This year it is, even this decade (although the lack of growth is already a big issue). These are long term problems, and the closer we get to the edge of that cliff the more painful it will be backing away from it.
I don’t think @j_a was talking about hyperinflation, but rather modestly higher inflation than the very low levels we’ve had for the past 30 years.
His exact phrase was: "...deflate its borrowings into nothingness..."
Enough to make our debt load substantially more manageable, but not so much as to ruin the economy. There’s a lot of space between 1.5% and 1000% or whatever.
When you say "make our debt load substantially more manageable" what the bond market will hear is "we can't pay all of you full value".
And the world changes, probably a lot. At a minimum we have a substantial "risk" premium adding to our bonds (which would be awful), at a max on day one there will be a mad rush for the door as every trader tries to save himself. And then we have day two.
At that point we're over the edge of the universe and dealing with the unknown. Things will have had to be awful for us to try this, my expectation is that they'll get a lot worse. One hopes we don't turn to Darth Sidious and instead just let Social Security be cut in half, but we can't really say.
So you want a King to run it? Politics is how we figure out how to govern ourselves. The program is doing far better then people think.
I don't see why a 401k needs a "King" to run it.
My intuition is that the more political meddling we have, the worse it will end up being; whether it's California's retirement accounts being used to further "green" agendas or Social Security's habit of passing it's full cost onto future taxpayers so current retirees can get back more than they put in.
The self-proclaimed “fiscal conservatives” can never get specific about spending, because they instantly run into the trip wire of the fact that the biggest spending programs are also the most popular.
You say that like it's a good thing. I'd object to new gov programs a lot less if it were possible to kill the old ones, or even to evaluate whether or not they're doing a good job. But you really can't, not if you want to get elected.
Every new program becomes politically untouchable because it's "needed" by someone who will vote on that issue, and every dollar of new gov spending becomes permanent. Thus gov only grows, but eventually we'll run out of other people's money.
At the time of the German reunification the FDR and the Bundesbank took the correct, but painful, decision to convert worthless DDR Marks 1:1 into German Marks, then the strongest currency in the world. Doing otherwise would have destroyed 100% of the Osties wealth.
Wait, why would a 2:1 conversion have been deadly?
It's been quite a while but I vaguely recall thinking that was the expected result.
There are a set of fixes that could fix SS. The SS oversight board lists them every year. It’s not rocket science. Different political pressures have led to nothing being done but the answers are there.
Sure. Agreed. Politics prevents this program from being run correctly... but that's kind of why I question whether this is something we want run by the political system.
“Using pre WW2 German inflation….” was no solution to anything because the war reparations were not denominated in Marks but in foreign currency
You're quibbling about my comparison rather than my conclusion. Fine, I'll rephrase.
The US trying to inflate (i.e. default) on its debt will be somewhere between the economic wrath of god and fighting a zombie apocalypse. We'd be better off with a half a dozen 911 events.
We lose our ultra low interest rates and get rates which befit a country which will soon be defaulting, this triggers truly impressive amounts of economic pain. We have to choose between killing tax increases which make our situation worse and not paying entitlements, i.e. pensions.
Losing the dollar as the international currency becomes a serious option. The word "bankruptcy" gets mentioned a lot, maybe even seriously by serious people.
Whether or not comparing this to pre-WW2 Germany is appropriate, this is a breathtakingly painful option with savage side effect and those details need to be mentioned every time this "option" is brought up.
I know more about how the federal budget works that about how the Houston Independent School District budget works. So I call cow husband digestive depositions on local accountability.
Local for me means something a lot smaller than that. Our local gov is responsible and works well. There are other choices within driving distance of my job, if the current city fails or gets to expensive I can vote with my feet.
Actually, one of the biggest problems in the USA is that state and local governments are much more opaque and unresponsive than the federal government. With the result that the majority of people claim for federal intervention in almost everything.
So the solution to dysfunctional, overly large government is more government?
