Author Topic: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?  (Read 5009 times)

GodlessCommie

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What the graph misses is the size of federal deficit. Which grew with each tax cut.

Paul der Krake

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The story about marginal tax rates being much higher back in the day (and the implication that we should go back to it, abolish billionaires, yadi yadi yada) is complete nonsense.

You could deduct all sorts of stuff that you cannot today. The tax code is not frozen in time with only rates being adjusted. You have to look at the whole picture.

As the graph correctly illustrates, the *effective* tax rate of the country hasn't budged that much.

maizefolk

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A big part of the change is that a growing proportion of total federal government revenue consists of payroll taxes ($1.2T/year) rather than income taxes ($1.6T/year). If you look at income tax brackets vs income tax revenue, there is substantially more of a correlation between the two than if you compare income tax brackets to all federal tax revenue.

zolotiyeruki

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Been a while since I've seen it so I looked it up again. Regardless of how high we raise taxes, the revenue the Federal government collects never really goes about 20% of our GDP. So it seems people adjust behavior based on tax rates. Essentially taxing more may help some, but we need to spend less than about 18-19% of our GDP to maintain a balanced budget

*Edit to add "its the spending stupid"
Another thing that's missing here is that, for at least as long as I've been paying attention, every "tax cut"gets offset by some tax hike on something else.

bacchi

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Been a while since I've seen it so I looked it up again. Regardless of how high we raise taxes, the revenue the Federal government collects never really goes about 20% of our GDP. So it seems people adjust behavior based on tax rates. Essentially taxing more may help some, but we need to spend less than about 18-19% of our GDP to maintain a balanced budget

*Edit to add "its the spending stupid"
Another thing that's missing here is that, for at least as long as I've been paying attention, every "tax cut"gets offset by some tax hike on something else.

Or we sell bonds to cover the difference, which is the whole point of this thread.

GodlessCommie

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Another thing that's missing here is that, for at least as long as I've been paying attention, every "tax cut"gets offset by some tax hike on something else.

Was either Bush or Trump tax cut really offset? The former at least doesn't appear to:

Quote
Before the Bush tax cuts were enacted, the Congressional Budget Office (CBO) projected
gradually rising federal budget surpluses—from 2.7% of GDP in 2001 to 5.3% of GDP by 2011.4
Within a few years, CBO was projecting budget deficits. The Bush tax cuts, with a $1 trillion 10-
year price tag
, contributed to this shift from budget surpluses to deficits.

https://sgp.fas.org/crs/misc/R42020.pdf

seattlecyclone

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If I may, it sounds like your positions are that 1) limiting generational wealth transfer is a worthy objective, and its side-effects (e.g. corporate consolidation) are acceptable, and that 2) double taxation is ok, and 3) a consumption tax is preferable to income tax.

Sure, that's basically right.

Quote
I strongly disagree with you on 2), but that's a whole other discussion (when you talk about gross sales being taxed, what are you referring to?  Sales tax?  Because that's administered by the states, not the federal government, unless you're talking about gasoline).

Yes, I'm referring to sales tax. What does it matter whether the taxes are imposed by different layers of government? Either it's fair to tax both transaction A and follow-on transaction B, or it's not fair to do so and we should standardize on either A or B at both the state and federal level. Regardless, most US states operate their own income tax regime in parallel with a sales tax. Is it "double taxation" for states to tax gross sales and also to tax net profits? I don't see why this is automatically a bad thing. It allows governments to try and craft a set of rules that creates a fair playing field, for whatever version of fair the lawmakers decide upon.

Compared to the current "double taxation" system, moving all revenue collection into the sales tax would shift most of the tax burden into lower-margin retailers, while moving all the revenue collection into a corporate income tax would shift the burden onto higher-margin businesses. In the current system you get some tax from each variety of business. When you reject the notion of "double taxation" you're implicitly stating that there's only one type of transaction that is valid to tax, and that taxing any other type of transaction adds unfairness to the system. I don't think the world fits into such a neat box.

All types of taxes create incentives pertaining to the activity associated with the tax. Again, if you want less of something, tax it. I've already identified two things in this thread that I personally think we could do with less of: consumption of things that cause environmental damage (such as carbon emissions), and large intergenerational wealth transfers. To that list I could add inefficient land use, and probably more. Based on these values I might like to see more government revenue coming from carbon taxes and land value taxes and estate/gift taxes, and comparatively less tax revenue coming from labor and improvements to land. You clearly have a different set of priorities for what incentive system should exist, and that's fine. The diversity of opinion on this issue is the very reason why we have so many different taxes. One person says that the fairest thing to tax is income and another says the fairest thing to tax is consumption, and we meet in the middle to tax both of these things a little bit.

Quote
On 1) I understand there's a very real emotional component to it, but does "limiting generational wealth transfer," actually lead to sustainable, long-term economic benefit for lower economic classes?  Or does it simply disappear into the endless rat hole of government spending?

You can see the graph posted recently that shows the revenue has stayed pretty consistent for most of the past century despite many changes to the relative ratios between different taxes.

Does taxing wealth transfers make things more equal between classes over time? I'd say it helps. I'm reminded of the TV show Downton Abbey. A major theme of the show is that the class of large land barons was dying out in England at the time, shortly after the imposition of an estate tax in that country. The main family in the show had managed to avoid breaking up their large estate when the current Earl inherited, only because he managed to marry a rich American who was able to provide the necessary infusion of cash. Trying to set things up for the next generation to be able to keep the estate intact was a frequent plot point. Most of the nobility was unable to do this in one generation or another, and their influence has waned.

