Fiscal Responsibility is Dead

[Starlight]

Even if the Democrats confiscated 100% of the wealth from working Americans, it would be nowhere close to enough to fund all of their social programs.

MM yet again delusionally faceplants trying to do the most basic economics.

In all Western countries there is plenty of money in the economy to easily fund social programs through taxes. In the most left-wing nations, with heaps of social programs - far more than the US, such as the most left-wing of the Scandinavian nations, their governments pay for these through taxes, using less than half the total money in the economy.

To claim there literally isn't enough money to pay for social programs is a new level of crazy, even for you, who gives us crazy things daily.

Possibly the claim was meant to be the more narrow and literal one of "income taxes at 100%, alone, wouldn't fund the government sufficiently", but would be totally irrelevant given the government draws money from many different sources only one of which is income taxes (e.g. capital gains taxes, company taxes, property taxes, sales taxes, excise taxes etc). Probably that claim was invented to try to fool the gullible, and it does seem to have worked on MM.

[Starlight]

I've seen no proposal for tax changes in any of the reports I've seen about this bill. Have you seen something I've missed?

Knowing nothing about the specific bill, I can tell you that rolling back Trump's tax cuts is standard Dem policy.

[carpedm9587]

Knowing nothing about the specific bill, I can tell you that rolling back Trump's tax cuts is standard Dem policy.

Those tax cuts should be rolled back, IMO. That tax bill primarily benefited the rich with a sop to the middle class to keep them appeased. But then we need to move towards a "pay as you go" model where how proposed expenditures are to be paid for is part of the process and not an afterthought. I have said this repeatedly: so many on the right are up in arms about "taking money from the rich," who are here with us today and perfectly capable of speaking for themselves. But there is little/nothing said when we instead take that money from the next generations, some of whom are old enough to vote or be heard and even more are not even born yet. The national debt stands at $25T and stands now at 110% ratio to GDP. With GDP taking a hit and debt being added to even more, that percentage will increase. There is no way to pay that debt down in our lifetimes or the lifetimes of our children, and perhaps not even in the lifetime of their children. That means that every dollar we add to that debt is coming out of the pockets of the following generations, to pay for things their great-grandparents were unwilling to pay for themselves.

It's a travesty, IMO.

[Leonhard]

Even if the Democrats confiscated 100% of the wealth from working Americans, it would be nowhere close to enough to fund all of their social programs. It's funny how they never think it's an option to cut taxes and let people keep the money they've earned.

I agree it would be very difficult to get social programs to work in the US as it can in smaller countries like those in Scandinavia with their highly efficient and very stable governments. The US is a lot more volatile, changing fundamental directions on various issues every few years, and on other matters, it competes with the European Union in terms of inefficiency. There's also a lot more corruption going on. So large scale social programs organized at a federal level would be difficult to achieve without a complete upheaval of the entire US constitution.

[lilpixieofterror]

I agree it would be very difficult to get social programs to work in the US as it can in smaller countries like those in Scandinavia with their highly efficient and very stable governments. The US is a lot more volatile, changing fundamental directions on various issues every few years, and on other matters, it competes with the European Union in terms of inefficiency. There's also a lot more corruption going on. So large scale social programs organized at a federal level would be difficult to achieve without a complete upheaval of the entire US constitution.

[Starlight]

The national debt stands at $25T and stands now at 110% ratio to GDP. With GDP taking a hit and debt being added to even more, that percentage will increase. There is no way to pay that debt down in our lifetimes or the lifetimes of our children, and perhaps not even in the lifetime of their children.

Not really true. Regardless of what the debt is, simply running approximately balanced budgets for 15 years reduces effective debt by about 60%.

This is due to inflation being about 2% average per year, and GDP increases being about 2% average per year, the net effect of which is a 4% per year reduction of the debt to GDP ratio assuming no outstanding debt is paid off other than the interest (which is the usual state of affairs).

The US used exactly this method after WWII, to rapidly reduce the effective debt size to only 40% of what it had been, just by running balanced budgets for 15 years.

So the idea that there can be difficulty in repaying a national debt of any size is wrong, because it can always be shrunk in this manner.