(Plus, education is a good example of something where the economies of scale would recommend a complete federalizations of the process. There is no Texas math or Massachusetts math, nor is there (apologies to Young Earh Crazy People) a Kentucky biology different than a California biology. 99% of what goes on in schools is supposed to be the same everywhere in the country, and most cases of the different 1% are examples of things that don’t help the kids)
Sounds like you'd get diseconomies of scale. I've needed to step in three times with the local school administration. Twice they did the right thing, once they refused.
So I pulled my kids and put them into the local charter. State money follows the kids, two years latter the public schools and I had the same conversation and this time they "had room" in the school I wanted to put the kids into.
Competition is WONDERFUL at forcing unresponsive monopolies to be responsive. Empowering local parents to do what's best for their kids sounds a lot more like a ticket for success than a government run monopoly where the people running it don't suffer if they fail your kids.
Seems to be to you, but you are wrong. Greece’s problems stem from the loss of monetary independence, and a currency that is stronger than what the productivity of Greece would warrant, without the ability to devaluate to compensate. Which of course is exactly the opposite of the USA, who has the ability to deflate its borrowings into nothingness...
Listing pre-WW2 German style inflation as a "solution" says a lot. It's one of the nightmare things I'd like to avoid.
(not that there is any reason the USA would ever do it...
"It can't happen here" is a dangerous statement, especially when there doesn't seem to be a politically effective counter-argument for "more" government.
the federal tax burden as a percentage of GDP has been quite flat for a couple of decades now
Problems:
1) Taxes haven't matched expenditures for quite a while. We really should look at what the gov does with the expectation that it will need to be paid for sooner or later.
2) The federal gov pushes unfunded mandates on the States/Localities. A full picture of the cost of government needs to look at the full picture, which is local+state+fed.
Given that the Federal government does a lot more than in 1880 (and so do the states) a comparison with 1880 is kind of useless.
How about if we started at 1930 (the new deal)? Or 1950 (after the WW2 spike)?
Further the point I'm making is that the government "does a lot more", and is always looking for more things to do.
What should we cut out? Social Security?
Social Security has been so popular in part because every generation thus far has gotten back more than they've put in. It should have always been defined contribution (as should all pensions), any plan that comes down to "future politicians will find the money" is problematic on the face of it.
I'd issue education vouchers for students (aka Sweden). I'd replace all social programs, including SS, with raw cash. I'd make it EXPRESSLY clear that there's one pot of money, which taxes fund it, and that (for example) the seniors voting themselves more means there's less in there for everyone else.
Further, it's worth noting that just because the gov doesn't do something, doesn't mean it doesn't get done, and that a command and control style micromanagement solution which spends other people's money shouldn't be the first stick out of the bag for all problems.
We already went through this graph a couple of weeks ago...
Either I missed that one or it predates me.
, and why it didn’t show what you claim it shows. At least bring on a new graph
The increasing gov spending as a percentage of GDP doesn't show increasing gov spending as a percentage of GDP? You've lost me, what are you trying to claim here?
You’re stealing a base or seven when you hinge your argument on the notion that big government has dragged GDP growth down, rather than that it’s harder to grow a developed economy than a developing one.
I claimed 5% because the developing countries can do double digits until they catch up (China's example), and 5% is what we've seen when the USA was the most developed economy.
That aside, let's be explicit about what you're implicitly claiming.
1) The tax code so complex no human can understand it, that doesn't cause economic distortions.
2) These armies of bureaucrats which deal with other armies of bureaucrats, the overhead from them totally doesn't matter, and there's no side effects or distortions from just having them.
3) The war on drugs doesn't cause any economically problematic side effects. The people it throws into jail would have been drags on the economy anyway (etc).
4) Moving down on the economic freedom index hasn't caused any economic side effects.
Even if we fixed all of these issues (and more I'll skip), 2% is the best we can do, none of these things cause problems with growth.
My original comment was pointing out that liberals do not want an unlimited government. You seem to have dropped that silly claim. So good on that.
Limited and unlimited gov seem to be opposite ideals.
