US National Debt Does Not Matter?
- Thread starter fkienast
- Start date
The Left doesn't believe a word you are saying.
There are a few points that come to mind.
For a country like the U.S., government debt levels matter much less than is commonly assumed. This is because Treasury securities are an asset on household balance sheets which offsets the debt liability. If we have debt of say $10k per household, that same household owns around $6k of Treasuries, effectively owing this debt to itself. Foreigners own the rest, but here again Americans own foreign government debt and other assets such that the stock nets out close to zero, and we actually come out ahead as the returns on American investments abroad are higher than those on foreign investments in America.
As to consumer price inflation, yes you can certainly get meaningful inflation from some combo of high money supply growth and supply constraints. It's almost impossible to come up with hard figures as to how these variables play into CPI inflation, because CPI inflation is an artificial construct and the relationship depends on countless difficult-to-quantify factors. So that's why modern central bank policy amounts to observing capacity and CPI numbers, tightening when things start to get hot and holding steady or loosening if CPI isn't rising much and there is still idle capacity.
I think it's safe to say that none of the Democratic spending plans are likely to create an inflation problem here. First, the plans include tax rises. Second, the biggest ones (medicare for all and hypothetical UBI) would be largely funded by redirecting existing streams of government or private spending, and doing so in ways that are likely to be more efficient - e.g. Medicare for All replaces private health spending, UBI would presumably replace existing welfare spending and tax credits/deductions amounting to several thousand a year per citizen while cutting out vast amounts of bureaucracy and administration.
It matters - but in different ways than the Party lines would have you believe. The Republicans are a bit overly hyperbolic about it, and the Democrats are vastly naive and purposely misleading about it.
If America were to go down the same path as Great Britain did with the 1942 Beveridge Report, then the implications for America's future will be similar to those of Great Britain's postwar if history is reliable.
There is no way that the United States citizenry would abide the kind of taxation levels on the middle class that makes the Swedish model economically feasible. You are simply not going to be able to tax a school teacher or an electrician at 70 percent in the United States.
As with most all things with political overtones, the truth lies somewhere in the middle. The rich are very good at avoiding taxes. And even if you taxed the top 1 percent at 100 percent of their income it would take a couple decades to pay off the existing debt provided that spending remained constant. The US doesn't need 1,000 overseas forward deployed military bases, and there hasn't been a serious proposal advanced that explains in detail how the US will pay down its existing debt whilst simultaneously enacting free college and universal single payer healthcare. Just saying "the rich should pay their fair share" and "cut US military spending" isn't a solution. Just having governments and corporations and middle and high income individuals pay some amount into the US Treasury while that same Treasury cuts millions of checks each month to hospitals, clinics, doctors, and pharmacies is quite frankly the same philosophy that got us into our present and exploding debt problems to begin with. I'm not hopeful that the government apparatus that brought us the broken and dysfunctional VA would fare better than a private sector solution allowed to operate without the antiquated biased special interest serving national and interstate commerce insurance and healthcare restrictions we have at present and with the advantages of heretofore restricted collective purchasing power for things like medical devices and prescriptions.
At present entitlements take up over three times the military budget (2017). To say that free college and universal single payer could be enacted without serious repercussions is a lie.
If America were to go down the same path as Great Britain did with the 1942 Beveridge Report, then the implications for America's future will be similar to those of Great Britain's postwar if history is reliable.
There is no way that the United States citizenry would abide the kind of taxation levels on the middle class that makes the Swedish model economically feasible. You are simply not going to be able to tax a school teacher or an electrician at 70 percent in the United States.
As with most all things with political overtones, the truth lies somewhere in the middle. The rich are very good at avoiding taxes. And even if you taxed the top 1 percent at 100 percent of their income it would take a couple decades to pay off the existing debt provided that spending remained constant. The US doesn't need 1,000 overseas forward deployed military bases, and there hasn't been a serious proposal advanced that explains in detail how the US will pay down its existing debt whilst simultaneously enacting free college and universal single payer healthcare. Just saying "the rich should pay their fair share" and "cut US military spending" isn't a solution. Just having governments and corporations and middle and high income individuals pay some amount into the US Treasury while that same Treasury cuts millions of checks each month to hospitals, clinics, doctors, and pharmacies is quite frankly the same philosophy that got us into our present and exploding debt problems to begin with. I'm not hopeful that the government apparatus that brought us the broken and dysfunctional VA would fare better than a private sector solution allowed to operate without the antiquated biased special interest serving national and interstate commerce insurance and healthcare restrictions we have at present and with the advantages of heretofore restricted collective purchasing power for things like medical devices and prescriptions.
At present entitlements take up over three times the military budget (2017). To say that free college and universal single payer could be enacted without serious repercussions is a lie.
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I think you have your directions crossed.
https://www.nationalreview.com/2018...growing-big-spending-fiscal-irresponsibility/
I don't believe believe that Trump as President is a free market Capitalist,
I don't blame one political party or the other. I realize that Bush added more to the national debt than any other previous US president. Then Obama broke that record. And Trump is on a path to break it again. They increase the debt for different reasons. Roughly, Democrats increase the debt by spending money on social programs, environment, and regulation. Republicans increase the debt by spending money on defense and military, and by decreasing tax income through tax cuts.
But I do wonder what the significance of the deficits is. I grew up in the 1970s hearing how serious a problem the US deficit was. I heard the same in the 1980s, and we discussed this in an economics course I took in college. Intuitively, I have always thought it was a serious problem. After all, if individuals ran their budgets like the US government does, they would not be able to stay afloat. But I have begun to question my beliefs about this recently. I just don't see any disastrous consequences to the deficits.
