming up to borrow for, a company may be in more trouble than it thinks. We don't have a static economy. There are lots of companies that were industry leaders that got complacent and paid off their debt often while their executives focused on their own mortality and exit plans.
People are mortal. If you hope to work, live comfortably and then retire and die, it makes sense to borrow to establish yourself. Getting an education, resolving medical issues, starting a business, buying a place to live all require going into debt. If you plan to retire, or at least cut back your work, before you die, you want to pay off that debt. When you look ahead 25 or 75 years and realize that you will likely be dead, you tend to plan differently.
Governments are immortal as well. (Corporations rely on this since they are just government chartered collectives.) If the US decided to wrap up on July 4th, 2076, it would make sense to start retiring debt in the 2050s or 2060s. Otherwise, it would have to borrow for the future.
Could also be that they assume their taxes will have to rise substantially to pay it off. The media/politicians dividing up the national debt on a per capita basis probably drives this assumption to some extent.
My hunch/feeling on this is that a lot of people mistakenly believe the debt "has to be paid down/paid back". Which, on the high level, it definitely doesn't, and yet technically speaking, it's *constantly* being paid back (whenever the bonds mature, we pay out principal), and we just keep replacing paid-off tranches with new ones.
Most of the population were raised in households where frugality was promoted as necessary and desirable (children of a generation who experienced the Great Depression). Therefore frugality practiced by the government is also necessary, because government debt is like household debt....right?.....(wrong).
Likewise - like many people who still believe Jesus is God (as taught in Sunday school) - so many still believe government debt is bad: "Give me the child until he is 7, and I will give you the man" .
You missed the main argument for deficit spending, and its related counterargument. Debt doves will point out that historically our current debt is not that bad and that we have grown tremendously over the past 80odd years through deficit funded growth, and that therefore deficit spending to grow gdp and
the tax base faster than interest rates is a good financial move.
This is a fair point, however at least my personal concern is that despite the fluff the bbb bill has had a lot of the infrastructure, that will increase future tax revenue, cut to retain the social programs that are a deadend money pit. I'm fine with deficit spending to fund NASA and green energy and tech and microchips and whatnot but just lighting it on fire won't pay it back
In that case my reason to fear debt is that normally debt pays for itself through gdp growth however we are not as strong an economy as we used to be and therefore re may be less able to reach a positive return, especially when new debt isn't particularly tailored towards growth
My understanding of the current debt is that it has exploded since 2010 and is on pace to pass its peak in the US from WW2. Could you provide some context on the Debt dove argument?
"Parked" at Amazon? Their net profit margin is less than 7%, and as for investing that they hired over 400,000 people in 2020 alone. In order to have that many people you have to invest in lots and lots of infrastructure. They opened 33 fulfillment sites in 2020.
Amazon's average starting wage in 2021 was just increased to $18. I don't claim that its great money, but its well above the poverty level.
Keep in mind that the median average salary in the US in 2019* was 34k. Half of workers made less than that. I would expect almost any full time employee of Amazon to make more than that this year.
The media narrative theory seems to fit the best. Worry about the budget deficit is cyclic.
Whenever the Republicans are in power and borrow money to give to the rich by cutting their taxes, we hear next to nothing about the budget deficit. There's no hysterical coverage, constant polling, or major propaganda push. If a reporter were silly enough to write an article on the deficit such policy caused, it would be spiked out of hand.
Whenever the Democrats are in office and might raise taxes on the extremely wealthy and shift government subsidies from the rich to the other 99.9%, we hear a lot about the evils of the deficit. There are polls and specials and constant articles about the horrors of deficit spending. Any article on the dangers of deficit spending is viewed as Pulitzer material.
Deficit panic is a Republican tactic. It is the result of a consistent, long term propaganda campaign by people and organizations who benefit the most from our society but want to contribute the least. Compared to putting something back in the pot, talk is cheap.
