Way back in the early days of the conservative movement, it was assumed that Federal spending was both unsustainable and damaging to the country. Cutting the size and scope of government was their thing. The tool they eventually settled on to reduce Federal spending was taxes. If they made high taxes so unpopular with the public, the Left could not keep raising taxes. If they could not raise taxes to cover their spending, they would eventually have to yield to the mathematics.
Obviously, that never happened. The big tax reforms of the 1980’s did simplify taxes and lower rates on rich people, but revenues remained stable. At the same time, spending kept growing. One of the unspoken truths of fiscal policy is the percent of GDP that is consumed by Federal taxes does not change much of time. The range is between 15% to 18%, depending on when tax policy was changed. This is the logic of the flat tax. One rate, no deductions and no more IRS.
Spending, of course, keeps going up, no matter who is in office. Despite their rhetoric, the Republicans are the big spenders. In the 1980’s they had to spend on the military to win the Cold War. In the Bush years it was the crusades against Islam. It is only when a Democrat is in the White House that the Republicans get tight-fisted, and even that is mostly ceremonial, as we have seen with the last Covid bill. It turns out that there is no relationship between taxes and spending.
Another shibboleth of conservatives is that eventually the bond markets will force a haircut on the government. The so-called bond vigilantes will drive up interest rates, which will make borrowing more expensive. The theory here is that there is a hard limit on debt. Once that limit is reached, spending must go down or taxes must go up in order to reconcile the books. Like the belief that taxes will curtail spending, faith in the mythological bond vigilantes has been misplaced.
Of course, you can go back further and find arguments from the hard money crowd about the limits of fiat currency. There was an argument in the old days that said fiat currency not only unleashes spending and inflation, but it eventually makes the money worthless, thus bankrupting the state. We have been off the gold standard for a very long time now and none of the predictions came true. The spending continues, the borrowing continues, and the money creation continues.
The gold bugs have now moved to crypto currency as the savior. Once everyone is using digital money that is outside the control of the state, then we end up with a de facto gold standard. That will force fiscal discipline on the state, which means radically reducing spending. The fact that this will never happen has so far not dimmed the enthusiasm, but like all of the other schemes to cut spending, this one will prove no match for the animal cunning of the ruling class.
There is another theory related to money. The monetarists have always argued that sound monetary policy would impose discipline on the state. Since central banks are independent of the state, they can maintain a stable money supply. While not the same as a gold standard, sound monetary policy has similar effects. That has turned out to be a myth as well. The Fed is now captive to the spending frenzy of Washington, finding new ways to underwrite trillions in new outlays.
Now, there are those who will keep lighting candles for their favorite theory. The gold bugs, for example, are sure hyperinflation is around the next corner. The bond vigilantes are similarly sure the next crisis will confirm their theory. The truth is though, none of these theories turned out to be true. The official debt is $28T, but that excludes things like Social Security. The real debt obligations of the Federal government are incalculable. No one knows and no one seems to care.
The lesson of the last half century is one the monetarists learned from the battles over the gold standard. If the ruler is so corrupt you need hard money to control him, your ruler is corrupt enough to find a way around the limits of hard money. It turns out our rulers are more than capable of conniving around every limit put before them. They have reached levels of corruption that were though impossible half a century ago. The display being put on now suggest they are just getting warmed up.
This rather shabby track record should raise a question. That is, is the field of economics just pseudoscientific nonsense? It has lots of complexity and lots of very clever solutions to the complex problems it unearths, but outside of the most basic of concepts like supply and demand, economics is not very useful. In all of the important things, it turns out to be wrong. Astrologers have a better record than economists, because they know they are grifters, not scientists.
Putting that aside, the lesson here is that contra the libertarians, economics is downstream from politics. No amount of fiddling with the tax code can fix the defects of the political class. Even further, the right people in a corrupt system cannot correct the defects of the corrupt system. This is why the people come and go in Washington, but the corruption rolls on unimpeded. In the great chain of causality, economics is the last link in that chain. It is the final effect of a chain of many causes.
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” is the field of economics just pseudoscientific nonsense?”
Well, they gave that idiot Paul Krugman a Nobel prize. No kidding.
When my children were young and they wanted something that I told them we couldn’t afford, they always responded , write a check. I had to explain to them how personal finance works. Still works that way just not with governments. I need my own personal Fed.
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It’s actually not a real Nobel Prize. Some bank created it so as to sound like one.
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Krugman wrote Economics textbooks before his NY Times gig. James Taranto at the Wall Street Journal used to post glaring contradictions Krugman made between his textbooks and his NY Times column. From what I saw, Krugman never responded to any of them. He is a good representation for our clown world.