But let's reverse the question. When does liberalism win? What's the max amount of gov spending per GDP? What's the final gov program(s) which need to be in place to consider it a victory, beyond which liberals say "no more"?
It's been pointed out that you can't spend 1000% of the GDP; But short of running out of other people's money, what stops the growth of gov?
The overwhelming majority of American children go to public school, public schools are largely funded by taxpayers. People are paying taxes for their own school.
You're using as examples local gov (and to a lesser degree state), voted on by local taxpayers.
When the local schools directly raise taxes for the local schools, that's accountability (although I've noticed they schedule these votes not-in-November). But that's very far away from how the national (and some states') budgets work.
You’re attempting to hide a theological position of your preferred moral norms behind the curtain of economics.
Meaning I'd rather my descendants be a lot richer in 50 years than they will be on our current path. If you want to call that "theological" that's fine, but I'd rather call it paying attention to the long term costs of some of our policies.
Dark Matter’s example is another episode of confusing a household economy with a country economy.
Sure, very true, although these sorts of things make for good comparisons because people can relate to them.
The thing is you're not actually disagreeing with me. I fully admit we'll have no issues paying the bondholders this year or next, that's what the market cares about. We're not going to pull a Greece or a Rome/Nazi Germany this year, or even within the next 10 based on current data.
But all of our obligations aren't on the books, those multi-decade trend lines still show the gov increasing until something breaks, and the big parties seem fine with all that.
For all the protesting about how "always wanting more government" is an unfair carrature, my bet is most of the people claiming I'm wrong will be fine with the next massive expansion of gov (Obamacare didn't go far enough) and whatever expansion comes after that (high quality pre-school perhaps, or maybe some 'fix' for inequality), and whatever other expansions of government come after that.
A command and control style massive bureaucracy which by it's nature grows, seeks power, and deliberately makes things complex to justify it's existence has costs by itself.
I'm not sure what a good solution is for "the Clean Water Act", but there is the Welfare example where we could replace dozens of programs attempting to micromanage the poor with just giving everyone money and let people run their own lives.
What’s the credit rating of the United States these days?
Very good. People are still mailing us credit cards, the bond market thinks we don't have any problems in the next 4+ years.
However by the point when the bond market starts to worry, we'll already be deep in a hole, so deep it will take massive amounts of pain (i.e. breaking pensions, etc) to get out if getting out is the solution.
Out "debt" is not our "commitments", the later doesn't show up on the credit rating. One of the lessons of Greece, Detroit, etc, is you really want to worry about these sorts of things BEFORE the bond market gets concerned.
“Free stuff” is just the delegitimization of political beliefs that are not your own.
Then stop selling these programs as being "free", i.e. paid for by someone else.
IMHO a flat tax is one of the things which makes sensible evaluation of the gov possible. I.e. if we want universal health care, then let everyone pay for it so that everyone has skin in the game.
It is deeply corrupting to vote yourself benefits that "someone else" will pay for, whether that person is "the rich", "future generations", or "the jews", and that practice roundly deserves to be called out.
Asserting that “government is too large” assumes all those agreements have been reached.
No, it's simply asserting that we're past the gov's marginal rate of return. That the damage done by an extra dollar of government outweighs it's investment return.
Let's say you want the gov to do something it currently doesn't, and you therefore want taxes to go up.
My response is, if it's important, why not redirect current gov spending? Is every dollar the gov current spends really a better investment than what you want? Is raising taxes really the least destructive thing to do to the economy?
Every dollar in current gov spending shouldn't be immortal to budget cuts and invulnerable to evaluation of effectiveness.
It seems more like an a priori assumption about how democracies behave rather than a theory backed up with empirical evidence. I can’t think of a single, stable long-running democracy that has actually fallen into autocracy due to debt from buying public benefits (Greece is a young democracy that was never all that stable, and hasn’t fallen yet).
Public benefits seem to be the backdrop, a stressor (or maybe symptom) of the system rather than the "cause" per say.