The thing that makes debt a bad idea for countries is not the difficulty of repaying it, it's the interest payments. Obviously making the interest payments costs money on an ongoing yearly basis. It's this part that really has the impact. But, due to the effects above, the effective interest drops by 60% over a 15 year period, so it isn't actually all that impactful to subsequent generations, and it is thus largely each generation that pays for its own borrowing rather than passing much on to their children.

[Starlight]

I agree it would be very difficult to get social programs to work in the US as it can in smaller countries like those in Scandinavia with their highly efficient and very stable governments. The US is a lot more volatile, changing fundamental directions on various issues every few years, and on other matters, it competes with the European Union in terms of inefficiency. There's also a lot more corruption going on. So large scale social programs organized at a federal level would be difficult to achieve without a complete upheaval of the entire US constitution.

While I agree that the US is far more corrupt than other Western nations, that's something that ought to be fixed, not an excuse for inaction.

The US as a whole might be big, similar in scale to the EU, with its states similar in scale to some European countries... but that's no reason to think it can't achieve things that European countries separately and together achieve. It might be sensible for the US to do some of its programs at the state level rather than federal level, though economies of scale are a thing so it might be more beneficial to do them federally. If the countries in Europe can all individually successfully run social programs, then the states in the US should be able to do likewise.

If Europe can do these things, America should be able to. If your country of Denmark or my country of New Zealand can do these things, any given state in the US should be able to.

The idea that the US is too big and useless to do things that we'd expect as standard in any other Western country doesn't strike me as reasonable. The US having both federal and state governments gives it significant flexibility to select the level and scale to implement policies on. We know social programs work well at scales similar to the size of the US states, so the US definitely has a workable option. We can hypothesize whether economies of scale would make them work even better federally, or if difficulties of administration would impede them, but "the US is big" isn't a legitimate excuse when it is divided into state governments of similar size to countries who all make these programs work. Those social programs that the US does run federally typically poll really well and are widely viewed as working pretty well... they tend to be among the most successful government programs in the US not among the least successful, so the whole notion that social programs might not work in the US when done federally cos it's big seems to be based in pure speculation and run contrary to the observed facts.

[carpedm9587]

Not really true. Regardless of what the debt is, simply running approximately balanced budgets for 15 years reduces effective debt by about 60%.

This is due to inflation being about 2% average per year, and GDP increases being about 2% average per year, the net effect of which is a 4% per year reduction of the debt to GDP ratio assuming no outstanding debt is paid off other than the interest (which is the usual state of affairs).

The US used exactly this method after WWII, to rapidly reduce the effective debt size to only 40% of what it had been, just by running balanced budgets for 15 years.

So the idea that there can be difficulty in repaying a national debt of any size is wrong, because it can always be shrunk in this manner.

The thing that makes debt a bad idea for countries is not the difficulty of repaying it, it's the interest payments. Obviously making the interest payments costs money on an ongoing yearly basis. It's this part that really has the impact. But, due to the effects above, the effective interest drops by 60% over a 15 year period, so it isn't actually all that impactful to subsequent generations, and it is thus largely each generation that pays for its own borrowing rather than passing much on to their children.

I'll have to spend some time with this math. It does not seem right to me, but I don't have the time to research it now. Off hand, there is no way to get around the fact that a 60% reduction requires us to pay $15T over a 5 year period, which averages $1T per year. Right now federal revenues are $3.5T, and we have a $1T deficit before coronavirus stimulus. Currently $0 is spent to pay down the debt. My simplistic math tells me that to achieve what you are suggesting here we have to increase revenues and/or cut expenses by $2T to achieve your target.

It is also unclear to me how simply "balancing the budget" achieves "paying the debt" unless part of the budget is dedicated to paying down that debt. If I owe $100K on a mortgage, I don't pay that down just by gaining a larger salary. I also have to dedicate part of that salary to paying the loan. I have to make it part of my budget.

[Sparko]

OK - so why don't we start at the beginning. I have not seen anything about the government funding these bailouts by "printing money." AFAIK, the plan is simply to run up the deficit, which means borrowing money in the form of bonds, etc. So can you provide sources for the claim that the stimulus is being funded by printing money?