LennStar

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Probably a bit late to the party, but...

I think everyone here understands that you can't borrow your way to prosperity and that disguising deficit spending as "investing" is a huge smokescreen...

I'm a bit surprised that inflation and debt hasn't caused interest rates to rise much....
Maybe because you "understand" that you can't borrow your way to prosperity you don't understand why interest does not rise?

Why do you understand that? What is the theory, where the proof?

First of all "borrowing" is wrong. The FED does not borrow (well, it borrows from itself effectivly). Private banks (whose money creation still outpaces the monetary banks last time I looked, even though that is almost never mentioned) borrow either from the FED or each other.
In other word, all those dollar are created. They are not borrowed (taken from someone else).

The created dollar get distributed to people one way or the other. Where inflation certainly happens is on the stock market. But that is just paper money. If the prices half tomorrow, nobody is going to be hungry tomorrow (though long term problems might occur if you base your future income on those stock prices).
All that happened is that created money that was written as a big number on some computer is now a zero on that computer.

Other created dollar go into the "real economy". Something is either build/grown/made or people get paid, who then use that money to buy something that has been build/grown/made. Circle circle. MMT says, as long as the production capacity is not full, that does not result in meaningful inflation. For me that looks not terribly wrong.

So why can't you borrow your way to prosperity? (After all that is what has been done successfully in many economic depressions.)

To be clear: As with every extreme, an extreme money printing has negative effects, the more extreme the printing, the more severe the effects. But after 10 years of hot running printing presses, it seems you need to go an awesome amount of extreme for what you envision.

More of a problem is a real shortage in the real economy, like currently with computer chips. Because printing money takes teh time it takes a few people to enter their password. Building a computer chip production line (not to mention the factory and resources) takes at least a year.
That is where inflation happens, as can every person that tried to buy a graphics card this year can emphatically assure you. And it takes no borrowing at all (in fact a strict no borrowing policy might prevent the increase in production, and such making the prices explode).

habanero

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Japan has a debt to GDP ratio thats waaaay higher than the US and has been for a very long time. Japan har low inflation and low interest rates (much lower than the US) and has had for a very, very long time. We had a Tiwanese dude give a lecture (Richard Koo, his stuff is on youtube and highly recommended btw) and he said that the list of hedge funds that has lost a fuckton of money on betting on higher interest rates in Japan is endless, according to said dude it's mainly because they don't understand anything about the market for japanese government debt, which is pretty much an all domestic affair. Japan has had all sorts of problems but high interest rates or problems to borrow money hasn't been on the list.

US is bit the same, albeit to a lesser extent given US Treasuries' importance in a lot of markets. I guess everyone has heard that China funds the US deficit about a thousand times but noone has ever heard that Japan funds the US deficit - it used to be a fairly tight race but now Japan as a whole holds more US treasuries than China. And by far the largest owners of US government debt are.....drumroll.... various US insitutions. And they ain't got an alternative. They can't start buying German government bonds or whatever because it's all in a different currency. All their liabilities are in USD and so their assets should be. This mechanism is probably one of the main reasons why the Euro is a fialture by design. If an asset manager in Spain ain't to keen on Spanish debt he or she can just buy debt from Germany, France, Austria or wherever as its all in the same currency. You have taken the natural local buyers of sovereign debt out of the equation because they can just buy someone else's debt without any currency risk.

I have repatedly stated that the entire community of macroeconomists should collectively go into the woods and just end their profession. Their prediction power has been scarily close to zero. When real life differs from the textbook, the textbook has a problem, not real life.
« Last Edit: August 25, 2021, 02:35:12 PM by habanero »

mathlete

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World War II, the Great Recession, and COVID notwithstanding, US Federal Spending hasn't changed much in 80 years. Well... there is this one little category...



The US is getting older. People are living longer. Young people are having fewer kids. If I'm a government number cruncher, this is what keeps me up at night. Encouraging people to have kids by lessening the burden (CTC and hopefully universal preK) is good, but a highly educated population like the US is only gonna have so many kids.

Luckily I know of a way to grow our population, grow our GDP, and boost our workers per retiree ratio with one simple trick. (nationalists HATE him)

scottish

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Yeah, we're using that trick up here.   The government hopes it will provide enough population to look after the boomers as we get old and need more care.   I think hoping the government will look after you is a fool's game, but whatever.

Back to the deficit question for a minute.

If we're running a large ongoing deficit, doesn't this mean that the country is living beyond it's means?     There's some kind of relationship between national wealth and government spending, but I find it pretty hard to describe.    It's much simpler with an individual or a company, because you just can't just operate with a deficit indefinitely.

We say a country can run deficits indefinitely because it controls the money supply.     A country (with its own currency, not the Euro for example), can never default on its debt, because it can just create the money needed to pay the debt off.

The downside is that the consequences of doing this are unclear and depend on inter-relationships that are poorly understood and dynamic.    For example, it may be inflationary, or it may affect the forex rate. 

Have I captured the argument correctly?

P.S I agree with habanero about the macro-economists.
« Last Edit: August 25, 2021, 07:55:49 PM by scottish »

ChpBstrd

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I have repatedly stated that the entire community of macroeconomists should collectively go into the woods and just end their profession. Their prediction power has been scarily close to zero. When real life differs from the textbook, the textbook has a problem, not real life.

P.S I agree with habanero about the macro-economists.