Greece's problems seem to be that there's been this massive social contest over control over the government. Business has used it to kill other businesses, the 'people' have used it to give themselves benefits, politicians have used it to get themselves elected.
And we're on that path, now that we have Medicare/Social Security/Medicaid, could we 20% of the nations GDP on the military if we had something like WW2 happen again?
My flexibility and ability to respond to unusual situations decreases sharply if I've max'xed out my credit cards, have no savings, and also have dependants to support. At some point, I have a problem, and yes, any particular purchase on my cards will be unconnected to it.
Further, all of this meddling in the economy has pretty direct consequences itself, one being regulator capture, another being growth in bureaucracy.
...the actual history is that government is almost always too large and too small at the same time. Too large as in, brutally enforcing one group’s interest, while too small as in ignoring or dragging its feet on others.
There are things the gov does well, or that it has to do, and there are things it does poorly.
Ideally we'd cut the "too large" parts and expand the "too small" parts... but in practice it mostly doesn't work that way. The "too small" parts are excuses to raise taxes, the "too large" parts are too painful to remove.
*Comment archive for non-registered commenters assembled by email address as provided.
On “The American Interest: A Republic If You Can Keep It”
This year it is, even this decade (although the lack of growth is already a big issue). These are long term problems, and the closer we get to the edge of that cliff the more painful it will be backing away from it.
"
His exact phrase was: "...deflate its borrowings into nothingness..."
When you say "make our debt load substantially more manageable" what the bond market will hear is "we can't pay all of you full value".
And the world changes, probably a lot. At a minimum we have a substantial "risk" premium adding to our bonds (which would be awful), at a max on day one there will be a mad rush for the door as every trader tries to save himself. And then we have day two.
At that point we're over the edge of the universe and dealing with the unknown. Things will have had to be awful for us to try this, my expectation is that they'll get a lot worse. One hopes we don't turn to Darth Sidious and instead just let Social Security be cut in half, but we can't really say.
"
I don't see why a 401k needs a "King" to run it.
My intuition is that the more political meddling we have, the worse it will end up being; whether it's California's retirement accounts being used to further "green" agendas or Social Security's habit of passing it's full cost onto future taxpayers so current retirees can get back more than they put in.
"
You say that like it's a good thing. I'd object to new gov programs a lot less if it were possible to kill the old ones, or even to evaluate whether or not they're doing a good job. But you really can't, not if you want to get elected.
Every new program becomes politically untouchable because it's "needed" by someone who will vote on that issue, and every dollar of new gov spending becomes permanent. Thus gov only grows, but eventually we'll run out of other people's money.
"
Well put.
Wait, why would a 2:1 conversion have been deadly?
It's been quite a while but I vaguely recall thinking that was the expected result.
"
Sure. Agreed. Politics prevents this program from being run correctly... but that's kind of why I question whether this is something we want run by the political system.
"
You're quibbling about my comparison rather than my conclusion. Fine, I'll rephrase.
The US trying to inflate (i.e. default) on its debt will be somewhere between the economic wrath of god and fighting a zombie apocalypse. We'd be better off with a half a dozen 911 events.
We lose our ultra low interest rates and get rates which befit a country which will soon be defaulting, this triggers truly impressive amounts of economic pain. We have to choose between killing tax increases which make our situation worse and not paying entitlements, i.e. pensions.
Losing the dollar as the international currency becomes a serious option. The word "bankruptcy" gets mentioned a lot, maybe even seriously by serious people.
Whether or not comparing this to pre-WW2 Germany is appropriate, this is a breathtakingly painful option with savage side effect and those details need to be mentioned every time this "option" is brought up.
"
Local for me means something a lot smaller than that. Our local gov is responsible and works well. There are other choices within driving distance of my job, if the current city fails or gets to expensive I can vote with my feet.
So the solution to dysfunctional, overly large government is more government?
Sounds like you'd get diseconomies of scale. I've needed to step in three times with the local school administration. Twice they did the right thing, once they refused.
