Rational discourse about the federal budget has become virtually impossible

That is the topic of my latest Bloomberg column, here is one excerpt:

The conservative and fiscal conservative response has been no more coherent. On one hand, conservatives like to boast of the power of economic growth. But if, as they often assume, the economy is going to keep growing strongly, a widening budget deficit may well prove manageable. Interest rates have been low, and even falling over the past year, while economic growth has been running over 2%. If it continues to exceed the government’s inflation-adjusted borrowing rate (currently negative for T-Bills and close to zero for longer maturities), the U.S. will be able to grow out of its debt. Under this scenario Trump will look like a genius, and the fiscal conservatives will continue their slide into irrelevance.

You might argue that the problem is government spending, rather than budget deficits per se. But the U.S. can in essence pull in more resources from abroad, finance greater spending and consumption with additional borrowing, and still pay off its bills in orderly fashion without bankrupting the future. Our grandchildren can inherit both the debt and the government bonds.

In my experience, fiscal conservatives hate this argument. But through the term structure of interest rates, markets are forecasting low rates for at least the next 10 years, and conservatives tend to respect market prices. To be against the budget deal is also to go against the markets’ current message that debt service costs will remain low.

There are twists and turns in the piece, and just about everyone gets whacked, so don’t judge the final message by that excerpt alone.


But what happens in the meantime when the number of countries no longer respecting the petrodollar system first exceeds the number of countries we have the resources to "liberate"?

One thing I've not seen in the debate: if you calculate state, local, federal, consumer and business debt, it works out to about (my calculations) 50% of the USA's total net worth (collectively). if this ratio reaches 100% (or more) doesn't that mean the nation is bankrupt? At that point, even if you tax people or businesses, they can't give you more than their net worth, and even if you sell Yellowstone national park to the Chinese/JP/Germans, it won't pay off your collective debts. You're busted. Not heard anybody make or rebut this argument, especially the MMT/ "just print your own fiat currency and you'll be fine with debt" crowd.

if this ratio reaches 100% (or more) doesn't that mean the nation is bankrupt?

I think you're making a fallacy of composition here. If I have $1B in Tesla bonds and you have $1B in McDonald's bonds, that is all part of that ratio. What does 'national bankruptcy' mean? Do we suddenly get to own Tesla and McDonald's? Why if they have been paying us per the terms of the contract. Why would a default by those companies entitle either of us to Yellowstone Park?

You can have negative net worth and not be bankrupt. You go bankrupt when you cannot make you payments.

Exactly! It's not about the stock of debt but the flow of payments.

Debt to GDP was much lower in 1990 than it is today but, because interest rates were much higher back then, the cost of servicing that debt was nearly twice as burdensome as it is today.

Indeed all assets in the economy have to end up being backed by either debt or equity.

Equity means you owe unlimited upside since your shareholders own the company and you never 'pay them off' unless a company can buy all shares back from them. Debt means all the risk is on the bottom side. Once you pay off the debt, all the upside is free and clear for you.

If you are optimistic about the economy in the long term, Being debt to asset heavy would be a positive. If I think Tesla will become the next Amazon, I'd rather hold shares of Tesla today than Tesla bonds. Holding bonds the best I'll get is paid back, holding shares I get all the upside.

if you calculate state, local, federal, consumer and business debt

Don't forget 'unfunded obligations', contingent obligations, contingent 'promises' and the sum total of all Amazon wish lists. These calculations seem to distort the fact that there's a lot of different types of debt in the economy and they are different for a reason.

If I loan you $100,000 that is different than if I loan you $100K as a mortgage using your home as a lien. that is different yet than a fuzzy feeling that you're a great guy and if you ever fell on hard times I'd be willing to spend up to $100K to bail you out.


And many states are staring at functional bankruptcy. Half the country is on the path of Puerto Rico.

Congress should pass a law mandating balanced budgets. Then the congress and president should write off the debt over a weekend, essentially print money and pay off an actual debt holders and cancel federally held debt instruments. Open for business Monday morning and go on with life with the entire debt gone.

Naysayers will disagree and say it cannot be done or it shouldn't be done or it will cause some inflation. But that ignores the obvious that over the next 10-20 years our country and our taxpayers are going to suffer under the national debt. It will drag our economy and country down for a decade. Better to write it off over a weekend and deal with a few nagging problems than to suffer an entire generation.

We don't actually want to run balanced budgets 100% of the time though. In the case of a major recession, we need to run a budget deficit to provide Keynesian stimulus.

"And many states are staring at functional bankruptcy. Half the country is on the path of Puerto Rico."

No, that's not really true. No states are as bad as Puerto Rico and frankly only a few are really in bad shape.