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You can still find article he wrote in the 90s before he became an important liberal pundit. That are not insane and contradict progressive ideas.
I wonder if his modern iteration is a knowing fraud or if he’s deluded himself.
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But, but, but… book by a respected publisher?! Column in national newspaper?! Yes, he is a good example of how deep the rot in The System is.
Yep, economic reality works at the personal level but not at the national one. The economic gloom and doomers haven’t been right in forever, but like a broken clock, probably will be at some point down the road.
Nothing seems to make much sense anymore, so might as well go with the flow and don’t worry, be happy.
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The tax increases our fake rulers want to impose have nothing to do with spending or the deficit. They are a punishment for electing Trump twice and forcing them to rig an election to regain power. I don’t pay much attention to economic theory but I do know that Art Laffer is right and these increases will reduce tax revenue and GDP in the long run (that too is a punishment). Nothing is easier to move than a corporate headquarters.
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Taxes at the federal level now are levers to alter behavior and punish opponents. Actually collecting revenue is a minor concern.
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I believe supply and demand are still constants that remain valid. It just seems that right now supply is unlimited, allowing for the money printer to keep working overtime. I’m pretty sure that will end, probably in my lifetime, due to a variety of factors.
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I worked in restaurants for a number of years and we always heard that restaurants had an incredibly narrow finacial margin in which to operate and I know that a lot of restaurants are closed this but more have not and they’ve been closed for a year and they’re still chugging along. We told
half the population to stay home and not work, gave them fiat money and it’s all fine. I have no idea what’s going on but I’m pretty sure none of the great economic theorists from the past would either. All I can come up with is the Western world unbelievably resilient. I think it will be crushed eventually but I think it’s much harder to destroy than anyone thought
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The last year has shown that talking head class doesn’t understand the dynamics of business, especially small businesses – which is actually kind of shocking.
What’s happened with restaurants, and other small businesses is that: They suffered a huge loss of revenue from the shutdowns. And those shutdowns also closed the civil court system. Which prevented foreclosures and evictions. So the business owners can be losing money every month, but can also remain open as long as they have some revenue, which exceeds the marginal cost of production. In practical terms, they have some money coming in even though they’re going deeper in debt every month and no one is forcing the collection of that debt. So they’re hanging on hoping for a turn around or bailout. And why not? It’s not like they can go get a job making more now anyway even if they wanted to to. So they keep extending and pretending. And make enough to survive another day.
It’s going to take years for all of this to unwind. And it’s not completely nuts for them to hope for some bailout or at least forebearance.
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That’s interesting. The eviction moratorium is another one of those things. It’s got to be destroying a bunch of landlords but I guess the Court’s being closed is helping them too for the time being..
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Indeed. The level of intervention is so extreme at this point that there is really no price discovery or actual transaction clearing for much of the market, up and down the stack.
The restaurants, landlords, lenders, and investors all trade on a tenuous revolving debt arrangement that is an extension of fedgov debt in the same way that it is not yet allowed to reflect reality.
Like “the truth always finds a way out”, reality will creep or crash back in. But the winners and losers have already been chosen.
Something to watch is the labor supply. Round here retail and restaurants can’t find staff even tho 10% (20%) unemployment because PUA still pays enough to stay home.
The two sides shall meet. Massive economic contraction and massive low skilled labor paid to stay home while the debt is stripmined into assets by en ever-shrinking set of players and the liabilities that are too impaired to ever be cleared are taken to that warehouse where they put that Ark indiana jones found along side the gorillion in derivatives from the last “great recession”.
When I put on my chosenite globo banker cabal sombrero I don’t see a “great reset” without war. But I’m cynical like that.
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Those bailouts are beginning to be offered with massive Socialist strings attached. They basically turn the landlord into a private-sector government employee.
” is the field of economics just pseudoscientific nonsense?”
Maybe AOC is an economic virtuoso after all. When asked how she planned on financing free healthcare-for-all, didn’t she reply with something along the lines of “I don’t understand the problem. You still have healthcare, it just costs less.” This is probably how she thinks the fed and the budget works, and at this point, who can blame her? “I don’t understand the problem, we can just print more money…”
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She is certainly a propaganda virtuosa. AOC has made the classic error of conflating a health insurance card with actual access to a doctor who speaks English and has an MCAT score and training that would inspire confidence. The Soviet Union had “healthcare for all”, but my reading of “The Cancer Ward” suggests the reality didn’t match the slogan.