So I pulled my kids and put them into the local charter. State money follows the kids, two years latter the public schools and I had the same conversation and this time they "had room" in the school I wanted to put the kids into.
Competition is WONDERFUL at forcing unresponsive monopolies to be responsive. Empowering local parents to do what's best for their kids sounds a lot more like a ticket for success than a government run monopoly where the people running it don't suffer if they fail your kids.
"
Listing pre-WW2 German style inflation as a "solution" says a lot. It's one of the nightmare things I'd like to avoid.
"It can't happen here" is a dangerous statement, especially when there doesn't seem to be a politically effective counter-argument for "more" government.
"
Problems:
1) Taxes haven't matched expenditures for quite a while. We really should look at what the gov does with the expectation that it will need to be paid for sooner or later.
2) The federal gov pushes unfunded mandates on the States/Localities. A full picture of the cost of government needs to look at the full picture, which is local+state+fed.
How about if we started at 1930 (the new deal)? Or 1950 (after the WW2 spike)?
Further the point I'm making is that the government "does a lot more", and is always looking for more things to do.
Social Security has been so popular in part because every generation thus far has gotten back more than they've put in. It should have always been defined contribution (as should all pensions), any plan that comes down to "future politicians will find the money" is problematic on the face of it.
http://www.politifact.com/truth-o-meter/article/2013/feb/01/medicare-and-social-security-what-you-paid-what-yo/
I'd issue education vouchers for students (aka Sweden). I'd replace all social programs, including SS, with raw cash. I'd make it EXPRESSLY clear that there's one pot of money, which taxes fund it, and that (for example) the seniors voting themselves more means there's less in there for everyone else.
Further, it's worth noting that just because the gov doesn't do something, doesn't mean it doesn't get done, and that a command and control style micromanagement solution which spends other people's money shouldn't be the first stick out of the bag for all problems.
"
Either I missed that one or it predates me.
The increasing gov spending as a percentage of GDP doesn't show increasing gov spending as a percentage of GDP? You've lost me, what are you trying to claim here?
"
I claimed 5% because the developing countries can do double digits until they catch up (China's example), and 5% is what we've seen when the USA was the most developed economy.
That aside, let's be explicit about what you're implicitly claiming.
1) The tax code so complex no human can understand it, that doesn't cause economic distortions.
2) These armies of bureaucrats which deal with other armies of bureaucrats, the overhead from them totally doesn't matter, and there's no side effects or distortions from just having them.
3) The war on drugs doesn't cause any economically problematic side effects. The people it throws into jail would have been drags on the economy anyway (etc).
4) Moving down on the economic freedom index hasn't caused any economic side effects.
Even if we fixed all of these issues (and more I'll skip), 2% is the best we can do, none of these things cause problems with growth.
"
Limited and unlimited gov seem to be opposite ideals.
But let's reverse the question. When does liberalism win? What's the max amount of gov spending per GDP? What's the final gov program(s) which need to be in place to consider it a victory, beyond which liberals say "no more"?
It's been pointed out that you can't spend 1000% of the GDP; But short of running out of other people's money, what stops the growth of gov?
"
You're using as examples local gov (and to a lesser degree state), voted on by local taxpayers.
When the local schools directly raise taxes for the local schools, that's accountability (although I've noticed they schedule these votes not-in-November). But that's very far away from how the national (and some states') budgets work.
"
Meaning I'd rather my descendants be a lot richer in 50 years than they will be on our current path. If you want to call that "theological" that's fine, but I'd rather call it paying attention to the long term costs of some of our policies.
"
Sure, very true, although these sorts of things make for good comparisons because people can relate to them.
The thing is you're not actually disagreeing with me. I fully admit we'll have no issues paying the bondholders this year or next, that's what the market cares about. We're not going to pull a Greece or a Rome/Nazi Germany this year, or even within the next 10 based on current data.
But all of our obligations aren't on the books, those multi-decade trend lines still show the gov increasing until something breaks, and the big parties seem fine with all that.