You make it sound traumatic, but I actually think you understate how bad scenario 1 would be. IF we have overly indebted ourselves (I agree, we can't know), then the benefits and costs are likely to fall upon entirely different groups - total disaster.
Per accounting, private wealth increases upon the creation of government debt. There would likely be an attempt to preserve such "wealth" in any over-indebted scenario (falls in wealth trigger recessions). This would result in inflation. The creation of wealth and the subsequent inflation could easily occur decades apart. Markets are very capable of ignoring a problem for many years and then pricing it in near-instantly without warning. So you will have essentially bestowed wealth (in highly unequal fashion) upon one generation but later forced a different generation to pay for it via a regressive "inflation tax." However slim the chances of this scenario, it's very much worth avoiding at all costs.
Of all matters of public, policy, the debt is the easiest to demagogue. The very word "debt" is already a piece of demagogy, since it immediately confuses government finance with household finance. Using instead terms like "Treasury bills, notes, and bonds" removes much demagogic distortion, if it also puts before us the challenge of actually understanding these financial instruments and their functioning as parts of US government operations and the global (including US) economy. Talking about "the debt" amounts to a pointless exercise insofar as "the debt" has no content except as a big scary number.
Here in the UK, during the post credit-crunch austerity period, the narrative coming from government was entirely aimed at Theory #2 - for example, ministers would make comparisons between government debt and household credit card bills. This was a very effective way of justifying spending cuts that voters (who generally like our welfare state, NHS etc) pretty much waved through, because they believed that there was no other choice. So if you are a politician who dislikes social spending but doesn't want to admit it, pandering to Theory #2 seems quite effective!
I think you're giving short shrift to those who analogize government borrowing to borrowing from a household or borrowing by a firm.
Households and firms care about debt because that debt must be repaid eventually, and mathematically that is true of governments as well. And we care about that because when we have to repay that debt, we have to raise taxes or cut spending in the future.
An economist might retort that when the government raises taxes or cuts spending to pay off debt, that is just a transfer from one group of citizens to another, and that total welfare is unchanged. However, taxes have *deadweight loss*, and the marginal deadweight loss is very plausibly increasing as the amount of taxes collected increases. So just as in the case of a household or a firm, if we borrow today we really are shifting economic pain on to future 'generations.'
>>mathematically that is true of governments as well
The government already pays off its debts, *mathematically*. When a bond matures, the Treasury pays off its face value to the bondholder. Because demand for bonds remains so high, though, there is more than enough of a market for the Treasury to turn right back around and sell new bonds, often to the exact same bondholders, who bought those bonds for their stable RoR as part of a portfolio requirement, not because they were ever expecting to get "paid back".
This is what the debt ceiling authorizes: instead of Congress authorizing individual bond sales, Congress authorizes those sales up to a certain limit. When the production of new bonds outstrips the limit, we have to raise it. And demand determines the interest rate that investors are willing to pay for in the daily auctions of those bonds. So we already have a REALLY GOOD signal of what that demand is, based on how much debt we're producing (IE how much we're spending). If the market objects, they'll let us know. The biggest problem is that the market doesn't have any better way of evaluating how healthy our debt is than our policymakers do - as Noah showed, there's no rock-solid economic theory of where "the limit" is.
In a very real way, though, the domestic portion of the debt represents a large chunk of our national stock market wealth, whether institutional, corporate, or private. Without it, mutual funds and other investment portfolios would have to price in the instability of the rest of their portfolios, and we wouldn't be able to have as prosperous a stock market nor as stable a financial system.
The picture is just far more complicated than "deadweight loss".
You haven't heard about consols, British government bonds paying 3% that had no due date. They show up in 19th century novels all the time. Becky Sharpe in Vanity Fair had the hots for them. They were a financial expression of confidence in the British Empire and were often the basis for annuities starting in the late 18th century. I gather that they have all been paid back now, but, like the British Empire, they had a good run.
I think a big one you missed is “traditional cultural attitudes and moralizing about debt”. Debt’s role in various societies has varied wildly throughout history, but the one constant is that societies have tended to frame it as an individual moral failure.