Really it's just New Jersey(280%), Massachusetts (207%) and Illinois(269%) that have truly high debt to income ratios.

Fourth and Fifth are in far better shape. Kentucky(139%) & California (108%)


@Boonton - good points made, but this cannot be correct: "Indeed all assets in the economy have to end up being backed by either debt or equity" (Boonton). That statement ignores unfunded liabilities, which is basically any government dis-savings. The government can, via its power to tax, have unfunded liabilities. As Floccina says, you can, as a country, have negative net worth, as apparently (I saw this in print) the entire US FDIC-backed financial bank sector had from 2008 to about 2011 was technically insolvent, but at that point your country is 'running on fumes ' or 'promises to pay'. At that point rather than pay back your creditors (by definition foreign creditors in my scenario, since for the USA as a whole, liabilities exceed assets), the USA could or should default. I don't see this point being made enough. And btw, the value of raw land in the USA is rather minor, I recall the second biggest farm in the USA, in California, sold for less than a Manhattan penthouse this year. Recall also Tokyo at the height of the boom in the 1980s valued more than the entire USA or something. Bottom line: the USA is rapidly approaching a limit where liabilities exceed assets, and that cannot be good long term.

Asset would mean anything that can produce goods or services (aka GDP). Your grandma owns a small farm with no mortgage. Asset backed by equity. Sears owns a bunch of stores with goods, a distribution network, a shrinking and aging but somewhat loyal customer base but they owe huge amounts to bond holders. Asset backed by debt.

Nothing says equity will pay and nothing says debts will be paid. Sears could go fully bankrupt and then the bond holders will become shareholders. Odds are the shareholders won't see anywhere near the money the bonds said they were owed. If they strike oil under your grandma's little farm, her equity will suddenly be worth more than she ever paid into the farm.

I'm not sure what 'unfunded liabilities' are in this context and the thing seems kind of fishy to me. For example, the FDIC insures all bank deposits up to $250K or whatever. Should we sum up whatever all bank balances are excluding the portion that is $250,001+ in large accounts and call that a 'liability'? But to add up the whole thing would mean we are thinking every single bank would have to all fail all at once. No business works that way. An insurance company doesn't build their reserve model by assuming every single home will burn down in a year.

Likewise this also creates some oddball things. Suppose we did set aside enough cash to cover every bank account up to $250K. Where do we put it? In a bank account? What if that bank fails? Is that also a potential liability on the US gov't?

And when is Piketty going to announce that g>r tells us that income inequality is going to disappear?

"You might argue that the problem is government spending, rather than budget deficits per se. "

This is the correct argument.

So riddle me this. If rates on bonds are zero, growth is 2% and our debt grows at 3% per year, how long until we "grow our way out of the debt"? Never, right?

The 2% is real, the 3% debt growth is nominal, so we grow out of the debt by inflating some of it away and growing the rest of the way, NGDP of 4-5% > 3% debt growth.

Arizona Abe is correct. Please see my article, https://larrysiegeldotorg.files.wordpress.com/2015/06/ap-public-debt.pdf, reporting on work by Steve Sexauer and Bart Van Ark.

For one thing, your argument ignores state, municipal, corporate, and household debt. It also ignores growth of unfunded obligations. It assumes constant interest rates and unlimited capacity to borrow. It ignores the fact that inflation, while aiding solvency, hurts the standard of living for everyone.

The marginal benefit of debt is decreasing. This is why an individual cant perpetually increase his income by taking student loans and buying more education and then paying off his debt.

Yours is the same dumb argument someone made the other day about housing as an investment. These monstrously dangerous attitudes are going to destroy us all. TANSTAAFL should be your guiding star.

Is it 'his" argument, or is he just recognizing reality?

Why don't you believe in free lunch economics!

Milton Freidman said the top priority must be profit, and profit is the money not paid to workers, and by not paying workers to build assets, wealth is created by 10% price inflation of assets, which funds borrow and spend on food, cruises, buying assets and hoarding or destroying them, like stock buy backs and buying ten working class house, bulldozing them, paying $200,000 to workers to build a house for DINKs to buy for $1 million, as long as the Fed keeps buying mortgage and corporate debt securities.

We have erased Keynes policy of paying workers to eliminate all profit so asset prices fall as they age until the total return on durable goods is just enough to pay the workers that built them, just as consumption goods barely pay the workers who produce them.

Without government spending, farmers would go bankrupt from paying workers at Deere or locally for grain coops or train and barge workers to get the grain to market. How can farmers produce food without government borrowing to pay farmers profits in bad years while not taxing farmer profits when bad years let farmers to demand inflated prices due to scarcity.

Milton Friedman paved the way for 40 years of government and private free lunches.

