Here is what Americans know. Americans know that when they go into debt, they don’t have the luxury of endlessly raising their own debt ceiling. Only the federal government does that.
Perhaps I'm mistaken, but I think this clearly, factually wrong. A debt ceiling is a self-imposed limit on the amount of debt one is willing to take on. But one always has the option of taking on more debt, if -- and this is the critical part -- there is a willing lender (charging interest rates you're willing to pay). That's the point behind it being "self-imposed".
Suppose I take out a loan for $10,000. A year later, I haven't finished paying off that $10,000, but I decide I want another $10,000 loan. Can I do that? Yes, of course I can -- if I can find a lender who is willing to make the loan and I'm willing and able to make interest payments.
The United States is in the same boat -- like the average family, we can take on debt so long as we have willing lenders and can make interest payments. Which there are, and we can -- indeed, interest rates on American debt are very low because the market seems to think we're good for it.
In a market-based economy, the real "debt ceiling" is a function of market forces -- you hit your limit when you can't form a transaction where the debtor can pay interest that the lender is willing to accept in exchange for the loan. The statutory debt ceiling is a governmental regulation that substitutes a centralized legislative command for basic market forces.
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But at this time the US is lending money to itself, not some independent lender in the marketplace.
Eventually it will monetize the debt and inflation will ensue.
http://www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201104.pdf
http://cnsnews.com/news/article/fed-eclipses-china-top-owner-us-debt
This comparison between the feckless federal government and responsible American families -- which the blogger you link is deeply unoriginal in making -- has only gotten more bizarre as the average American's unsecured debt (e.g. student loans, credit cards, basically everything except car loans and mortgages) has grown. I wouldn't be surprised to see that it's actually in approximate tandem with the federal government's debt load. A Burkean conservative might argue that Americans' poor individual characters in spending beyond our means has been incorporated democratically into our government, but I'm suspect Burkean conservatives are unelectable as Republicans.
As for the Fed's devaluing the dollar in order to reduce our debt burden, that's one option but not the only one. We could, like, raise the money to pay down our debt. Craziness, I know. But there was a moment toward the end of the Clinton Administration, that tyrannical era of estate taxes and a 39.6% top marginal rate, when the U.S. actually had some money left over at the end of the day and could, like the average American, put it toward reducing what was owed.
Reading the CNS piece did remind me that it's untenable for conservatives to simultaneously claim our debt is $14.3 trillion *and* that Social Security will be broke in 10 years. If you include intra-governmental debt like what's been borrowed from the Social Security fund in our debt (which is what the Treasury Department does to get that $14.3 trillion figure), then you're assuming that the money really is owed. If you're saying Social Security will be broke in 10 years, you're assuming the money that the Fed took has disappeared into thin air.
The point is that individuals can't lend themselves money but the federal government is doing just that and in the process devaluing the currency.
An individual's debt, if not paid, does not devalue the currency - it could contribute to an economic downturn and even deflation if the money supply goes down which would actually increase the value of the currency.
An individual's debt and the government's debt is clearly different.
There are several ways of eliminating or minimizing the deficit. Increasing the tax burden and suffocating the private economy is clearly appealing to you but has never worked. Government stimuli also has never worked whether in the past several years or 8 decades ago. Since neither increasing taxes nor increasing spending helps the economy an appropriate alternative is to do what a reasonable individual would do - spend less.
As for Social Security the trust fund is a farce for that money has been spent. The only thing that matters is the cash flow which is now negative, which means that either some tax or another would have to be increased or money printed or benefits reduced, or the system changed completely.
The potential for damaging levels of inflation is hypothetical, not real. Again, we have a floating currency, meaning its value is market-based. Inflation occurs to the extent merchants and currency traders think our currency ought to be devalued. That's how one determines if increased debt causes problematic inflation -- market reaction, not command fiat.
Increasing the tax burden and suffocating the private economy is clearly appealing to you but has never worked.
This ... my God, this is one of those statements that actually defies belief. First of all, as PG already noted the tax rates in question here previously existed in the United States, in the recent past, and did not "suffocate the private economy". We had a booming economy and a budget surplus.