IDK, everybody hates on the macroeconomists and their theories, but when their theories and advice were applied, we avoided a repeat of the Great Depression in 2008-09, and then avoided it again in 2020, all while keeping inflation near historical lows. Many tens (hundreds) of millions of Americans are employed and prosperous today, rather than sleeping in box cars and living in tar-paper shacks like the 1930's, because of systems established and actions taken on the advice of these experts. Economists have not yet abolished the business cycle - we still have the occasional recession - but the hits of either 2008 or 2020 should have led to mass poverty, and didn't. If you are enjoying your sub-3% mortgage, near-full employment, rock-solid currency, and growing stock market, maybe give some credit. Somebody must be doing something right, and I doubt it is the politicians.

LennStar

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If we're running a large ongoing deficit, doesn't this mean that the country is living beyond it's means?     
Please repeat with me: A country budget is not a household budget. A country budget is not a houshold budget. A country....
100 times more, please.

I am not saying here you are right or wrong. I simply want to make it devastatingly clear that you can't look at a country like a household or even a company, especially when it comes to finances. As a household, changing your expenses is not going to affect your income. As a country, all of your expenses are going to affect your income, and that can be by a factor greater than 1.

Also: for a country it is of utmost importance that every dollar debt somewhere is a dollar wealth somewhere else, while that does not play a role for a household. But a country generally includes both sides of the transaction.

And: If a country takes on debt, every person in the country pays for it. But the group who receives the money is always smaller, often by a lot. So that group profits from the increasing debt. Those groups are voters.
That is why politicians seem unable to not rise debt (again, without judging if that is good or bad): Because if they don't distribute money to their voter group, there will be someone else who promises that and gets the votes.

That is the core of every government of every type, and democracy is the least worse one because the group receiving the money is the biggest compared to other governments. Sometimes it is even the majority.
But that does not mean that it is always the biggest group that gets most of the money. Money=Power goes in both ways.
Imagine a big company with 20 factories, each providing 10% of the workplaces in the respective election are. Votes are highly bound to workplace availability.
Now imagine the company goes to the politicians saying: I want to make more profit! But I need this law passed for this to happen. It I don't get the law, I need to relocate five of my factories. Do you vote for or against this law?

mathlete

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I have repatedly stated that the entire community of macroeconomists should collectively go into the woods and just end their profession. Their prediction power has been scarily close to zero. When real life differs from the textbook, the textbook has a problem, not real life.

P.S I agree with habanero about the macro-economists.

IDK, everybody hates on the macroeconomists and their theories, but when their theories and advice were applied, we avoided a repeat of the Great Depression in 2008-09, and then avoided it again in 2020, all while keeping inflation near historical lows. Many tens (hundreds) of millions of Americans are employed and prosperous today, rather than sleeping in box cars and living in tar-paper shacks like the 1930's, because of systems established and actions taken on the advice of these experts. Economists have not yet abolished the business cycle - we still have the occasional recession - but the hits of either 2008 or 2020 should have led to mass poverty, and didn't. If you are enjoying your sub-3% mortgage, near-full employment, rock-solid currency, and growing stock market, maybe give some credit. Somebody must be doing something right, and I doubt it is the politicians.

Totally agree. Curious about the prediction power of the central bank critics who predicted runaway inflation post-2008 rescue. In over a decade, that inflation never materialized. In fact, inflation was so low, that we've gotten used to it and moved the goal posts. The inflation we're seeing now from the economy spinning back up is now Mugabe levels of inflation.

Homeownership is up. Recessions (even these past two) are WAY more mild than the free-banking era recessions.


GodlessCommie

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IDK, everybody hates on the macroeconomists and their theories, but when their theories and advice were applied, we avoided a repeat of the Great Depression in 2008-09, and then avoided it again in 2020, all while keeping inflation near historical lows. Many tens (hundreds) of millions of Americans are employed and prosperous today, rather than sleeping in box cars and living in tar-paper shacks like the 1930's, because of systems established and actions taken on the advice of these experts. Economists have not yet abolished the business cycle - we still have the occasional recession - but the hits of either 2008 or 2020 should have led to mass poverty, and didn't. If you are enjoying your sub-3% mortgage, near-full employment, rock-solid currency, and growing stock market, maybe give some credit. Somebody must be doing something right, and I doubt it is the politicians.

Very much so. Thanks for providing some perspective. It's easy to lose sight of what's right in front of our noses.

scottish

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I have repatedly stated that the entire community of macroeconomists should collectively go into the woods and just end their profession. Their prediction power has been scarily close to zero. When real life differs from the textbook, the textbook has a problem, not real life.

P.S I agree with habanero about the macro-economists.

IDK, everybody hates on the macroeconomists and their theories, but when their theories and advice were applied, we avoided a repeat of the Great Depression in 2008-09, and then avoided it again in 2020, all while keeping inflation near historical lows. Many tens (hundreds) of millions of Americans are employed and prosperous today, rather than sleeping in box cars and living in tar-paper shacks like the 1930's, because of systems established and actions taken on the advice of these experts. Economists have not yet abolished the business cycle - we still have the occasional recession - but the hits of either 2008 or 2020 should have led to mass poverty, and didn't. If you are enjoying your sub-3% mortgage, near-full employment, rock-solid currency, and growing stock market, maybe give some credit. Somebody must be doing something right, and I doubt it is the politicians.

Totally agree. Curious about the prediction power of the central bank critics who predicted runaway inflation post-2008 rescue. In over a decade, that inflation never materialized. In fact, inflation was so low, that we've gotten used to it and moved the goal posts. The inflation we're seeing now from the economy spinning back up is now Mugabe levels of inflation.

Homeownership is up. Recessions (even these past two) are WAY more mild than the free-banking era recessions.

I'd settle for renaming economics from "the dismal science" to "the dismal philosophy".     They could hang pretty well with all the other philosophers!   