Sarcastically, I'll suggest that it is the societies with no banking framework, no way to borrow to start businesses, learn a new trade or purchase a home that are the most moral. That would suggests that dynamic societies intrinsically less moral while static societies are intrinsically more moral. That doesn't gibe with popular opinion.
Why? Most societies have converged on the theory that disease is a consequence of moral failure. Most societies have converged on the theory that women are morally inferior to men. Most societies have converged on the theory that the appearance of the night sky influences the lives of individuals.
Maybe there are valid reasons for the convergence, but that doesn't make the convergence correct.
Well, yes... human psychology. People are averse to seeing others "get one over".
In most societies, debt has been a relatively simple instrument, and communications technology has never remotely been as fast as it is today. Most people would just see their neighbor defaulting on some debt, and assume the guy's an asshole. People didn't care about or notice macroeconomic conditions or even realize they existed. For most of human history, only a very tiny few would have been in a position to observe debt crises from a macro level and connect them to some root cause. And those very people would have also been those with the greatest motivation to ignore all that and pretend that society was having some great moral failure - society was controlled with morality, after all.
Having valid reasons for why people moralize about debt, doesn't make moralizing about it RIGHT.
The real point your missing is that you need to be right forever. If you are ever wrong, and interest rates go to 5-10% (either from inflation or lack of faith) then the discretionary part of spending needs to go to paying interest. Then you will need to cut entitlements to fund interest.
If you are ever wrong we are screwed in a way I don’t think you quite get.
Not in this case. If we get high levels of inflation, taxes are indexed to that inflation (because of the 70's inflation). In the 70's 10% inflation did mean 10% more income, but no longer.
Mandatory spending is also is also indexed to inflation. Not only that, but it's indexed to the highest measures of inflation. So spending will also go up faster than income.
Interest rates also go up which mean the highly leveraged Fed budget also looks worse and worse, meaning rates go up even more to fund it.
So no, inflation will not come to our rescue.
As to my fantasies, I understand why you think that. Sadly I'm old enough to remember when these impossible things happened.
All I can say it, just remember: you voted for this. You wanted this to happen.
What exactly do you think the cause of inflation is (when it is caused by federal spending)? Do you think the Fed is buying up all of the wheat or oil? Using all the shipping containers? Possibly utilizing an unreasonable amount of healthcare?
Inflation caused by Federal spending and Monetary policy is caused by rising wages. That is why unemployment is inextricably linked to Monetary policy decisions. If everyone is already employed and you pump more money into the economy, then in order to expand, businesses must raise wages.
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
-- Milton Friedman
That truth of that quote depends greatly on how you define "inflation," "quantity of money," and "output." For an oil shortage caused by a war (assuming we are calling that inflation), the only "quantity of money" that is increasing is the price paid per barrel....
Milton Friedman. Why not cite Lamarck or Lysenko? At least the geocentric theory lined up fairly well with the data.
Standards of living went up the most in what passes today for austerity. Maybe spending so much in unproductive ways is the problem?
But we can see what happens on the current path. In Noah's twitter feed somebody posted CBO projections for interest. The baseline has a bit less than half federal income going to interest payments. The baseline +2% has ALL federal income going to interest payments.
What kind of austerity do you think will happen then?
I think the best answer is usually the simple one that people simply don't understand much about the government and how it works and so draw analogies to their personal life.
So when asked about deficits, Americans think about their credit cards. Building a big balance which you have trouble making payments on is bad; drawing down that big debt is good.
It's very simplistic, of course, for the reasons Noah lays out, but can you blame them when President Obama confirms their misguided notion by saying that the government's finances are just like those of your family? https://www.youtube.com/watch?v=oAawr9Lo7dg
I propose a another possible explanation - rational self-interest. Noah offers two opposing thought-processes. “I’d love to help you but I just don’t have the money” vs. “I wouldn’t actually love to help you because you don’t deserve more money”. I suggest the real motivation is: “I’d love to help you but I'd rather help myself."