Including not being required to pay US workers when other natuons are willing to pay workers to build factories to produce and sell stuff at zero profits, making their workers cost a lot more while US workers are paid less and less to cut the costs of US workers.

The working poor cost less and create wealth, especially when government borrows money and gives it to these workers in tax cuts (EITC) so they can pay much more than they earn producing the stuff they need to buy.

Except the CBO said we are on track for 4%+ deficits even before the recent cap-busting deal.


You people are far too rational.

The thing is that deficits, national debt, t6he latest cabinet nominee, or any public policy matter cannot be discussed without touching off a hate cyclone.

We're actually discussing deficits and debt just fine, you're the one who always brings the mindless partisan hate.

I am not sure that this is quite fair: "Democrats seem not to recognize that the spendthrift budget is similar to the kind of fiscal policy they were recommending before Trump’s election". Sure Democrats wanted to spend more (and still do), but at least it was accompanied by higher taxes to help pay for it. It seems like we are missing a big part of the story if you do not acknowledge that the Democrats at least wanted to pay for it (or some substantive part of it) with higher taxes on higher-income households.

You cannot raise enough revenue to pay for all the spending (and restore the SALT deduction) simply by taxing the "rich" or people making more than $250K or $100K. Harris managed to one-up Bernie with a "Medicare for all" plan without any middle class tax increases. At the rate they're going, their slogan will be: Free college, health care, and ponies for all!

All they got are slogans. Free Everything!

We will learn how expensive things are when they're free. Progressives: Restoring Serfdom.

Most of our serfs are going to be serfs no matter what economic system they're in, so they might be forgiven for trying to get paid while they're at it. Leftism in general is more about trying to drag everyone else down to their level.

I don't have room for a pony. Is Kamala and Bernie going to give me a big yard too?

I never got my Obama phone.

Define "substantive".

Elizabeth Warren's wealth tax, which is by definition unsustainable, would raise $2.75 trillion over ten years. Bernie Sanders' inheritance tax (unsustainable) raises $2.2 trillion over presumably a generation. AOC's 70% income tax rate, which is at least in theory sustainable, would raise $700 billion in a decade.

Meanwhile, the 2019 federal budget projects $4.746 trillion in spending in one year.

None of these proposals, which are the more extreme among leading Democrats, would pay the interest on the current debt at record low rates, to say nothing of the fact that all three proponents want to increase spending even further.

It's one thing to not have a problem spending someone else's money, it's quite another to not even have a conception of how much money other people have.

The left drones on about the excess of the 1% and the 0.1% and the 0.000001% but seems to have trouble comprehending the actual meaning of these fractions. You could confiscate the total wealth of every billionaire in the US and it would only pay for six months of government spending. You could distribute their money evenly to everyone else in the country and it only works out to about $6,000 per person. And this is wealth, it's a one-time thing, it's not sustainable. If you want to make a dent on an annual basis (i.e., income taxes) you end up soaking a lot of people who are not the ultra-millionaires these politicians claim to be targeting with their proposals.

There's nothing sane about either party's fiscal policies but claiming the left gets credit for playing the class-warfare card with a constituency that is long on envy and short on basic mathematical skills is ludicrous.

"You could confiscate the total wealth of every billionaire in the US and it would only pay for six months of government spending. "

Reference Oil wealth and Venezuela.

I think it would be safe to cut defense spending in half.

Congratulations, you've cut 2019 spending from $4.746 trillion to $4.252 trillion.

Assumes the only Defense spending is the one DoD line item in the budget. But sure, eliminate Medicare too.

probly also assumes that cutting defense spending on va health care (about 95 billion) wont be shifted to another line on the budget

You are writing about wealth in conservative/GOP terms, when critizing Democrats while failing to attack the "wealth" conservative/GOP policies created.

Conservatives and the GOP have created free lunch economic theory of wdalth and jobs and sold voters on believing in free lunches.

Not paying workers to build "wealth", eg, assets, "creates wealth" at zero costs by inflating prices of old assets.

Cutting costs, and costs are always labor costs, puts more money in unemplpyed worker pockets than paying workers to work.

Conservatives argue boomers don't need Social Security because they own so much wealth, like in their houses, so if SS was eliminated, the boomers would simply sell their houses to pay living costs, living costs that would be lower by cutting the taxes used to pay for wars, and using the FICA flat taxes to pay for war fighting.

Who woukd buy the houses? Why all the rich boomers who have trillion in wealth that means they have no need for the welfare state of Social Security and Medicare and Medicaid. After all, housing prices never go down, so housing in rural Kansas and Iowa are worth trillions, just like the houses in SF. Obviously people in Kansas and Iowa are getting really rich because the lack of zoning means they can build millions of houses that increase in price to half a million dollars creating wealthy working poor.