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Well, in prepping for this event I’ve already bought a copy of the textbook Grey’s Anatomy, in addition to one on clinical medicine. Some of the boobs I’ve seen over the years and many, many more that I’ve heard about makes me think this is a wise choice.
That said, I doubt I can operate on myself; but still. It’s a start. The lack of all round intelligence in some doctors is incredible. Then factor in diversity hiring. Then factor in bureaucratic careerism. Then factor in the lack of English speaking skills.
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Hey Mr. Frog, you should have heard one of our Irish cousins on a conference call talking about number “tree” (aka “three”).
His family have been speaking “English” a LOT longer than mine have… and don’t get me started with the Americans from down south…
Economics is psychology with sexier quant. It exists in that space between reality and the human endeavor to bring order to reality which of course invites all matters of anti-reality. Show me on the chart where the Fed touched you.
The practitioners anchor economics in human behavior while also reserving the right (necessity) to produce sexy quant to explain the time travel and rationalizing irrational human choices necessary to square all the circles created. Its a nice little 120 IQ club.
In their system humans are both operants and passive subjects of some greater force (to be determined.) So much dark matter.
To be fair, the much more mathy physics has its own problems. But I have found economists to be just more arrogant psychologists. At least psychologists are constrained by their subject matter being human.
Years back I knew my gut was correct in not lionizing the econ gods, which was common among my bankster peers, when the industry invented “Behavioral Economics”.
Psychology was a joke to them except when they have to admit that econ has something to do with human behavior.
Like wannabe rocket scientists they get annoyed that the rocket must carry astronauts.
I guess the jokes on me though. Apparently MMT to the moon is a real thing and puling all my fiat out of the market because broken fundamentals was a psychological choice and not an economic one.
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The most astonishing thing about economics is how it’s pure theory, untethered from history. Moreover, the theory is never subject to revision if contradicted by history.
As a confessed goldbug I draw the distinction between a gold standard and gold as money. I agree a gold standard is subject to abuse but it’s more difficult if gold itself is used as money. Prior to 1965 we had both a gold standard and silver as money, silver being 90% of every quarter, dime etc. My preference would be the use of gold and silver as money without the need for any standard.
Arguably the Constitution does not permit the issuance of paper money in the first place. Not that anyone cares what it says anyway.
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And of course, one of the major reasons that ConInc conservatives focused on economics is to avoid the dreaded “Rayciss!” accusation. And of course it didn’t work. the fallacious assumption being that the left screaming “Rayciss” had anything to do with something people were actually doing, any more than Stalin’s purges did. It has to do with who you are, not what you are doing, as now is becoming obvious to everyone but David French et al…
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What’s happened, as much or more by accident than design. Is that the dollar became the world’s reserve currency. Which means that it is desired by all countries engaged in global commerce. Even where that is not directly tied to the United States. This ‘demand’ is filled by expanding the supply, via federal debt. It’s a paradox that federal debt is fundamentally different than personal or corporate debt – that many people just can’t wrap their heads around. The money will never be repaid, and no one wants it to be because it’s not debt in that sense – it’s money creation.
The situation is analogous to a country that suddenly discovered a huge gold deposit becoming instantly rich and powerful (this has actually happened repeatedly in history). Except that there is no marginal cost of production and no limit to how much money can be created.
Hyper inflation and collapse are the inevitable end point of this dynamic. But, that can be very far off in the future, and honestly it’s not even on the horizon now. Because, the growth in global productive capacity has so far matched the increase in money supply.
One way of looking at this is that the federal deficit spending is an inflation tax imposed on the entire world. It largely hidden, obscure and diffused. So there is little limit to it’s continued expansion.
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That’s MMT in a nutshell. So long as the money created and sent into the system matches the growth in the production of goods and services (plus money velocity), you won’t have inflation.
The dollar is the world’s currency, not the the U.S. We print dollars and the world sucks them up to match production, but we get to use the dollars first, so as you say, an inflation tax on the rest of the world.
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The saddest part is that all this spending, which has not “YET” brought about the fiscal apocalypse, has mostly been spent on so much useless junk.
Imagine if we had printed say 5 trillion dollars and spent it all on fusion energy research to get the technology off the ground.
We could have the same levels of non-hyperinflation along with a vastly improved living standards.
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Yes, but black people.
They are expensive pets to keep.
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“Imagine if we had printed say 5 trillion dollars and spent it all on fusion energy research to get the technology off the ground.”
Instead we’ve spent 20 trillion attempting to fix a problem that cannot be fixed with money, only time. We’ve attempted to turn a genetic missing link who is 300,000 years (give or take) behind the evolutionary advancement of Homo-Sapien and turn it human by throwing money at it.