They are just creating the money out of thin air.

https://www.nytimes.com/2020/04/15/b...lus-money.html

[carpedm9587]

They are just creating the money out of thin air.

every penny of it borrowedvastly expand its debt at the same time that the Federal Reserve has signaled its willingness to buy an essentially unlimited amount of government debt. With those twin moves, the United States has effectively undone decades of conventional wisdom, embedding into policy ideas that were once relegated to the fringes of economics.
https://www.nytimes.com/2020/04/15/b...lus-money.html

I have highlighted the critical parts of your post. There is no evidence here that the government is "printing money," which means your analysis does not seem to apply to this situation.

Don't get me wrong - I think it is wrongheaded of them to be borrowing this money and I am against the stimulus packages that have already been crafted/passed and the new ones being proposed. But it's not for the reasons you cite since the reasons you cite are based on an assumption that does not appear to be valid: that the government is "printing money."

[seanD]

I have highlighted the critical parts of your post. There is no evidence here that the government is "printing money," which means your analysis does not seem to apply to this situation.

Don't get me wrong - I think it is wrongheaded of them to be borrowing this money and I am against the stimulus packages that have already been crafted/passed and the new ones being proposed. But it's not for the reasons you cite since the reasons you cite are based on an assumption that does not appear to be valid: that the government is "printing money."

"Printing money" is a figure of speech. The Fed is really adding digits to a screen, but it's the same concept. They're creating money out of thin air to buy the government debt is the relevant point. If you doubt this, then this will prove you know absolutely nothing about the subject of which you started a thread about.

[carpedm9587]

"Printing money" is a figure of speech. The Fed is really adding digits to a screen, but it's the same concept. They're creating money out of thin air to buy the government debt is the relevant point. If you doubt this, then this will prove you know absolutely nothing about the subject of which you started a thread about.

Actually, there is a significant difference between "borrowing money" and "printing money," Sean. I am surprised you are not aware of it. There is a decent treatment on the subject here. The bottom line is that printing money (other than to replace money being taken out of circulation) causes inflation because it devalues the currency (as Sparko's post explained). It's an effect not unlike a stock split, where the number of shares can be increased by a factor of X, but the value of the shares are then reduced by a factor of X. When this is done by the government with money (by printing more), the effect is inflation: it takes more money to buy the same goods. Borrowing money does not have that effect. Borrowing money (by the government) is simply the process of spending future taxes (and other revenue). It's similar to what we do when we borrow money: we are effectively spending future income now, and paying for the privilege by paying interest.

[seanD]

Actually, there is a significant difference between "borrowing money" and "printing money," Sean. I am surprised you are not aware of it. There is a decent treatment on the subject here. The bottom line is that printing money (other than to replace money being taken out of circulation) causes inflation because it devalues the currency (as Sparko's post explained). It's an effect not unlike a stock split, where the number of shares can be increased by a factor of X, but the value of the shares are then reduced by a factor of X. When this is done by the government with money (by printing more), the effect is inflation: it takes more money to buy the same goods. Borrowing money does not have that effect. Borrowing money (by the government) is simply the process of spending future taxes (and other revenue). It's similar to what we do when we borrow money: we are effectively spending future income now, and paying for the privilege by paying interest.

You're pointing things out we all already know about inflation, but I didn't even bring it up in that post because that's beside the point. There isn't that much difference between printing and borrowing when you look at how the system works. The treasury doesn't "print" (create) the money, the federal reserve does. The treasury prints bonds. This is what the federal reserve buys with the money is created (though there is a middle man, typically other banks, since the Fed doesn't buy them directly from the treasury, but it's still the same concept). It's essentially printing money was the point I was making, and the government is essentially just borrowing the money it prints.

[Mountain Man]

To claim there literally isn't enough money to pay for social programs...

That's not what I said. I said that there isn't enough money "to fund all of their [the Democrat party's] social programs".

[Mountain Man]

I agree it would be very difficult to get social programs to work in the US as it can in smaller countries like those in Scandinavia with their highly efficient and very stable governments. The US is a lot more volatile, changing fundamental directions on various issues every few years, and on other matters, it competes with the European Union in terms of inefficiency. There's also a lot more corruption going on. So large scale social programs organized at a federal level would be difficult to achieve without a complete upheaval of the entire US constitution.

While I don't entirely agree with your negative view of the United States, you are correct that we face certain unique obstacles compared to smaller nations. For one thing, our Federal government was never designed to provide a national social safety net, so we're essentially using a sledgehammer to fix a problem that requires more finesse.