It sounds like you all feel that the higher levels of recessionary spending are actually due to macroeconomists promoting their ideas?      Deficit spending seems to me one of those things that's just fine, until one day it's not.    If they could start to describe the envelope for safe deficits it would be much more convincing...


maizefolk

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I don’t think it is fair to tar behavioral economics with the same brush as macroeconomics. The behavioral economists have learned a lot about how people make decisions and often are able to accurately predict what would otherwise be very counterintuitive outcomes.

TL;DR not all economists are macroeconomists.

habanero

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After the GFC and when the European debt crisis really hit there were basically two schools on what needed to be done, both apporaches touted by their fans among economists, analysts and other who had an opinion on it

- increased public spending to get hings going
- austerity to reduce debt

It's fairly safe to assume that at max only one of these approaches was correct as they are mutually exclusive.

My main beef with (macro)economics is that is portrayed as almost an hard science. There are the fancy graphs, equations, models and what not but still it's very, very far from say, natural sciences. Im not saying its easy or peoble are dumb - they're of course far from it but Im quite baffled by the beliefs in rather simple models for a very complex reality and it's for obvious reasons kind of hard to conduct controlled and repeatable experiments. Over here, a team of such folks, even tried to predict the next five years for the country given the pandemic with employment, public finances, sickness, deaths and all. As if they really had any clue at all. Think its the biggest hubris I've ever seen in academia (granted, they didn't come up with the idea themselves, but it was commissioned by the government as a decision tool).

One of my professors once said one of the beauties of economics is that you can build a reasonable line of thought for almost anything (he lectured in economics himself, btw).

I hears a cool podcast on science during the pandemic. The folks who stuied boredom had a blast, as it is almost impossible to recreate in an artifical setting but suddenly they got a golden opportunity to study what people actually did when most, if not all, the regular sources of amusement suddenly disappeared.

On the other hand, it was apparantly borderline impossible at the time to find an economist who thought the Euro - a predominatly French political creation - was a good idea, so I'll have to give 'em that.

aspiringnomad

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World War II, the Great Recession, and COVID notwithstanding, US Federal Spending hasn't changed much in 80 years. Well... there is this one little category...



The US is getting older. People are living longer. Young people are having fewer kids. If I'm a government number cruncher, this is what keeps me up at night. Encouraging people to have kids by lessening the burden (CTC and hopefully universal preK) is good, but a highly educated population like the US is only gonna have so many kids.

Luckily I know of a way to grow our population, grow our GDP, and boost our workers per retiree ratio with one simple trick. (nationalists HATE him)

Fascinating graph and correct diagnosis of the underlying problem (and potential cure) IMO.

Hopefully the OP is open to learning something in the replies, because the way they phrased the original question suggests plenty of opportunity.

scottish

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I don’t think it is fair to tar behavioral economics with the same brush as macroeconomics. The behavioral economists have learned a lot about how people make decisions and often are able to accurately predict what would otherwise be very counterintuitive outcomes.

TL;DR not all economists are macroeconomists.

IIRC there were a couple of psychologists, Daniel Kahneman (author of Thinking Fast and Slow) and someone else who got them going in this direction about 20 years ago.   Kahneman won the economist's Nobel prize for his work.

There was also an effort to start doing experimental economics.

Both of these were big steps in the right direction.

PDXTabs

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If we're running a large ongoing deficit, doesn't this mean that the country is living beyond it's means?     
Please repeat with me: A country budget is not a household budget. A country budget is not a houshold budget. A country....
100 times more, please.

They aren't the same, because depending on who you ask the US can safely run a 5% deficit (GDP). But right now we are exceeding that. Also, too much government debt eats up capital that could have been used for private investment. How worried should you be about the federal deficit and debt?

scottish

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Quote
No one really knows at what level a government’s debt begins to hurt an economy; there’s a heated debate among economists on that question. If interest rates remain low, as currently anticipated, the government can handle a much heavier debt load than was once thought possible. And the recent increase in borrowing—while enormous—is a temporary increase intended to combat an emergency; it changes the level of the debt, but not its long-run trajectory.

The question on my mind is "What happens if we have another calamity in 5 years?"    Will we still have the fiscal depth available to cope with it?

PDXTabs

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The question on my mind is "What happens if we have another calamity in 5 years?"    Will we still have the fiscal depth available to cope with it?

I completely agree. The US went from ~40% debt/GDP to ~100% to fight WWII. What happens if we have to fight WWIII?

GodlessCommie

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If there's another calamity in 5 years, whose debt is a better place for your money than the US?

(unless it's a calamity self-inflicted by our stupidity a-la current wave of the pandemic. In which case, debt is the least of our worries, might as well spend the $$$ while the going is good)

YttriumNitrate

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The question on my mind is "What happens if we have another calamity in 5 years?"    Will we still have the fiscal depth available to cope with it?

I completely agree. The US went from ~40% debt/GDP to ~100% to fight WWII. What happens if we have to fight WWIII?

WWIII debt won't need to be repaid.
https://www.youtube.com/watch?v=frAEmhqdLFs

PDXTabs

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The question on my mind is "What happens if we have another calamity in 5 years?"    Will we still have the fiscal depth available to cope with it?

I completely agree. The US went from ~40% debt/GDP to ~100% to fight WWII. What happens if we have to fight WWIII?

WWIII debt won't need to be repaid.
https://www.youtube.com/watch?v=frAEmhqdLFs

It was a metaphor. Perhaps a literal WWIII or perhaps a figurative one like a whole lot of infrastructure for climate change. 

PDXTabs

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If there's another calamity in 5 years, whose debt is a better place for your money than the US?