For all the protesting about how "always wanting more government" is an unfair carrature, my bet is most of the people claiming I'm wrong will be fine with the next massive expansion of gov (Obamacare didn't go far enough) and whatever expansion comes after that (high quality pre-school perhaps, or maybe some 'fix' for inequality), and whatever other expansions of government come after that.
"
A command and control style massive bureaucracy which by it's nature grows, seeks power, and deliberately makes things complex to justify it's existence has costs by itself.
I'm not sure what a good solution is for "the Clean Water Act", but there is the Welfare example where we could replace dozens of programs attempting to micromanage the poor with just giving everyone money and let people run their own lives.
"
Our long term growth rate has trended down as the gov has consumed more and more of the GDP. We're now at 2% ish when times are good.
You look at the long term effects of 2% vs. 5%, and it's 50 year effects on how rich people will be, and it's hard to call these "weightless" effects.
That's over and above what happens if/when we drive over a fiscal cliff and the bond market steps in.
"
Things will break and cause LOTS of pain far before we hit that point.
Washington style "cuts" normally mean "spend less than we planned", not "spending went down".
And the long term trends are really one sided and clear.
http://1.bp.blogspot.com/_3bGnkNeoPxk/SbEbx4MWJrI/AAAAAAAACfA/AIxIVAJ5tTc/s400/Government-Spending-Graph.PNG
"
Very good. People are still mailing us credit cards, the bond market thinks we don't have any problems in the next 4+ years.
However by the point when the bond market starts to worry, we'll already be deep in a hole, so deep it will take massive amounts of pain (i.e. breaking pensions, etc) to get out if getting out is the solution.
Out "debt" is not our "commitments", the later doesn't show up on the credit rating. One of the lessons of Greece, Detroit, etc, is you really want to worry about these sorts of things BEFORE the bond market gets concerned.
"
We have 80+ years of data (as opposed to his single day).
"
@saul-degraw
Then stop selling these programs as being "free", i.e. paid for by someone else.
IMHO a flat tax is one of the things which makes sensible evaluation of the gov possible. I.e. if we want universal health care, then let everyone pay for it so that everyone has skin in the game.
It is deeply corrupting to vote yourself benefits that "someone else" will pay for, whether that person is "the rich", "future generations", or "the jews", and that practice roundly deserves to be called out.
"
No, it's simply asserting that we're past the gov's marginal rate of return. That the damage done by an extra dollar of government outweighs it's investment return.
Let's say you want the gov to do something it currently doesn't, and you therefore want taxes to go up.
My response is, if it's important, why not redirect current gov spending? Is every dollar the gov current spends really a better investment than what you want? Is raising taxes really the least destructive thing to do to the economy?
Every dollar in current gov spending shouldn't be immortal to budget cuts and invulnerable to evaluation of effectiveness.
"
Public benefits seem to be the backdrop, a stressor (or maybe symptom) of the system rather than the "cause" per say.
Greece's problems seem to be that there's been this massive social contest over control over the government. Business has used it to kill other businesses, the 'people' have used it to give themselves benefits, politicians have used it to get themselves elected.
And we're on that path, now that we have Medicare/Social Security/Medicaid, could we 20% of the nations GDP on the military if we had something like WW2 happen again?
My flexibility and ability to respond to unusual situations decreases sharply if I've max'xed out my credit cards, have no savings, and also have dependants to support. At some point, I have a problem, and yes, any particular purchase on my cards will be unconnected to it.
Further, all of this meddling in the economy has pretty direct consequences itself, one being regulator capture, another being growth in bureaucracy.
"
@chip-daniels
There are things the gov does well, or that it has to do, and there are things it does poorly.
Ideally we'd cut the "too large" parts and expand the "too small" parts... but in practice it mostly doesn't work that way. The "too small" parts are excuses to raise taxes, the "too large" parts are too painful to remove.
*Comment archive for non-registered commenters assembled by email address as provided.