In the 1960s at the height of our empire and ingenuity we instead decided to commit national suicide by slowly unraveling a Gordian Knot. So no fusion, no functional lunar colony, no sub-orbital commercial flight, nothing. Instead we got— Detroit. Everywhere.
tinyurl.com/2avfvr77
That study is from 2012 and we were at 15 trillion so I’m guessing 20 easily by now. But a n1qqa got some gibs and some rims yo! So don’t weep too hard for your civilization…
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Over 100 million people added to the total US population in the last 30 years.
100 million! And that’s not because we’re breeding like rabbits. Quite the contrary.
This country went off the rails a long time ago; monetary policy is just another symptom of it.
Hyperinflation is a political decision. The rulers have to make some real deliberate effort to create one.
When hyperinflation arrives one day, you should know that it was created intentionally and not as a result of mysterious market forces.
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Hyperinflation is the rights boogeyman.
The reality is that it only happens in small isolated economies cut off from trade.
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Hmm, sure. that is not what I was talking about.
Was Weimar Germany a small isolated economy?
What I meant with my previous comment is that if hyperinflation arrives, it’s not going to be because of the “printing” that has been going on for decades. It will be because someone makes a decision to finish off the currency, just like they did in Germany after WWI.
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This is correct. It is a political decision that benefits the powers that are implementing it. Mugabe in Zimbabwe used hyperinflation to purge his main competition (the upper class doctors / lawyers, etc). They were all forced to leave the country or become destitute. Better to rule a dung heap than deal with your opposition. Also, he was able to soak up all the charity money that flowed in at its peak.
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It can happen anywhere, though the U.S. and Europe have decided to print-print-print and it’s pushing everything else out. Local currencies cannot be caught to the upside (lest they not be able to export anything) so they need to print-print too, which makes the western currencies even more appealing, which allows even more inflation to be exported. Rinse-lather-repeat as they say.
That’s kinda been the weird thing all along with China thinking it’s playing 4D chess with them poisoning their countryside and enforcing a regime of poverty on their people by trading their industrialization for phony green paper in an effort to destroy the industrialization of their enemy. Yes I think it’s bad for us over all (and, not all that great for them), but it’s hard to tell someone to quit buying stuff at some pawn store when that pawn store accepts any currency that comes off of their printer at home.
The barrel does have a bottom though, and when it goes bad it will go bad all at once.
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People on the right need to accept the reality that deficit spending does not matter in the ways that they want to believe it does.
Further, it’s foolish to attempt to end it.
The type of austerity that would be needed to bring the federal,budget into balance would be extremely unpopular, resulting in the party doing so losing power. And being replaced by people would ramp up the spending again.
The only thing such an expertise would accomplish is enabling the priorities of their political opponents. Which is exactly what happened from 1994 -2010 when the republicans captured congress and almost balanced the budget – folllowed by Bush and Obama.
Instead the fight should be over how to spend the money.
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If economics is about anything, it’s about constraints. God bless the old macroeconomists; they thought a Government had constraints on spending – “crowding out” of production private investment via higher interest rates and capital scarcity, intertemporal consumption/savings preferences, trade/currency effects etc. The old economists just lacked imagination.
They failed to grasp that the entire system could be financialized. Even subprime used car loans are routinely securitized and sold off on Wall Street, and at low rates that would astonish most people on this blog. Robinhood and LendingClub are just two recent examples of the exploration of new frontiers of financialization. Obviously nothing gets “crowded out” like the old professors used to teach us in Econ 101.
Economics may or may not be downstream from politics. But I’d suggest that the DR needs to contemplate de-financialization as a political platform. Tearing up credit cards, barter, cash business etc is certainly a more valid political act than voting in these rigged elections. Again, thermodynamic constraints will be the only ones the political class will be forced to acknowledge – eg not enough chicken wings for welfare recipients, brown-outs, etc. Meanwhile, “sand in the gears” means disconnecting yourself from the financialized economy to the extent you’re able.
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I’ve never understood any of the economic arguments, and not just because I’m a Liberal Arts guy who needs to take off a sock to count past ten. It’s because I know something about the history of the USSR. Their “economy” was pure make believe, top to bottom, stem to stern, and they staggered on for most of a century. What brought them down was the same thing that will bring “us” down: vapor lock. Each little bureaucrat is an emperor in his own kingdom. Each little kingdom is thoroughly corrupt. But alas for all the little emperors, they rely on the other little emperors doing their jobs in order to keep their own grifts going. Eventually one of the little emperors won’t be able to keep all the plates spinning, and the whole thing comes crashing down. “Money” makes for a nice fable, but it’s got nothing to do with anything.