Ummm... IDK. I don't personally own any US treasury bonds.

maizefolk

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WWIII debt won't need to be repaid.
https://www.youtube.com/watch?v=frAEmhqdLFs

Saw this post and my first thought was ... is it going to be a Tom Lehrer song? Was not disappointed.

Would also have accepted: https://www.youtube.com/watch?v=yrbv40ENU_o

habanero

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Paul Krugman wrote about this in the NYT some years ago:

https://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

...

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.


TheOldestYoungMan

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TLDR: 1. If you are not seeing the inflation then you are not paying attention. 2.  The deficit spending and resulting inflation are a tax on the wealthy.  3.  The wealthiest are dodging this quite cleverly by going ahead and racking up huge, YUGE, debt balances.  4.  That cash is then being plowed into any sort of item that is scarce, such as land, housing, etc.  5.  That debt will then be serviced (and interest deducted!) from future incomes, which is really just "realized past incomes." 6.  So the real question is, how long, and to what extent, is it possible to continue this?  If the wealthy can manage to service this debt in real terms, while still satisfying shareholders and generating a surplus, then we've done it, as a society, we've won.  We can just print money, implement a UBI, and everything will be OK.  The "real producers" have reached a point, with technology and infrastructure, to where they really can support us all, if somewhat modestly, and it'll only get better from here, as they get better at producing.
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1. If you are not seeing the inflation then you are not paying attention.

There are very real, very hard implications to the federal budget based on the reported inflation rate, so there are very real efforts to keep the official reported CPI low, and all kinds of wild rationale's for justifying that the low reported CPI is rational and real and matters at all.

One way for a lot of readers on this forum to see it is to graph their number of shares owned over time in their favorite broad stock market index fund and compare that to what their broker probably graphs over time, which is the dollar value of their shares.  Any of you investing a fixed dollar amount every paycheck will see a diminishing quantity of shares purchased over the long term.  That rate of decline, in an economy which inarguably did not grow over the past few years, is inflation.  The same dollar buys you less, quantifiably, visibly, less, than yesterday.

A less cerebral way to look at it, is to pick a consumer good where the material cost, not the labor, not the marketing, not the transportation, but the physical material that goes into the thing, and look how that's changed.  I like to take the F-150 as an example.

The F-150 has not increased in price by less than 3% Y.o.Y.  In 2001 you could buy a basic, stripped out, functional, no power nothing F-150 for $10,000.  A 3% inflation per year would put that right around $18,061 today.  Ford will sell you one for $29,000, which is an annual inflation of 5.5% (The reported 12 month CPI as of August 11 is 5.4% "before seasonal adjustment" https://www.bls.gov/news.release/cpi.nr0.htm).

Now there's all sorts of arguments the defenders of the low inflation theory throw out, that a new F150 is Better than an old one, there's fuel efficiency and longevity and etc. etc.  But insofar as the purchasing power of the dollar, that's sort of irrelevant, because if you need to buy one (and I know, big stupid truck but bear with me, I'd use other vehicles but the F150 has a LOT of data available to parse if you want to get into it, it's a good example) then you have to pony up.  You can't really go buy a lower priced house, or lot, or car, or whatever.  Wherever you're at, there's sort of a "this is what that costs here right now" sorta thing going on, and you are, for better or worse, picking from the available alternatives.  The cheaper option to the F150 back in 2001 exists today, and it has *also* gone up about 5.5% per year.  You can be super badass mustachian all you want, but when the floods ruin 1/3 of the used cars and the fires ruin another 1/3, all of us fighting to get that little 2-door hatchback with 70k on the odo are going to drive up the price.

And anyone that's owned one of these pieces of shit will tell you that no, it doesn't last longer, and no, it isn't better.  It's a truck, it'll get you from point A to point B, and the engine will eventually blow up because it's a god-damned-ford. 

In the stock example, we have many things going on, there's no place else to put your money, there's...ironically...worries about inflation that drive up asset prices as folks dump cash, and there's very real bubbles developing in certain sectors.  For the market timers this is the source of much anxiety.  But underneath it all, is some very real inflation.  Money is being printed and not nearly as much work is getting done.

The CPI bothers me so much, because people look at that and say inflation has been low and completely ignore that yes, prices have not gone up that much on certain things, while literally the entire economy has been wired towards lowering that price.  The consumer got incredibly cost sensitive, and everything has massively contorted to keep that price of [insert good] the same.  Entire sectors have bent/twisted/broken keeping that price where it is, and now that nobody is at work we're finally seeing the prices start to move, because further cost reductions haven't been implemented.

Some examples:  Since 1970 we've seen a dramatic draw down in stock-on-hand as everything has moved to virtually on-demand manufacturing.  Items roll off the factory floor and get delivered right to the customer that ordered them.  Stock used to go into the warehouse until used for manufacturing, end products would go into a warehouse awaiting shipping to another warehouse for distribution to local stores and then to the customer's home.  Now stock gets taken off the truck, turned into the thing, and put on another truck, to the amazon distribution center, where it goes into a box with a hundred other things and off to the customer.

Combined with improvements in logistics and manufacturing, the relentless push to make more for less has isolated the consumer from inflation across the full spectrum of items that make up the CPI.  Meanwhile, capital goods where such innovation just faces extreme pressures of "there's only so many mines" and "only so much land" have seen prices go absolutely nuts.  If the housing market hadn't collapsed, totally, globally, in 2008/2009, no single family home in america would be less than a million dollars, all while wages haven't increased at all.  The CPI is a HUGE factor in the lack of wage growth.  The simple reality that a 2-person household working 60 hours a week absolutely can survive on minimum wage, even thrive (that's $36k/yr assuming no overtime; painful but lets just say mathematically possible), prevents any serious action to raise it.  If the CPI were RATIONALLY calculated, we'd be able to have a much more honest national conversation about quality of life and income/asset requirements to be not dirt-floor-poor.