I scream when I hear both conservatives talking about the high costs of a carbon tax, and progressives talking about all the money they can spend on welfare from a carbon tax.

But conservatives argue that a green economy costs too much because the costs of all the green assets are too high, and the greenies are only pushing their policies to get rich.

If green policies maake people rich, why aren't conservatives paying workers trillions of dollars building carbon free capital assets to get rich losing money like, say Elon Musk? Elon is promising to sell trillions of green technology real soon by paying workers twice the trillions to workers building dozens or hundreds of Gigafactories.

Of course, if Elon and those who copy him getting rich, their will be no carbon to tax, and that means no massive job killing carbon tax burden, but also no carbon tax revenue to fund all the progressive welfare state.

But conservatives insist a carbon tax will kill jobs because paying millions of workers to build green technoloy will kill jobs and such so much wealth out of the economy to pay for wasteful government spending.

Ater all government spending never pays workers: those on SS and Medicare just burn the welfare cash payments they get, never paying a diime to workers. That's why Elon's flame thrower sold out so fast! Boomers bought them to make burning their SS cash payments easier.

But hey, I'm a boomer born in1947 who grew up learning economics based on Adam Smith to Keynes, before Milton Friedman invented the theory that workers are harmed by being paid more to produce more because they only bought more stuff like boats and cabins which increased demand for workers who cost more and drove up prices by buying more than when they were not working.

Friedman's columns had a perverse logic that promised a free lunch of having more by producing less and being paid less and paying for less.

He did argue for government putting money in you pockets with a tax cut that gets bigger the less you work and earn, now heralded by conservatives in the EITC.

A great idea, like the uninsured, unregulated savings accounts which will never make bad loans, as in Primary Researve Funds. Totally never make bad loans with savers money! https://en.m.wikipedia.org/wiki/Reserve_Primary_Fund

Of course, but we don't talk about that. We libertarian tax cutters go party at the brothel, literally ..

On Oct. 15, 2018, the night before his death, Hof celebrated his 72nd birthday with a guest list that included former Maricopa County Sheriff Joe Arpaio and tax opponent Grover Norquist and with a special call-in from Fox News pundit Tucker Carlson.


And then say, hey, it's the spending that is immoral.

The fact is the maniacs equate with the Devil, Hitler, or whomever everyone that disagrees with the progressive nightmare-in-progress.

Right, prostitution is cool, because Hitler.

It's free school lunches we have to worry about.

And most of those lunches end up on the trash bin. Except the donuts.

Right, the guy frequented prostitutes. Ergo all his policy suggestions are evil. That's an ad hominem. It's all you got.

For his next trick, President Donald John Trump will make Democrats defend mass, open-air defecation in democrat-run cities. He already has them promoting al Qaeda, MS-13, anti-Semitism, holocaust denial, trivializing 9/11, . . .

Is the Democrat Party a circus or an insane asylum?

QED [GASP] Arch-Democrat-Racist George Wallace's daughter says Trumps is a racist.

You have to be joking.


You are a toxic presence on this blog, and discourage intelligent discourse.

My opinion, FWIW, but I do find threads in which you are active to be useless.

This checks out.

Tyler's usual accent of overwhelming sobriety ends with a note of mild foreboding:

"we have arrived at a place where it's no longer possible to have a meaningful conversation about America’s current fiscal policy."

Readers are left to wonder why he believes that "place" is located in the contemporary era instead of, say, the early 1980s or late 1890s.

In any case, one always finishes reading Tyler with the sense that nothing is very new; and nothing matters as much as one might think it does. How ably done. The subject has been closed.

In the early 1980s the deficit was almost entirely attributable to the Treasury having to refinance low-interest debt at the then-current long-term interest rate of 15%.

Today we have a debt crisis with interest rates at 2%.

How the mighty have fallen.

This may sound wacky, but why are our politicians unwilling even to consider raising the taxes required to fund government spending -- even just for one year -- at a moment when the economy is healthy and we have full employment and high economic growth?

It's understandable that people want more stuff, but if we knew the actual cost of all the stuff we already are "getting" from the government, might it not make us think a little bit about value for the dollars spent?

As people live longer and the birth rate declines, is it not possible that our grandchildren will curse us for committing them to SS and Medicare benefits that did not take into account the entirely foreseeable mismatch between the numbers of payers and beneficiaries?

Low interest rates are great, in a way, but there are downsides. The recent run-up in housing prices based on low mortgage rates can become a decline in home values when interest rates go up. Failure to adjust downward the estimated yields in investments for public workers' promised retirement benefits are one (but certainly not the only) reason Illinois and NJ are starting to look like Puerto Rico.