Sure there are effects - for example, I would be willing to bet money (and in fact I have, indirectly by the types of investments I have chosen) that we won't see "normal" interest rates (i.e. like the the "nominal 10% prime rate" of the 1980s) again. I bet for all the talk of "normalizing interest rates" they never go up more than a percent or so from their present rock bottom (negative after inflation) values. Because raising rates to "normal" would mean that interest on the national debt might exceed tax income, not counting any other spending. Having rock-bottom interest rates for perpetuity may be inconvenient to savers, but it is hardly a disaster. You just have to know how to invest to account for it. I feel like someone has been "crying wolf" for 35+ years, and the sky has not yet fallen. I see European countries trying to limit their deficits though austerity. They are close to recession, whereas the US (which has added much to its deficits over the same time period under both Obama and Trump) has huge stock market gains, low unemployment, and (fairly) low inflation.
I take it that US government deficits will not be addressed. They will not be paid back. Why would they be? They have not been in 35+ years, why would that change? As described above, it won't matter which political party is in power. I'm not pushing my political agenda here. I'm trying to understand what the consequences of this are likely to be, because I think big increases to the national deficit will continue regardless which party is in power. It now seems to me that this is not the big problem I assumed it was. I'm trying to understand if my new view (deficits are not of much consequence as long as inflation is kept under control) is correct, or if I am missing something important that I have not thought of.
But I do wonder what the significance of the deficits is. I grew up in the 1970s hearing how serious a problem the US deficit was. I heard the same in the 1980s, and we discussed this in an economics course I took in college. Intuitively, I have always thought it was a serious problem. After all, if individuals ran their budgets like the US government does, they would not be able to stay afloat. But I have begun to question my beliefs about this recently. I just don't see any disastrous consequences to the deficits.
Sure there are effects - for example, I would be willing to bet money (and in fact I have, indirectly by the types of investments I have chosen) that we won't see "normal" interest rates (i.e. like the the "nominal 10% prime rate" of the 1980s) again. I bet for all the talk of "normalizing interest rates" they never go up more than a percent or so from their present rock bottom (negative after inflation) values. Because raising rates to "normal" would mean that interest on the national debt might exceed tax income, not counting any other spending. Having rock-bottom interest rates for perpetuity may be inconvenient to savers, but it is hardly a disaster. You just have to know how to invest to account for it. I feel like someone has been "crying wolf" for 35+ years, and the sky has not yet fallen. I see European countries trying to limit their deficits though austerity. They are close to recession, whereas the US (which has added much to its deficits over the same time period under both Obama and Trump) has huge stock market gains, low unemployment, and (fairly) low inflation.
I take it that US government deficits will not be addressed. They will not be paid back. Why would they be? They have not been in 35+ years, why would that change? As described above, it won't matter which political party is in power. I'm not pushing my political agenda here. I'm trying to understand what the consequences of this are likely to be, because I think big increases to the national deficit will continue regardless which party is in power. It now seems to me that this is not the big problem I assumed it was. I'm trying to understand if my new view (deficits are not of much consequence as long as inflation is kept under control) is correct, or if I am missing something important that I have not thought of.
I guess if you are the best country in the world, then deficits may not matter much ? The ultimate thing is to have the most advanced technology in the world - and also other technology which every one wants to buy. If you want to create things that no other country creates - that gives value to all of population the world - be it an iphone or the internet or boeing or php or c++ or LCD or USB or Netflix or Amazon or cisco or android or 5G or Mobile phone or AI or Quantum concepts or Carbon fibre or any other such technology, then deficits may not matter (not on usual scale I guess - if it goes like 1000 x GDP maybe it would matter). I am not an expert so.
On the other, the currency must represent something of value. It is fundamentally meant as convenient replacement to barter system. Instead of exchange wool for milk, you get a currency the value of Wool so you can get something you need other than Milk or something. So what is to the value of the currency that is given if you simply print it to represent blank or like that ?
Ultimately the question is would it be sustainable. And do experts really exist to confirm this.
On the other, the currency must represent something of value. It is fundamentally meant as convenient replacement to barter system. Instead of exchange wool for milk, you get a currency the value of Wool so you can get something you need other than Milk or something. So what is to the value of the currency that is given if you simply print it to represent blank or like that ?
Ultimately the question is would it be sustainable. And do experts really exist to confirm this.
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Your view comes across as one-dimensional. Inflation has been quite well-controlled in the US... it's easy to complain but not so easy to understand the true depth of an issue and come up with an alternative solution. If you stop printing, money will slowly leave circulation and there will be a deflationary effect. Which hurts debtors (your middle class with mortgages, etc.) a lot more than capitalists.
Printing is a way to ease and tighten credit and also effects foreign capital flows.. all of which is necessary to have a stable economy. There are feedback loops in the markets that lead to bad results when poorly regulated.. credit and monetary controls let burdens be spread out and managed instead of having mass defaults and chaos during economic slow-downs. Zero inflation would lead to stagnation and lower incentives to deploy capital, which leads to recession.
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Regarding the debt specifically, it's difficult to quantify how much is enough and what is excessive or poorly managed. But at least having the debt denominated in our own currency gives a lot more options and flexibility to manage it. This is actually a huge advantage and most of the worst economic depressions came from cases where countries were saddled with large foreign currency debt and ran out of means to manage it.
For anyone really wanting to learn more about debt and global currency issues, Ray Dalio's book Principles of Big Debt Crises is very well written and sheds light on the complexity of these concepts. He takes a look at history and has good commentary on what specific governments did well and not so well in managing their monetary policy during times of extreme economic stress. Highly recommend it.