But the CPI will never be rationally calculated.  WE cannot afford to keep our promises through various entitlement programs that have benefits that increase over time in relation to the official reported CPI.

https://www.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm

If you scroll down to the percentages table (second table) you can see how low it usually is.  It is shocking, genuinely shocking, to see it reported as high as it is right now, I can only imagine what must be really happening with inflation to cause the official number to get up so high.  I'm suspicious it's a huge number of landlords torqueing rent on anyone that can still pay to try and cover all the rent that's not getting paid.  Bunch of part-time side-hustlers are hopefully taking advantage of the opportunity to sell their properties while the market is cash rich/inventory poor.  I'm barely paying attention to all of that though, this is very much a TV-off, head-down, make as much as I can work as much as I can time of life.

2.  The deficit spending and resulting inflation are a tax on the wealthy. 

I would like to see a UBI.  And I've come to realize that the absolute best way to pay for it is just to print the money.  As long as the producers don't just all fucking quit producing, I think it would actually work just fine.  And we're sort of very fucking close to that situation right now.  I'm working because I like my job and it pays me a butt-ton.  I'm investing my money anywhere I can think of because I am super aware of the inflationary pressure of all this not-work going on.  If it turns out producers are more like me than meth-head-molly, I think we'll be OK.  I genuinely always considered myself to be super lazy, but all it took was a job that paid alot and I don't mind working all the time and being super productive.

So that pressure on the value of the dollar forces everyone to invest their money, because having cash is a huge liability in that situation, but without a corresponding hike in prices the only people paying for it are the people with extra assets/etc.  So you basically end up just funding the whole thing with this explosion of productivity from your best performers, particularly if you can keep interest rates low so they have essentially unlimited funds available to borrow and pay for their next insane innovation like...I dunno, Amazon Space Delivery or w/e, ICBM's with TP and dildoes...

3.  The wealthiest are dodging this quite cleverly by going ahead and racking up huge, YUGE, debt balances. 

If interest rates are low and future inflation is probable, especially if you have a reasonable expectation of future incomes to service the debt, why not just borrow an insane amount of money?  As I understand it, this is how some of these uber wealthy folks are avoiding any real tax liability, because they've somehow manage to express their extraction of assets from the underlying portfolio as debt, rather than income.  "I won't sell these shares, rather I'll use them as collateral, so then all this money I get from that is just a loan, not income."  It's clever.  And it's repeatable, use that money to buy another big chunk of shares, and use them as collateral.  It's an infinite money situation, as long as the cashflow is never interrupted.  So there's this mexican standoff happening, "you keep inflation high and interest rates low for too long, and we will completely fuck your economy if you ever make us actually pay a tax bill."  That old quote "if you owe the bank a hundred thousand dollars, that's your problem, if you owe the bank a hundred billion dollars, that's the bank's problem" comes to mind.

4.  That cash is then being plowed into any sort of item that is scarce, such as land, housing, etc. 

When possible, relatively "protected" assets, more insulated from inflation, will get snatched up.  This does create a bubble if there's too much cash floating around, sort of, enough inflation will overwhelm the bubble so it never pops, and we're seeing that in housing prices.  Things are going to get really bad, really fast, if this keeps up, but I can make a strong argument that it might be good, if it gets the majority of the U.S. to stop trying to put everyone in a McMansion and build some reasonable housing.  Investors, realizing they'll never fill a 3 bedroom house with a $5k/month tenant, will finally exert pressure on city planners and start building some 12-unit apartment buildings so folks can get reasonable housing security again.

This is REALLY good by the way.  AS LONG AS they (the wealthy borrowing the money at the low interest rates) don't screw us over by moving their businesses into a different currency and refusing to accept dollars after dumping all of theirs, we'll be fine.  This is sort of what Paul Krugman is pointing out.  People being butthurt by Bill Gates buying up farmland don't get it.  As long as he's buying AMERICAN farmland it's fine.  As long as Wall Street is buying AMERICAN houses, it's fine.  It's when they start exclusively buying stuff in other countries that we need to really start sweating.

5.  That debt will then be serviced (and interest deducted!) from future incomes, which is really just "realized past incomes."

I think this is why the economy will generally see a decent bounce when they finally do raise interest rates, because at that point the music stops, everyone has a seat, and we get on down the road.

6.  So the real question is, how long, and to what extent, is it possible to continue this?  If the wealthy can manage to service this debt in real terms, while still satisfying shareholders and generating a surplus, then we've done it, as a society, we've won.  We can just print money, implement a UBI, and everything will be OK.  The "real producers" have reached a point, with technology and infrastructure, to where they really can support us all, if somewhat modestly, and it'll only get better from here, as they get better at producing.

I'm a little bit thinking that we aren't quite there yet.  It would have been pretty f'ing cool if coronavirus had happened like....ten years from now, or twenty, I think that we would have been much closer to ready, but we'll see.

Paul der Krake

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The Krugman point of view is reasonable if you ignore the "as far as the eye can see" part of OP's question.

Quote
So yes, debt matters. But right now, other things matter more.

If "right now" becomes "all the time", it's a gross slight of hand. There will always be problems. If everything is an emergency, nothing is.

habanero

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The Krugman point of view is reasonable if you ignore the "as far as the eye can see" part of OP's question.