Noah suggests the spiteful, "everyone is afraid that some other Americans are getting an unfair leg up on them, or cutting line, or getting a free handout, etc." But if scarcity in fiscal policy is an illusion, why doesn't an enterprising politician package an 0% tax rates for Republican support with Biden's child tax credit, Yang's UBI for adults (kids weren't eligible for his UBI), Elizabeth Warren's student debt forgiveness, and Bernie Sanders Medicare for All? Why not put together a package that benefits everyone equally (or in proportion to their political influence)? No one...not MMTers...not tax-cut-and-spend Trump...not Bernie Sanders...no one advocates an "all of the above" giveaway.
If only a some of these policies can be enacted without precipitating a crisis, it is rational for people without children to oppose Biden's plan, people without student debt oppose Warren's plan, people without large tax bills to oppose the Republican plan, etc. Even if Biden's child tax credit has no direct negative consequence to the childless, the money could hypothetically be diverted to benefit the childless (as evidenced by Yang's competing plan for adult UBI). Simple, rational self-interest urges voters to hold out for a plan that provides them with proportional benefit.
Noah's thoughts about artificial scarcity make sense in many contexts, such as housing. But they just don't make sense for fiscal policy. The real economy has constraints and thus people rationally compete for resources.
>>If only a some of these policies can be enacted without precipitating a crisis
Here's where you went off the rails.
The scarcity illusion isn't disproven by you proving the existence of real constraints. The illusion in fact *IS* about the magnitude of the constraints. The illusion is that the current constraints lie on the constrictive side, while in fact no one actually knows (1) what the nature and magnitude of the constraints are, nor (2) where we lie relative to the constraints.
Buying the illusion and "rational self interest" in the context of believing said illusion are really just two sides of the same coin.
I get that no one knows where the constraints lie. But given this uncertainty, policymakers universally behave as if we have constraints. You can argue that voters would be wrong to reject the "all of the above 0% tax and spend on everything plan," but that's not on the table. What is on the table is tax and spend policies that disproportionately benefit certain classes of voters. In that context, it is rational for the childless to oppose the Biden plan, kids to oppose Yang's adult UBI, and below average taxpayers to oppose tax cuts. As long as there are limits to the fiscal splurge being proposed, voters self interest is in getting a larger than average share of this splurge.
>>But given this uncertainty, policymakers universally behave as if we have constraints.
But again, they don't all agree on what the *magnitude* of the constraints are, and neither does the public.
For instance, some subset of the public, and policymakers, believes the constraints are effectively "too high to bother worrying about". (MMTers)
Some subset - the Mitts Romney of the world - believe the constraints are rather low (within the low trillions).
Another subset believes we're already far past the constraints, and... blah blah something something inflation... gold... abolish the fed.
Another subset believes we've maybe got a few trillion left before we should start to worry. (Manchinema)
And the last major subset believes we've got at least a handful of trillion left before we should start to worry. (progressives)
Just because they "universally behave as if [the] constraints [exist]", doesn't mean they agree enough to engage in the "rational self-interest" mindset. Subsets 1 and 5, for instance, clearly haven't. Subsets 2, 3, and 4 clearly do, but even then, they're engaging in the mindset to different degrees. For instance, Joe Manchin and Mitt Romney can probably make a deal about their given priorities, and the progressives and MMTers don't have to like the plan but probably consider it better than nothing, at least in the abstract.
Just a friendly suggestion, maybe back off the black-and-white thinking and have a few sips of [Earl] gray tea. It's good for you!
The article is about why people worry about deficits, not what the theoretical limit to spending is. There is $3.5 trillion on the table, not everything for everybody. Noah's option 3 explains voter resistance to the proposed spending bill as opposition to social spending in general, suggesting people are cruel, stingy, or heartless. I'm suggesting it is rational for voters to hold out for a higher share of the spending (eg. a self-interested childless voter is rational to hold out for a plan that looks more like Yang's than Biden's).