Second, unless you're an anarchist, this statement isn't even a candidate for truthfulness. Assuming you believe there should be a government and that hence the optimal tax rate is something greater than 0%, there are, in fact, tax rates whereby a tax increase would be, not just non-asphyxiating, but socially optimal. The question is obviously not "is it possible for there to be a situation where a tax increase is socially beneficial" -- that answer is obviously yes for anyone who isn't an anarchist. The question is whether a particular tax increase or cut is or isn't economically beneficial. That's an empirical question. But it is virtually impossible to assert that any tax increase of any amount on any bracket is "suffocating the private economy." Such a statement is the product of unthinking dogmatism, not any actual analysis.
So yes, top marginal rates that mirror the rates during the Clinton administration will almost certainly raise money and almost certainly won't "suffocate the private economy." That you have an ideological objection to taxation doesn't mean they don't work as a valid deficit reduction mechanism. It just means you're a crank lunatic.
Inflation is not caused by what "merchants and currency traders think", it is caused by an expansion of the money supply as it is happening now.
If you look at the price of oil which has increased in dollar amounts and compared it to the euro for example there has been less of an increase in euro, which has its own monetary problems, than with the US dollar.
Inflation is here and it is due to our printing of more money.
A higher tax rate in a time of a robust economy will slow it down, but a higher tax rate now when our economy is on death's doorstep would only provide the coup de grace.
http://openchoke.blogs.com/open_choke/2011/05/how-much-of-the-price-of-oil-is-due-to-dollar-weakness.html
http://mediasphere.tumblr.com/post/6215737169/weve-now-got-depression-level-unemployment
It's a bit confused to believe that the price of a particular commodity ought to be staying the same all the time, regardless of supply and demand factors, and that any increase in the number of US dollars required to buy said commodity can be attributable solely to the existence of more USD than was previously the case. This may be why most economists use a broad basket of goods and services to determine the rate of inflation.
Government stimuli also has never worked whether in the past several years or 8 decades ago.
Ah, people still believe Amity Shlaes/George Will on the notion that the massive government spending on WWII didn't stimulate the economy. I guess this ideology also excludes the possibility that the conservative-horrifying taxes of the postwar period were perhaps a wee bit useful in paying down some wartime debt. As a percentage of GDP, the postwar federal debt was at its lowest point in 1980, after which it increased steadily until the mid-90s, then started rising again after 2000. Strange, then, that Clinton-era tax rates must have been so much more crippling to the economy than Reagan's rates were.
Let me clear up some of your confusion PG.
First of all you are right that in a time of inflation that not all items will go up the same exact percent and that it is even possible for a few items, if inflation is not that great, to even decline in price either due to lack of demand or greater productivity.
However most items would increase in price.
Further a currency which is undergoing inflation will lose value when compared to other currencies that are not undergoing inflation.
But you must realize that inflation in an economy is in a way a measure of the supply and demand the dollar itself. So if the number of widgets made or services provided is static but the number of dollars increase, as in QE1,2..., inflation ensues, usual about two years after the expansion of the money supply.
As for the debt you cannot solely relate the tax rates to the debt without talking about how much is spent or the state of the economy at the time.
Finally with regards to WW2 it is nothing but a broken window.
http://cafehayek.com/2011/05/digging-deeper-into-the-fight-of-the-century.html
in a time of inflation
In the U.S., pretty much all times at which GDP has been increasing have been "a time of inflation." Why should we think the current "time of inflation" is exceptionally worrisome? Just saying "ZOMG inflation" is not making that argument convincingly.
Finally with regards to WW2 it is nothing but a broken window.
I think you're misunderstanding what happens with a stimulus. So far as I know, no economist thinks that WWII increased the sum total of wealth in the world -- obviously, it destroyed a great deal of wealth. However, in the U.S. it had the effect of getting our economy over the crisis in private sector confidence that kept Americans mired in a depression, employing people who then had money they could spend. A stimulus attempts to force an economy past its troubles with consumer confidence.