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Took my fair share of economic classes back in the day. What a waste. Economics might be the stupidest major in the history of higher ed.
First, it’s reasonably hard but pointless, so you’re wasting good minds on the equivalent of digging a ditch and filling it back up. Second, once you get past all the math and charts, it’s all just based on certain assumptions which are often ridiculous.
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Blah blah blah.
Always find these debates tedious. In 2021, bonds gold, crypto, taxes, are just whitey talk. With the new imported voting demographic, taxing and spending will be as the Democratic Party / Globohomo sees fit. One day your 401k and Robinhood will be confiscated. Because your great grandaddy was a racist.
Ultimately every issue is downstream from race. The only language they speak is “Ayo, gibsmedat”
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They won’t confiscate your 401-K. That would destroy the grift and signal panic. Instead they will tell you that you can only buy government bonds with it. They will yield 2%. Inflation will be 10%. Problem solved. I’m guessing Reparations will be financed this way.
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I keep thinking about our 401ks being confiscated. We get closer all the time. They can come up with any number of ways to justify taking our retirement money using their way of blaming whiteness. After all, isn’t planning ahead and saving for the future a white thing? And if whiteness is bad and something to be eliminated, and equity is the goal….you can see where this is going.
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re reparations, who decides how black you have to be to get some, and how will the percentages be calculated. If my dna shows 3 percent african ancestry am I a repressed ex slave seeking entitlements? And will the reparations be a one time cash prize or an ongoing support mechanism, cuz, you know, if you give a mouse a cookie—
All you need to know is whatever you give them it’s never enough.
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“That is, is the field of economics just pseudoscientific nonsense?”
Yes. Yes. Yes. As you mention, there are some economic truths; but even these could not really be said to be universal laws. Most theories I have seen for economics seem to borrow heavily from physics. Good old fashioned, easily verifiable physics, I might add – fluid dynamics for example. Naturally, if you want to give your field more credibility you dust of the old differential equations textbook and stick some mathematics in.
I think it is also fair to say that even some pretty solid reasoning – like that of currency inflation – holds up very well for small scale systems. But at the large scale, everything gets lost. Also, how does one even test an economic theory?
We know that we don’t know. But, we also know that our leaders don’t know. Which may be a blessing or a curse depending on how you look at it. This post reminded me of your ‘Jelly Bean Central Banker’ essay… it is interesting to imagine how the money supply of a small community, who knew that their local elites were printing money on demand, would change. Alas; scale, scale, scale. Our problem is scale.
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Even more than the Covid spending spree, Japan is great destroyer of economic theory. Japan has massive debt and prints money like water over Niagara Falls, yet it battles deflation, not inflation.
Sure there are explanations, trade surplus, aging population, debt held mostly internally, but still, debt to GDP of 250% and growing, yet its bond yield are lower than U.S. yields. Betting against the Yen and Japanese bond yields even has its own name: the Widow Maker.
The scary thing is that Modern Monetary Theory seems to describe the world better than classic economics. Btw, don’t confuse MMT description of the world with the prescriptions politicians get from MMT. Those are two different things.
Anyway, all of the DR folks waiting for the great collapse or big-time inflation might want to reconsider. Also, if borrowing doesn’t cause too many – if any – problems, than taxes don’t matter, so the Dems don’t have to raise taxes to pay for what they want. Ironically, if you follow the logic of MMT, taxes only use would be to pull money out of the system, not to pay for spending.
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“Economics is downstream from politics.” And politics is downstream from biology. Everything is downstream from biology, which is why libertarianism doesn’t work and empires always collapse.
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Our foreign “debt” isn’t really debt. It’s a way to morally launder old-school tribute payments from vassal states (who don’t expect their “loans” to ever be repaid) to the empire. We created this pretense because we don’t want to admit that we’re an empire or that we have vassal states that pay us tribute in exchange for security. But the reality of the situation is reflected in the fact that this debt behaves nothing like normal debt.
When the empire winds down, we’re in for a nasty encounter with reality.
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“Economics just pseudoscience”. Possibly, but I think the main purpose of economics is as an ad hoc justification for the status quo, if reality will achieve this then no doubt reality wIl do. If not, it’ll have to be pseudoscience.
We were on a gold standard during both of the world wars. The wars cost enormous sums of money and the gold standard really did nothing to reign in the allied governments’ spending.
Bitcoin is a joke. The second it starts having the effect its proponents claim it will have, they will outlaw it. But even if they weren’t going to outlaw it, do they really think the bottom 25% of the population can effectively deal with and use such a convoluted money system?