Maybe Noah's option 3 is right and people are cruel. Or maybe they are just self-interested. I don't see how one of these views is more black and white than the other.
How about this to give some shading to your Theory 3: People just don’t want more social spending? People dislike the direction the country is headed. A large portion of the population has been taught to distrust the government. And all too few people are willing to countenance any increase in taxes, even when the benefits would be obvious. And let's face it: short of the government stuffing money in your pocket, the benefits are rarely obvious. In such a world, people might be expected to grumble. But then tell people that the day will come when the bill for today's poor decisions will come due, meaning higher taxes for even fewer benefits. Well, it would seem obvious that the debt enables the government to do more of what you dislike.
While I disagree with the above reasoning, I do think it more closely describes how the average Joe perceives the situation. There are no theories on government finance nor the nature of money. And there are no Machiavellian calculations on how to best put the brakes on social change.
You have to qualify that slightly. It's about social spending that they don't get a properly huge chunk of and that might go to "those people". There's a whole keep-the-government's-hands-off-my-medicare crowd.
I would look at Japan, their BOJ has monetized over half of the national debt, over 100% of GDP, so net debt is fraction of gross debt, yet no inflation to speak of. The underlying forces of secular stagnation have prevented inflation despite massive budget deficits for two decades. I think we also need to think about monetized debt as a balance sheet not an income statement item. If the Fed purchases 8 trillion dollars in bonds, that's not actually an 8 trillion dollar one burst of spending. It is an asset purchase in an economy that has total assets well in excess of 100 trillion dollars. Buying up those 8 trillion dollars puts cash in investors hands, much of which gets pushed out into new investments in riskier assets, but is not actually spent such that no giant pulse of aggregate demand occurs. The effect is muted. Now if the Fed financed a deficit spending binge of 30 trillion dollars in a single year, of course we would get inflation. But a couple trillion in 2020 and 2021 for pandemic relief in a depressed economy isnt going to do it. Fiscal policy will tighten sharply in relative terms in next two years.
"Big bad Bloomberg bosses ban blogger's B banter."
-Noah Smith
Households equate government debt to their personal debt. When they take out a loan, say a 30 yr mortgage, they pay a little off each year because when they retire their income falls. Their debt to income ratio falls over their life span. The government doesn't retire (unless we have a right wing coup.) The Federal debt to income ratio falls as long as national income grows faster than the Federal debt--which it has historically.
That's because most people realize that they are going to die at some time and plan accordingly. The government can't work that way. Maybe ancient kingdoms could cancel all debts every seven years or reset the economy whenever a new king was crowned, but a modern government can't just hold a going out of business sale on July 4th, 2076. The government has to assume continued existence across many human lifetimes, and that means there is no reason to juggle its debt to income ratio over its lifespan.
Huh
Corporations are immortal. They have to carry debt to do business. Even companies with huge cash flows and reserves borrow money for new ventures or to reward shareholders. If there isn't something big coming up to borrow for, a company may be in more trouble than it thinks. We don't have a static economy. There are lots of companies that were industry leaders that got complacent and paid off their debt often while their executives focused on their own mortality and exit plans.
People are mortal. If you hope to work, live comfortably and then retire and die, it makes sense to borrow to establish yourself. Getting an education, resolving medical issues, starting a business, buying a place to live all require going into debt. If you plan to retire, or at least cut back your work, before you die, you want to pay off that debt. When you look ahead 25 or 75 years and realize that you will likely be dead, you tend to plan differently.
Governments are immortal as well. (Corporations rely on this since they are just government chartered collectives.) If the US decided to wrap up on July 4th, 2076, it would make sense to start retiring debt in the 2050s or 2060s. Otherwise, it would have to borrow for the future.
Could also be that they assume their taxes will have to rise substantially to pay it off. The media/politicians dividing up the national debt on a per capita basis probably drives this assumption to some extent.