The ruling party is still under the spell of Art Laffer, even when their tax cuts don't produce the revenues or growth they said they would.

It's almost like it "tax cuts, consequences be damned."

The laffer curve exists and is uncontroversial.

+1, the Laffer curve is well documented. It's the Left's version of Global Warming.

Should I downgrade my estimate of your intelligence?

The curve can exist, and conservative (and Art's) estimate of where we reside in it can be wrong.

As evidenced by the fact that these tax cuts did not increase revenue from impacted sources.

"Should I downgrade my estimate of your intelligence?"

I can't say I really care one way or the other, my comments stand on their own.

"The curve can exist, and conservative (and Art's) estimate of where we reside in it can be wrong."

Sure, much like global warming can exist but progressive projections of the likely effects can be wrong.

"As evidenced by the fact that these tax cuts did not increase revenue from impacted sources."

Boy that was empty trolling.

To go back on subject, the repeated pattern is that Republicans invoke Laffer, promise that tax cuts will expand revenue and accelerate GDP. They pass the tax cuts, get neither, and declare again that spending is the problem.

Its age old, but the Trump tax cuts match the pattern perfectly. We've fallen below revenue and GDP promises, and you guys want, yet again, to sweep that failure under the rug, and blame Democrats.


"Boy that was empty trolling."

No, it wasn't trolling at all. You just aren't capable of responding to criticism. Yes, it's clear that cutting taxes will indeed result in less immediate revenue. Certainly in the short term. It will also result in higher growth in the long run. Which will, of course, make up some of the difference in the lost revenue.

Certainly Republicans have exaggerated the gains from the Laffer curve. Much like Democrats have exaggerated the threat from Global Warming. Those of us who aren't overrun with partisanship, realize that both parties tend to exaggerate both the benefits from their policies and the negatives from the other guys policy.

A sensible policy position would involve a combination of broad based tax increases with an equal amount of across the board spending cuts. However, neither party is willing to be that centrist.

You want to "criticise" and agree that "certainly Republicans have exaggerated the gains from the Laffer curve?"

Tear it up, champ.

More on that,


RatInPutinsMaze is the winner of this exchange

Right, by agreeing with my original point.

What a bunch of geniuses.

Whether partisans lie about which side of the Laffer curve current policy is on has absolutely no bearing on the fact that the curve does, in reality, exist.

Your original comment included the phrase “under the spell of Art Laffer.”

Presumably you back pedaled after doing a google search.

And then attacked JWatts for saying obviously true things.

But you derailed the thread, so I guess you’re 1/1 for trolling today.

I am with you, JosieB.

Things are going well now. In my opinion we should never had had the Trump Tax cut (except for cutting corporate tax rates, I do agree with that).

If we can't tax enough now when things are good to pay for what we want, then when?

What in God's name will we do in the next emergency? We spent so much during the Great Recession and since then.

Inflation adjusted per person federal revenue over the last few decades is way up... 3x as much as it used to be.

Spending measured the same way is up 4x as much.

It's not very logical to conclude the problem is that we just haven't raised taxes enough! The fact is, the government is getting more and more of our money over time. Congress just keeps spending it even faster.

The only actual solution is to stop spending so much.

If we were getting 4x as much from the government now as decades ago, then you might have an argument that we're just getting what we're paying for. But we're not. Most of the people who want to spend more think we're not getting as much of what they believe we need out of the government.

If your shoes were the same or worse than the ones you bought in 1980, but they cost 4x as much (adjusted for inflation), would you be proposing that the problem was that people just weren't willing to pay enough for good shoes? Why are the government services you purchase held to such a different standard over time than anything else you purchase?


The Treasury curve is a mess. That means Congress People have no idea what anything costs. Too much and we may be going Japan.

Damned right it is. It is as about as scary a yield curve as I have ever seen. The lack of other leading indicators isnt comforting. The economy is hiding a massive problem somewhere. I think I know where, and I'm trading on it.

Long-term real interest rates have been low by historical standards since the end of 2011. This is, has been the "new normal". It's a real phenomenon, not a central bank concoction.

Right now, the yield curve is only a little out of whack and at the short end (too high).

In the old days of stable interest rates (pre-1970s) bankers lived by the "3-6-3" rule: Pay 3% on deposits, charge 6% on loans, tee off at 3PM."

Now we're in a 2-4-2 world.

Are bankers paying 2%?

Good. Comments have been too boring and predictable lately. Welcome back.