Quote
So yes, debt matters. But right now, other things matter more.

If "right now" becomes "all the time", it's a gross slight of hand. There will always be problems. If everything is an emergency, nothing is.

Indeed, it was more why the "household in debt" analogy isn't very accurate when it comes to government debt. The fact that the majority of debt is owned by Americans is also an important point, this is something the Eurozone is missing by design and one of the major flaws with the very idea of a common currency. If each country had its own currency there would be more natural buyers for the national debt inside the country. But now the ECB is buying everything anyways so the point has become less valid.

Interesting times it is anyways.

scottish

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I would like to see a UBI.  And I've come to realize that the absolute best way to pay for it is just to print the money.  As long as the producers don't just all fucking quit producing, I think it would actually work just fine.  And we're sort of very fucking close to that situation right now.  I'm working because I like my job and it pays me a butt-ton.  I'm investing my money anywhere I can think of because I am super aware of the inflationary pressure of all this not-work going on.  If it turns out producers are more like me than meth-head-molly, I think we'll be OK.  I genuinely always considered myself to be super lazy, but all it took was a job that paid alot and I don't mind working all the time and being super productive.


Are you talking about your country being close to UBI?     Where do you live?

talltexan

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #83 on: September 01, 2021, 07:19:23 PM »
Why do we think "people out of work" is the source of inflation? If they get jobs, they have more money, and less time to bargain hunt.

zolotiyeruki

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #84 on: September 01, 2021, 08:48:08 PM »
Why do we think "people out of work" is the source of inflation? If they get jobs, they have more money, and less time to bargain hunt.
The idea is that they are not working, i.e. putting goods on the market, yet they are being paid (unemployment) and are still consuming goods.  More money (or the same money) chasing fewer good/services means inflation.  If they were not working and also not spending money, then yeah, you'd be right.

PDXTabs

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #85 on: September 01, 2021, 11:08:57 PM »
Why do we think "people out of work" is the source of inflation? If they get jobs, they have more money, and less time to bargain hunt.
The idea is that they are not working, i.e. putting goods on the market, yet they are being paid (unemployment) and are still consuming goods.  More money (or the same money) chasing fewer good/services means inflation.  If they were not working and also not spending money, then yeah, you'd be right.

I don't buy it. Not only is my paycheck way more than unemployment (even enhanced unemployment), but a lot of our goods are imported. Having trouble recruiting workers might raise prices in stores by virtue of having to pay them more, but that is a different argument than "more money chasing fewer goods."

TheOldestYoungMan

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #86 on: September 02, 2021, 05:28:54 AM »


Are you talking about your country being close to UBI?     Where do you live?

I'm U.S. citizen though not there at the moment.  I can clarify my point a bit:
~331 million people

~63 percent working depending on who you ask, lets just say that includes the 5.4% unemployed.  The labor participation rate is really quite low for U.S. normal at the moment.  Unemployment got as high as 14% during the height of the pandemic shutdowns.

During the pandemic, we've seen certain types of employment just absolutely reamed.  Some employers demonstrated zero loyalty, and I don't necessarily fault them for that.  If you imagine a typical franchise owner who has no customers coming through the door and gets caught with little in the way of cash reserves, he needs to stop buying supplies, shut down his business to reduce utility costs, and eliminate all workers.  He's still very likely to go completely out of business even doing that if the shutdown lasts too long.  The employee side of the business always relied on unskilled, essentially temporary workers, whether the workers realized it or not.  That was a tight spot.

But what I didn't see was bread lines, people starving in the streets, and a glut of unsold merchandise crashing prices.  Most people were able to essentially survive, albeit with an unimaginable level of stress and doubt that it's hard to think of as constructive, due to a combination of rent relief programs, food stamps, unemployment, and other various aid things.  In particular if you were in a position to stop some of your costs (unload an unused vehicle or park it/turn off insurance because no loan, stop buying bus ticket or w/e to get to work) some people discovered they were essentially working for the privilege of working, it cost so much to work in terms of childcare, transportation and inefficiencies (paying others to do stuff you could do for you).

So if we could reduce workforce participation by 14% and the wheels didn't come off the wagon, if the ONLY negative consequence of that was deficits that will be easily paid off over time with the right inflation rate, that feels like getting very close to UBI.

Does the math work out so that instead of a select few (the under/un employed) receiving enough to live when work is scarce, and for everyone the the inflation rate is 5.5%, so that it looks like:  14% receive ~85% of what they need to live @5.5% (ignoring the 10-15% or so that also receive social security).

14|85|5.5

But wait, only about 2.5% of that was due to the pandemic, so it's really:
14|85|2.5
What are those three numbers such that 100% receive 100 % of what they need?  Is that an inflation surcharge rate of 12%? 
100|100|??
Particularly if you offset it such that you're basically taxing away the UBI benefit for high wage workers (say, anything over 120k/yr, ~15% of workers), now those numbers are 85% receiving 100%, and maybe it's really working out, if enough people do keep working, which of COURSE they will because cars are fun and people have passions, so maybe those numbers are 85% receiving 50%, and we all get real grown up real quick about just not tolerating the idea that you just have to not have a roommate.
85|100|??
85|50|??