Note: stimulus legislation can -- and the most recent did -- include cuts to various taxes in areas that are believed to encourage spending by the private sector; the conservative notion of "stimulus" as synonymous with "government spending" as opposed to "tax expenditures that go toward private sector spending" is another oddity.
PG
No, when the GDP increases it is not an automatic increase in inflation. On a related note to get an accurate measure of the GDP you need to know the inflation rate and in effect subtract it from the GDP.
One of the current controversies is the change in how inflation is measured which currently (as opposed to pre-1990 or there about) reduces to eliminates the price changes in food and energy and overemphasizes technology price changes. If inflation is measured as before then the current increase in GDP evaporates.
And a time of inflation is worrisome if great enough. Surely you heard of the Weiner Republic, excuse me, the Weimar Republic?
A recession/depression certainly destroys confidence but that confidence is destroyed because of concrete facts such as such as a price bubble in which the nominal price needs to revert to its actual value. Trying to maintain the nominal price and not letting inefficient industries either to crash or become more efficient by reorganization with stimuli does nothing to these concrete problems and thus nothing to confidence.
And as for confidence alone having the government hover over businesses the threats of new regulations has dashed any plans they may have had to hire new employees. Regulation is a hidden tax on businesses.
No, when the GDP increases it is not an automatic increase in inflation.
What I said was, "In the U.S., pretty much all times at which GDP has been increasing have been 'a time of inflation.'" You did not refute this by pointing to a time of rising GDP in which there was zero or negative inflation. You came up with a strawman to negate, which is always good fun but hardly conducive to debate.
One of the current controversies is the change in how inflation is measured which currently (as opposed to pre-1990 or there about) reduces to eliminates the price changes in food and energy and overemphasizes technology price changes. If inflation is measured as before then the current increase in GDP evaporates.
But if how Americans spend their money today is not identical to how they spent it in 1980, it's not very useful to measure overall inflation based on the basket of goods and their proportions from 1980. E.g. in 1980 my parents were middle-class urban dwellers with one pre-school age child. They spent pretty much all their money on food, rent, and used-car loan payments; they spent a little on newspapers, magazines and an occasional movie. They had effectively zero spending on technology. The things that are basically necessary for middle class people to hold down a job and be socially participatory today, like cellphones and internet-enabled computers, barely existed. The proportions of spending on food relative to technology (and rent, for that matter) of a similar middle-class urban-dwelling couple today are totally different. Moreover, they're substitutive of some of the goods my parents used to buy; e.g. I bought a Kindle so I get new books electronically cheaper than I would buying them in hardcover, and iPads were advertised as good tech for reading the NYT on the subway instead of buying a paper. Why do you think it makes sense to pretend it's still 1980?
And a time of inflation is worrisome if great enough.
How is the Weimar Republic, or any other government under which inflation was hyperinflation, relevant to the current U.S. economy that hasn't seen the cost of anything -- goods, labor, lending -- rise by an order of magnitude? Heck, if we're going to dance near Godwin's Law by making Weimar references, I could point out the similarity between Bush's financing of wars (refusal to increase taxes and instead using debt) and the Kaiser's.
that confidence is destroyed because of concrete facts such as such as a price bubble in which the nominal price needs to revert to its actual value.
This is credible if we're talking about consumer confidence for particular long-term purchases, e.g. housing. I sympathize with the argument that the government shouldn't have done/be doing anything to prop up real estate because it's keeping potential buyers from buying as they wait for further decreases in prices to occur. However, this has much less explanatory value for the fall in consumer confidence regarding all sorts of other goods and services, where the consumer's fears about his own future financial health and need to retain cash on hand are much more important than whether the cost of a restaurant dinner is greater than its "true" value. Most of what one can buy in America never was in a price bubble, and since consumer confidence measures confidence about much more than real estate purchases, basing one's understanding of consumer confidence solely on overvalued assets misses a great deal of the point.
Evidently many Republicans who are fiscally conservative for others are less so for themselves.
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