Is a rational discourse about the budget/deficits impossible? Alas, Cowen's essay confirms that's true. Even ignoring the distinction between counter-cyclical and pro-cyclical deficits (which, as a good libertarian, Cowen ignores, because, I assume, he makes little distinction between them), we are left with a private sector that isn't pulling its weight. By that I mean investment in productive capital, promised, but not delivered, by Trump's large tax cut that will add trillions to debt but with little to show in return (the promised spike in investment); indeed, the tax cut, by being targeted to business, directly and indirectly benefits business owners: directly by reducing taxes imposed on business and indirectly by boosting share prices. And since foreigners own a significant percentage of the shares in American companies, they derive a significant percentage of the benefit. Boosting asset prices has become the path to prosperity in America, a cooperative (cowering?) Fed leading the way. No, rising asset prices is not the path to prosperity, it's the path to another financial crisis and economic calamity. How do I know? Cowen's Austrian friends have told me so.

Investment is the path to prosperity, but owners of capital have chosen not to, at least not in America; instead owners of capital have been investing in supply chains in East Asia, which has the ancillary but important benefit of facilitating the avoidance of U.S. taxes. A rational discourse of the budget and tax policy would address the enormous gap in investment in America: investment in productive capital (private and public) is the only path to real prosperity. The break in the (unholy?) alliance between conservatives and libertarians combined with the pessimism of liberals (stagnant wages, rising costs for education and health care, rising inequality) makes that rational discourse all but impossible.

Articles like this make my head hurt.

Low interest rates are being CAUSED by government. They are not a sign that everything is hunky dory. The yield curve is signalling tremendous problems.

Your description of growing out of debt reminds me of the cartoon of the cart driver holding a carrot on a stick in front of the draft animal. Yeah, it might actually work for a little while, but eventually the animal figures it out. Eventually the animal needs to actually eat.

Debt is going to topple our nation. The national debt is compounded by state and municipal debt, consumer debt, and corporate debt. We have been borrowing our way into consumption goods. This will not end well.

Debt is leverage. Period. Leverage can be a dangerous business. The USA balance sheet is not over-mortgaged (~15%), but only recently (40 years ago) it was hardly mortgaged at all.

On the other hand, households debt levels are A LOT lower than they were 10 years ago.

Understand that I think it's wrong that we slapped $15 trillion on the credit card this century, and we continue to add a trillion a year. Every one of those dollars is real. Shame on us all. Eventually, the currency will be debased. See how inflation squelched the debt in the 1970s?

But the whole thing is a long, slow burn, not a crisis. The US government today can go out and borrow in its own currency over 30 years at 2.6%. Perversely, whenever there is some kind of worldwide crisis, the whole planet wants US dollar denominated stuff.

States and municipalities don't have the same maneuverability. Things are already biting here. Government employment is flat over the past 11 years (private employment has grown by 13.5 million).

the U.S. can in essence pull in more resources from abroad, finance greater spending and consumption with additional borrowing, and still pay off its bills in orderly fashion

Until it can't.

I like the recent Fed Actions and don't mind this budget, but I still adhere to Milton Friedman's version of Henry Simons views in the article A Monetary and Fiscal Framework for Economic Stability, as does Samuel Brittan in A Framework for Economic Stability. From my point of view, the Chicago Plan of !933 has been shown to be the correct response, once again, to a financial catastrophe. More spending in 2008 would, I submit, have produced better results and ended up costing less, and most importantly, have significantly helped with employment.

I would like a smaller and more effective government, in line with the writings of Henry Simons and Frank Knight and Michael Oakeshott and Hayek and Buchanan. That's what having principles is all about. Mitch McConnell doesn't even know what a principle is. He's a marvel of nature with his ability to shift positions, often opposites, with a straight face.

Burke believed..."All government — indeed, every human benefit and enjoyment, every virtue and every prudent act — is founded on compromise and barter."

Politics is the art of the possible, but you must have basic beliefs. People who voted for Trump voted for someone who doesn't have any core beliefs. As I've pointed out many times, neither Trump nor his followers ever refer to his 100 Day Plan that he actually ran on. That's right. No idea what he stood for but let's follow him and find out what we stand for as we go along, and so they have. We need a conservative party in this country, but we don't have one. Hopefully, disgust with Trump will lead to one. Otherwise, the Democrats should try and work with Trump, never quite sure where that might end up. I honestly can't wish such an odious person as Trump well, even though no one knows the Bible better than he does, as he told us. That's got to be the most hilarious lie I've ever heard. Has anyone compiled a list of his boasts?

And yet Trump was the better choice last election, and will with little doubt clearly be the better choice next election. Remarkable, isn’t it?

Trump was the better choice in the last election, it's unclear how we'll end up this time.

