kinder, gentler debt ceiling discussion

[Chad]

Yes, there are many more serious "unintended consequences" like this one: http://www.wtop.com/959/3469839/Shutdow ... ood-supply

On the other hand, you could pick up an easy $10-spot for some of your precious bodily fluids, Chad.

I will keep that in mind Dragline. Much appreciated.

[Riggerjack]

On a not completely unrelated note : HTTP://finance.fortune.CNN.com/2013/09/ ... bt-crisis/

Guess who else isn't paying their bills?

As for the 10 million dollars not being paid into the private economy in the above example, that is also 10 million plus interest not sucked out of the private economy in the future. I understand to need to tie deficit spending to economic benefit, but as with everything in economics, there is a tradeoff. Presenting one side without the other is inherently dishonest. Yes, I know I am also guilty of this.

[jacob]

http://www.slate.com/blogs/the_world_/2 ... if_it.html [funny]

Sauce for the gander ...

[Felix]

@Riggerjack:

First of all: You have to factor in the underlying GDP. The US had a higher debt to GDP ratio after the second world war, then kept the debt steady while tripling GDP till 1980. (Even though they went way beyond Reinhart/Roghoff's 90% )

http://upload.wikimedia.org/wikipedia/c ... USDebt.png

Second: Since going off the gold standard, at which point is the US required to lower the US deficit? (Sure, in the case of inflation, take money out, but we established in the last thread that there is no issue of default.)

I don't know how often I have to repeat the fact that the US government is not a consumer with a credit card. It does not have limited dollars. It does not need to borrow the dollars it prints itself from China.

It is not yet another user of dollars, it is the very source of these dollars.

[Chad]

@Riggerjack:

First of all: You have to factor in the underlying GDP. The US had a higher debt to GDP ratio after the second world war, then kept the debt steady while tripling GDP till 1980. (Even though they went way beyond Reinhart/Roghoff's 90% )

http://upload.wikimedia.org/wikipedia/c ... USDebt.png

Second: Since going off the gold standard, at which point is the US required to lower the US deficit? (Sure, in the case of inflation, take money out, but we established in the last thread that there is no issue of default.)

I don't know how often I have to repeat the fact that the US government is not a consumer with a credit card. It does not have limited dollars. It does not need to borrow the dollars it prints itself from China.

It is not yet another user of dollars, it is the very source of these dollars.

I agree completely with all your points Felix. That doesn't mean we shouldn't get our spending under control, but this is ridiculous. We are currently trying to cure the disease by killing the patient.

[jacob]

@Felix - I suggest trying a different pedagogical tack. Currently, you're arguing with accounting identities, e.g. government liabilities = private assets, and no one is biting.

I suspect this is because Austrians, business owners, traders, and the likes see the operations quite differently. To them it's not government&private sector. Rather, the government is simply akin to yet another large organization. To wit, in such a model the government is more like, say, General Electric albeit with the power to write out infinite credit and force people to purchase its products. If you see the government like that, you will probably arrive at somewhat different conclusions as to what happens to wealth, productivity, and very importantly _prices_ when the "government organization" acts.

Here's an analogy. People often say that trading is a zero-sum game. This is true if you're counting beans. Before the transation there were X number of dollars total in the system and Y number shares. After the transaction, there were still the exact same number of X and Y in the system. Consequentially, by the accounting identify you can say it was zero-sum. However, dollars and shares don't transact at constant prices. Consequentially, by trading some people end up with a greater share of the constant pie. As such they are capable of directing a greater share of the pie. It is presumed that because they are good at conquering the pie they are also good at putting it to more productive use causing the pie to grow from actual work, i.e. more shares and more dollars... X and Y increase.

What accounting identities do not emphasize is just how this new equilibrium is reached. Like what exactly happens when the government transacts. Obviously when the government writes another check to increase the number of dollars, the private sector does not instantly translate that into factories and cars.

My suggestion is to try to argue more from the microperspective if you want to convince those who traditionally hail from the right (or do transactions for a living).