My hunch/feeling on this is that a lot of people mistakenly believe the debt "has to be paid down/paid back". Which, on the high level, it definitely doesn't, and yet technically speaking, it's *constantly* being paid back (whenever the bonds mature, we pay out principal), and we just keep replacing paid-off tranches with new ones.
Which all essentially falls into #2.
Most of the population were raised in households where frugality was promoted as necessary and desirable (children of a generation who experienced the Great Depression). Therefore frugality practiced by the government is also necessary, because government debt is like household debt....right?.....(wrong).
Likewise - like many people who still believe Jesus is God (as taught in Sunday school) - so many still believe government debt is bad: "Give me the child until he is 7, and I will give you the man" .
You missed the main argument for deficit spending, and its related counterargument. Debt doves will point out that historically our current debt is not that bad and that we have grown tremendously over the past 80odd years through deficit funded growth, and that therefore deficit spending to grow gdp and
the tax base faster than interest rates is a good financial move.
This is a fair point, however at least my personal concern is that despite the fluff the bbb bill has had a lot of the infrastructure, that will increase future tax revenue, cut to retain the social programs that are a deadend money pit. I'm fine with deficit spending to fund NASA and green energy and tech and microchips and whatnot but just lighting it on fire won't pay it back
Sure, in this post I was only discussing reasons people fear debt
In that case my reason to fear debt is that normally debt pays for itself through gdp growth however we are not as strong an economy as we used to be and therefore re may be less able to reach a positive return, especially when new debt isn't particularly tailored towards growth
My understanding of the current debt is that it has exploded since 2010 and is on pace to pass its peak in the US from WW2. Could you provide some context on the Debt dove argument?
Notably a point you raised before about the bbb in particular but didn't seem to note the connection in this article
"Parked" at Amazon? Their net profit margin is less than 7%, and as for investing that they hired over 400,000 people in 2020 alone. In order to have that many people you have to invest in lots and lots of infrastructure. They opened 33 fulfillment sites in 2020.
Who will most likely qualify for food stamps and medicaid
Amazon's average starting wage in 2021 was just increased to $18. I don't claim that its great money, but its well above the poverty level.
Keep in mind that the median average salary in the US in 2019* was 34k. Half of workers made less than that. I would expect almost any full time employee of Amazon to make more than that this year.
*I couldn't find the numbers for 2020 or 2021.
The media narrative theory seems to fit the best. Worry about the budget deficit is cyclic.
Whenever the Republicans are in power and borrow money to give to the rich by cutting their taxes, we hear next to nothing about the budget deficit. There's no hysterical coverage, constant polling, or major propaganda push. If a reporter were silly enough to write an article on the deficit such policy caused, it would be spiked out of hand.
Whenever the Democrats are in office and might raise taxes on the extremely wealthy and shift government subsidies from the rich to the other 99.9%, we hear a lot about the evils of the deficit. There are polls and specials and constant articles about the horrors of deficit spending. Any article on the dangers of deficit spending is viewed as Pulitzer material.
Deficit panic is a Republican tactic. It is the result of a consistent, long term propaganda campaign by people and organizations who benefit the most from our society but want to contribute the least. Compared to putting something back in the pot, talk is cheap.
You make it sound traumatic, but I actually think you understate how bad scenario 1 would be. IF we have overly indebted ourselves (I agree, we can't know), then the benefits and costs are likely to fall upon entirely different groups - total disaster.
Per accounting, private wealth increases upon the creation of government debt. There would likely be an attempt to preserve such "wealth" in any over-indebted scenario (falls in wealth trigger recessions). This would result in inflation. The creation of wealth and the subsequent inflation could easily occur decades apart. Markets are very capable of ignoring a problem for many years and then pricing it in near-instantly without warning. So you will have essentially bestowed wealth (in highly unequal fashion) upon one generation but later forced a different generation to pay for it via a regressive "inflation tax." However slim the chances of this scenario, it's very much worth avoiding at all costs.