No he wasn't. Thanks for helping to elect a serial liar and imbecile. Clinton, though a flawed candidate, was better. I was a for James Webb, by the way. I count not voting for Trump as among the most decent things
I've ever done. Ponder this...

Dr. Johnson now said, a certain eminent political friend of ours [Burke] was wrong, in his maxim of sticking to a certain set of men on all occasions. "I can see that a man may do right to stick to a party," said he; "that is to say, he is a Whig, or he is a Tory, and he thinks one of those parties upon the whole the best, and that to make it prevail, it must be generally supported, though, in particulars, it may be wrong. He takes its faggot of principles, in which there are fewer rotten sticks than in the other, though some rotten sticks to be sure; and they cannot be well separated. But, to blind one's self to one man, or one set of men (who may be right to-day and wrong to-morrow), without any general preference of system, I must disapprove."

Johnson was a conservative. You voted for a man without any preference for system. A man who owned casinos. I will admit it was not a great choice for us, in that sense, I sympathize, but we didn't need Swamp Thing for President.

"You voted for a man without any preference for system. "

This is true. Particularly since, I voted for Johnson too.

That doesn't change the fact that a majority of state populations thought Trump, (for many good reasons) was a better choice than Clinton.

....doesn't mean that he actually was. Just means he got more votes in the right states (while getting far fewer people to vote for him).

The Electoral College is a ridiculous anachronism that needs specious excuses to obviate one man one vote. It was almost abolished in 1970. Trump got a lot less votes then Clinton, pure and simple. The result is a farce. The fact that Trump got so many fewer votes than Clinton reminds me that this is a great country. Thank G-d I don't need to excuse the belief in one man one vote just to cling to power. It's unseemly.

I respect the honesty. I’d prefer that we keep the Electoral College system. And the Senate.

The population is already taken into account in terms of electoral votes. It’s not as if Hawaii has more say in electing the President than California.

The system forces candidates to at least pretend to represent the population of the US that doesn’t live in California and the Acela corridor. We have a HoR that’s exactly what you want. We have a Senate based on state representation and an Electoral College system that’s a hybrid of the two. This was intentional. Large changes require consensus. Sometimes it’s too slow to correct moral atrocities (slavery, Jim Crow) and sometimes it protects us against insanity flavors of the month (speech restriction laws, trillions in handouts, imprisoning communists, abandoning Iraq and afghanistan, abolishing ICE).

One man one vote means nothing if the population of 5 metro areas can vote to fundamentally alter the course of a nation of 330 million people. Typically the system forces compromise. It’s under unusual strain at the moment due to pointlessly elevated stakes at the federal level.

Obviously if the stakes are unlimited (free Medicare for any and all illegal immigrants, $12,000 in free cash per resident and illegal alien, open borders, eliminating health coverage for 180 million people by fiat, making all guns illegal, making half of political speech illegal, allowing 9 month abortions paid for with Medicaid) you are going to poison the entire enterprise.

We used to believe that Alabama can be Alabama except when they suppress African Americans’ rights. Now apparently we believe Alabama has to be Manhattan. Because they have more people.

"One man one vote means nothing if the population of 5 metro areas can vote to fundamentally alter the course of a nation of 330 million people."

I should add that he's just the President. We have the Courts and
Congress. Sadly, the Congress has ceded too much power to the
President, which is a separate issue.

"markets are forecasting low rates for at least the next 10 years"

Yes, and in 2006, markets were forecasting that mortgage-backed-securities would remain 'safe as houses' as well.

Basically agree. The only edit I would suggest: after "forecasting" add, "the Fed will keep" low rates . . .

In recent months Barron's has published two articles on modern monetary theory (MMT). Not sure I agree with it or even understand it.

Imagine: Omnipotent, omniscient government can eliminate unemployment and control inflation; and (more fantastic) it refuses to act to out of ignorance or malice. This is behind the "green new deal" and proposals that the federal government can give full-time jobs to anybody that wants one.

Bullet (selected) points for this week's James Montier interview.

Government debt is the private sector's asset; let's say national debt is national savings.

Bonds are deferred cash. When government runs deficits they're transferring money from their bank account to bank accounts of those selling it goods and services. Ultimately, deficits put downward pressure on interest rates[!!!!!]

Government and household savings are drags. Deficits boost profits.

Most likely reason for lower rates is a recession

Huge consumer and corporate debt will be trouble in downturn

Bottom line (to me), it depends on government control of almost all aspects of economic activity, like China does.

The Fed cannot keep interest rates low, they can at best keep one or two interest rates low.

The Fed creates 'low' interest by buying 3 month Treasury bills thereby bidding up their price. However if the market thinks the central bank has lost its mind and is creating massive inflation, this will not matter. Rates on long term securities will go through the roof, after all why lend money to someone for 10 years at 2% if you think inflation is going to go to 20%?!