In particular ... while it's clear from a macroperspective that the gov is not a consumer with an unlimited credit card, it certainly appears that way from the microperspective and people who deal with the government will set their prices accordingly (thus pricing other people out). I think this is one of the main objections towards increased government spending. It's great if you're selling to the government, but it's bad if you're trying to buy from those who are selling to the government because they are raising their prices.

[slimicy]

Some historical perspective:
http://m.nationalreview.com/article/360 ... -c-w-cooke

[Felix]

@jacob: I guess from a micro-perspective I am having an even worse position trying to convince a libertarian.

Heck, I even agree that governments are mostly inefficient, corrupt and operating by force.

But my position is that you have to at least get the accounting right if a theory is supposed to be valid and I do not see this in the "government steals my money" model, which is why I correct it until my fingers are bloody stumps ("I can't go to bed, someone is wrong on the internet"-syndrome).

There are enough things wrong with government, why invent imaginary problems?

If you want a smaller government, that's fine. If you want no universal healthcare, that's fine. But that's no reason to invent arguments that it cannot be financed.

These are policy decisions. Just because things can be financed does not mean that they should. Especially when everything can be financed.

The ironic thing about the "buying from government means wealth is redistributed to me" idea is that the government is the monopolist on money. As such it is a price setter. It does not seem to use this power, though.

I better sleep over this one again.

[Riggerjack]

Jacob, again awesome link. Also another good summation of why I'm not biting on Felix's monetary assertions.
Felix, you can push your views as often as you like, I see them as an artifact of your model, not as fact. We've been over this before, and I don't see either of us changing our minds. In an effort to play nice, I've been holding back when you expound on your statist money theory. Others seem to agree with you, so maybe I'm missing something. I've read your mosler links, he seems to couple Keynesianism and money creation theory to spin off into a world all his own. Citing complex fantasy is no more persuasive that quoting elves. But then, I've been wrong before.

[Riggerjack]

Good link slimicy.
For a less partisan approach try http://en.m.wikipedia.org/wiki/Governme ... ted_States

But slimicy's link had more references to who was disagreeing with whom in each case.

[Felix]

@jacob: I guess one of the differences I have with this microeconomic view is that it makes the same basic mistake, thinking government is just like General Electric, a player in the game.

If you take the player in the game analogy, I think Monopoly is a good example.

You, me, General Electric are players. The government, however, is the bank. It makes sure the game is being played according to the rules and manages the money. It gives everone his starting money and gives out money everytime you pass Go. It gives prizes, it collects taxes. Now you can't do that as a player, that would be nuts. The entire game would break down. So if you are a player, you would say that you would certainly go broke if you just passed around money everytime someone passes go and why can't you collect taxes. It can't run out of money (if you run out of paper money you are allowed by the rulebook to create new bills) or has to earn enough. It is not a player in the game. It interacts with players, but that's where the similarities end. The bank can't win the game. If the bank took all the money out of the game the game just sucks and then ends and the bank still did not win.

The bank is not a player in the game.

Also, true to analogy, the players usually bankrupt each other and the game ends before the bank could ever even run out of paper money.

That link is hilarious!

[Riggerjack]

Also true of monopoly, the more the bank takes, the poorer the players are. Pay poor tax of $15.

[Felix]

Certainly true. Then it could either tax less or spend more for the same end result of wealthier players.

[jacob]

@Felix - For the purpose of modeling and understanding the systems interactions, the monopoly bank is a player. It simply has certain abilities the other players don't.

Similarly, for the purpose of modeling and understanding interactions, in a soccer game, the referee is a player as well. They all interact even if one of them is a "special".

Maybe instead of player, think "agent".

I agree that the bank (government or monopoly) can't run out of money just like a soccer referee can't run out of red cards. But it can cause the other other players to significantly change the game and even cause them to stop playing.

Here's how to analyze the monopoly game:
What can the players do?
They can decide what to buy and what not to buy in terms of properties.
Ditto houses and hotels.
They can negotiate prices for properties with other players.
They can stop playing.
What can the bank do?
It can change the amount received by passing start.
It can hand out prizes and fines.