The Fed couldn't keep all interest rates low unless it went from 'lender of last resort' to the only lender in the entire economy.

Running a deficit in circumstances like today's is perfectly gratuitous. Truth be told, over the period running from 1954 to 2008, the net increase in the nominal value of the outstanding federal debt should have been $0. During the two years after the 2d World War, our federal legislators managed to balance the budget. That we cannot do so today is a consequence of the decline in the quality of our governing classes, which is in turn a corollary of the decline in the quality of our professional-managerial stratum. What's grossly amusing is that people in that stratum today are often quite vain and compare themselves favorably to their grandparents.

Government debt is so liquid it's the modern equivalent of gold and silver ingots.

So why are we still taxing labor?

By the way, Andrew Yang is the only candidate devoting any thought to the world of (apparently) post-scarcity. If the Democrats were smart, they'd nominate him. But they're not.

If you look here at a chart of federal debt as a % of GDP by presidential terms you will see that the data contradicts almost every comment made on this post.


Typically, every republican leaves office with debt a larger share of GDP than they inherited, while just the opposite is true of democrats.

It is exactly what STARVE THE BEAST calls for.

That's because presidents legislate and appropriate in the US, correct?

"while just the opposite is true of democrats."

Did you even look at your graph? Hint Deficit numbers were high under Obama.

Yes look at the graph, Obama came in with deficits at about 10% of GDP and left with deficits of 2%.

Republicans talking about fiscal responsibility is a bit like women wearing white dresses at their wedding. A tradition that has long since become disconnected from the actual thing they are meant to symbolize.

So, now you're moving the goal posts around. Congrats, you're a partisan. Republicans will pick up the mantra of fiscal conservatism when they control the House and a Democrat is in the White House. That's pretty much the only time that fiscal conservatism has happened over the last 40 years.

More like expanding deficits are a sign of GOP control. If GOP House control is the key to reduced deficits the beginning of Trump's administration refutes that theory. It's also refuted by the 2nd half of Bush II's administration where increasing Democrats in Congress coincided with reduced rather than expanding deficits.

Thesis: The GOP is essentially a minority party that substitutes massive deficits as a compensation for their unpopular agenda and policies.

Thesis II: When out of power, the GOP uses their political capital to push for lower deficits and tighter money in order to keep economic recovery as low as possible.

"Thesis: The GOP is essentially a minority party that substitutes massive deficits as a compensation for their unpopular agenda and policies."

Your thesis is contrary to the facts already stated.

The first 2 years of the Obama administration were the two highest deficits in the last 40 years and Democrats had control of both Congress and the White House.

Both parties are bad on deficits. The worst deficits are when the same party controls both Congress and the White House, when the parties split control the deficits are lower. When it's a Democratic White House and a Republican Congress, deficits are the lowest.

The first 2 years of the Obama administration were the two highest deficits in the last 40 years and Democrats had control of both Congress and the White House.

An outlier esp. when you look at the graph and see the deficit was in free fall at the end of Bush II as the Great Recession struck. If you recall it was during the election when Bush II was asking for almost a trillion dollars for TARP and McCain was telling fellow GOPers that they would be unpatriotic not to vote for it.

Note also how you change the goal posts. We are asking how deficits increase or decrease, not what their absolute level is relative to GDP. Obama's terms are remarkable given the relentless decrease in the deficit despite the Great Recession being pretty Great from day one of his administration. We then see the reverse under Trump despite the absence of any recession, war or other exceptional event.

Both parties are bad on deficits.

This, I think, is too judgmental. We don't have evidence that deficits are good or bad. It is simply remarkable, though, that deficits show up so clearly when Republicans control the White House since the days of Reagan. You can try to spin that as a convoluted model of Republican Presidents versus Democratic House but adding that variable doesn't explain more of the data hence I shall trim away your silliness with Occumms razor.

"your silliness with Occumms razor."

Thread winner.

>> If it continues to exceed the government’s inflation-adjusted borrowing rate (currently negative for T-Bills and close to zero for longer maturities), the U.S. will be able to grow out of its debt.

I don't think this is correct. It's the deficit, not the interest rate, that we need to outgrow. If we're running 4%+ GDP deficits (as projected by CBO even before recent cap-busting deal) and growing 2% real + 2% inflation, we're not outgrowing the debt.

I'm not sure I understand your "has become" argument. What has changed since the age of rational discourse?

I think maybe part of the macro-economic difficulty here is all government accounting spending to G. In GDP transfer payments do not count, government purchases of goods and services do because the represents real production the economy has to accomplish. Transfer payments show up in the consumption spending of those who receive them.

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