So lets do a thought experiment. What if the bank 10x the start money? How would that affect player behavior? When it gets really interesting is when players are different. Suppose a few players own most of the RE and the others are just trying to stay alive. How would that affect RE prices? Or suppose that the bank takes in $15 in poor tax. How would that affect a player with $5000 in cash compared to one with $20 in cash. How would effect Lucky Lucky who rolls 12s all the time compare to Sad Sally who always roll 2. Definitely the money does not go back to those it was taken from in the exact proportion. It gets redistributed---And then people respond to this redistribution. Causing the gov/bank to enact a new law, and so on and so on.

Admittedly, there aren't many degrees of freedom in a game of monopoly. However, consider the expanded version wherein you can lend each other money, etc. If that was the case, you, as a lender, would probably want to keep a certain player, the bank, in check to avoid too much competition which would drive you out of the lending business.

What I want you to see is that by changing accounts (by the all powerful gov methods) around you change the relative ratios between who owns what. These ratios are what governs people responses. For instance by infusing cash, you decrease the value of existing cash. By taxing work, you decrease the value of work. By buying services, you increase the value of those services while other services remain at the same value.

Those who want a balanced budget are hurt by deficit spending because it means that the government prefers to extract value from those who hold wealth in the form of cash, assets, ... instead of those who supply work. Those who don't care about deficit spending have little assets in the form of cash, etc. to get devalued. IOW, a balanced budget tends to favor those in the economy who are savers (and lenders). Conversely, a deficit favors those who are spenders and borrowers.

Indeed, if you adopt the player/agency model you can see, e.g., why military families tend to vote R instead of the D which would make more sense for their socioeconomic position. Namely, that R tends to favor military spending which subsidizes those working in the military sector. Here government spending = their income which offsets their cost of decreased gov services.

Lots of other stuff to see as well.

[Felix]

I do not argue against the fact that what government spends money on and how makes a difference to the incentive structure. This is crucially important.

However, I do argue that the numbers have to add up in the end. To supply enough money to the economy you can either cut taxes or increase spending. You can increase interest rates on bonds, which would give money to people who own these bonds or you can increase welfare which would give money to poor people. You could lower taxes for workers or you could lower taxes on capital earnings. All of these redistribute the money in the economy. You could implement a progressive or a regressive tax system, maybe even a progressive consumption tax. You can tax and spend in more different ways than either of us can possibly imagine.

I have ignored this way more complex part to get the simple part across first that no matter what you spend on, if it's too little or too much in total, it will hurt the economy. This basic accounting is usually lost in all the fuss about the myriads of ways to spend and tax.

[Chad]

Our current system is definitely more like Monopoly where the bank is a player.

[Felix]

Hehe, yeah, that metaphor doesn't really go that far.

[BennKar]

Great. I donated blood a few weeks ago. If only I knew

Yes, there are many more serious "unintended consequences" like this one: http://www.wtop.com/959/3469839/Shutdow ... ood-supply

On the other hand, you could pick up an easy $10-spot for some of your precious bodily fluids, Chad.

[Spartan_Warrior]

Psst... you get more money for the blood plasma. $20-30 per visit. There are other bodily fluids that sell for even more if you'd like to hear about it.

[Riggerjack]

Ok, we seem to have wandered off topic a bit, so I don't feel guilty for going further off topic, talking about the economy as a whole.
I don't believe in any economic models. None of them. Models are simply tools for simplifying parts of a dynamic system, for teaching principals. Keynesian modeling is fun. It shouldn't be taken anymore seriously than that though.
I think of modeling the economy like modeling waves in a pool. If the pool is still, you can work out the size of the wave, if you know the shape, speed, mass and trajectory of the rock you throw in the pool. This is microeconomics. You can measure the reflected waves to figure out the size and shape of the pool. This is the level of knowledge in macroeconomics.
The real economy is the ocean. There are tides, shorelines, under ocean topography, ships whales and reefs.
we have no working models of this ocean. We can predict currents, tides, and weather, we can observe ships, and know thereare whales down there, stirring things up unseen. We can predict what kind of slash something will make, because we've been watching. But if you are busy calculating your model, the results are out of line with reality before your math is done.

Think about it, you are trying to map in aggregate the actions of hundreds of millions of people, within a group of seven billion people. Most of those people don't even know about whatever change you are modeling. No matter how big it is.
No model's if X then Y is true. Only if X, then Y tends..."