It seems like there would be some combination that would really unlock, what looks to me, like a huge cultural and creative revolution that took place during Covid.  ::https://www.youtube.com/watch?v=hFZFjoX2cGg&t=1059s
I feel like a huge number of people suddenly found themselves with time off from work, in no immediate danger of starving to death, and some really cool shit has happened as a result.  As in, it's possible The Next Great Thing is going to be the freedom from the idea that Work is Good for Everyone.  It's not that I feel a squirrel obstacle course will get us to a Dyson sphere or anything, but I'm 100% certain working your ass off for 40 years to make chicken sandwiches won't either.  If it weren't for all the dead people, if the last 18 months had been just an experiment in "what happens if all these make-work jobs went away but those people still had an income" then the experiment had some really interesting results.  Take away the stress of the situation, the lack of social interaction, the touch starvation, the overall near-collapse of various social circles, imagine what would have happened.  It is possible the stress is why it worked.  But I don't think so.  I think we may be at a point where there is enough out there to strive for, that we don't also need that stick.  The carrot of high-speed internet and cranking the AC might be enough now.  Maybe the possibility of starving to death could be taken off the table.  Maybe that would grant sufficient agency so that people working hard. in danger. etc. could charge what those things were actually worth, rather than have that negotiation tainted by the real minimum wage being $0.

And it seems like it could be paid for with inflation, under the right circumstances.  I don't know if we're there yet but I think it is inevitable that we will be at some point, and it would be really cool if everyone could start getting comfortable with the idea.

Just because where I'm at in Korea the restaurants all have far fewer employees.  A robot takes your order at most places and virtually 100% of new places.  It's not a Jetson's style thing, but a kiosk at the front door.  The kiosk speaks 400 languages and takes credit card.  It offers to also sell you fries 100% of the time.  It is never late to work and never leaves early.  There's more than one in case it breaks, and I'd imagine the majority of the pieces that CAN break are easy to stock as spare parts in the back.  It's vulnerable to vandalism but then so are flesh and blood employees, and the robot doesn't cry when it gets smashed to bits, and it's health insurance is way, way less expensive.  When all these boomers die, and a generation that had no problem working a VCR is all that's left, it feels like pandemic level lack of desire for unskilled entry level work will just be normal.


habanero

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #87 on: September 02, 2021, 06:34:20 AM »

So if we could reduce workforce participation by 14% and the wheels didn't come off the wagon, if the ONLY negative consequence of that was deficits that will be easily paid off over time with the right inflation rate, that feels like getting very close to UBI.

Does the math work out so that instead of a select few (the under/un employed) receiving enough to live when work is scarce, and for everyone the the inflation rate is 5.5%, so that it looks like:  14% receive ~85% of what they need to live @5.5% (ignoring the 10-15% or so that also receive social security).

When the pandemic hit our (Norway) unemployment rate shot up from like 2.5% to 10% (it came down really quickly, however and now sits at 3.1%). We didn't introduce any special covid-programme for workers, but relied on the welfare safety net in place already. You generally recieve 62.4% of your previous pay, capped at some level which sits about 10% above the median wage. I.e if you made this cap wage or 10 times as much, your benefits will be the same. The programme was beefed up a bit for the lower paid and some other details were changed, but in essence the same basic system that always existed was in place.

While this program has its flaws, it is structured so that you will make more by working, and it's also not for ever (max 2 years, I think) and you can in theory loose it if you refuse to take any job offered anywhere, but this is not very strictly enforced as far as I know - especially the "anywhere" part - and you have to be considered an "active job seeker" which is also a bit fluffy in real life. And if your pay was really low to start with, 62.4% of it is a fair bit lower, but lower effective tax rate with lower income offsets part of the difference. F

While pretty generous by international standards, it is still far from UBI. And as the benefits is depended off what you have made earlier the outcome will vary from person to person on it. I guess the logic is that the more you have paid into the system via the social security tax the more you are entitled to if you need it, but only so far (the cap mentioned). After the 2-year period it starts getting rather ugly in terms of what you can recieve. "The system" also works pretty hard to try and get you back into the workworce, but they aren't terribly good at it, unfortunately.

cerat0n1a

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #88 on: September 02, 2021, 07:10:16 AM »
There's some nuance, however, in estate taxes.  The classic example is a small business (or farm) built up by a married couple and passed to their kids, worth $1m.
Let's stop here for a moment. I know that "passing on the family farm" has long been a rallying cry in favor of limiting the estate tax. Does that make any sense at all? Why is it important, from a public policy perspective, to allow wealth to pass untaxed if it's in the form of a farm or other small business?

In the area where I live, (in the UK, not the US), working farms are exempt from inheritance tax (= estate tax), for precisely this reason. There are about 10 farms that I run through on a regular basis. Five of them are owned by people who bought them as a way to pass on wealth to their children free of tax. One of those people is a friend of mine - ran the Russian operation of a top international law firm for a few years and bought this farm for a touch short of £20m when he retired. He nominally is now owner of a farming business, and has been for around a decade, although all the work is contracted out, and he doesn't care very much about whether it makes a profit. I imagine that when his children inherit, they'll sell on to someone else who has done some tax planning. If you're going to have such exemptions, they have to be framed very carefully.

ChpBstrd

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #89 on: September 02, 2021, 07:29:59 AM »
There's some nuance, however, in estate taxes.  The classic example is a small business (or farm) built up by a married couple and passed to their kids, worth $1m.
Let's stop here for a moment. I know that "passing on the family farm" has long been a rallying cry in favor of limiting the estate tax. Does that make any sense at all? Why is it important, from a public policy perspective, to allow wealth to pass untaxed if it's in the form of a farm or other small business?

In the area where I live, (in the UK, not the US), working farms are exempt from inheritance tax (= estate tax), for precisely this reason. There are about 10 farms that I run through on a regular basis. Five of them are owned by people who bought them as a way to pass on wealth to their children free of tax. One of those people is a friend of mine - ran the Russian operation of a top international law firm for a few years and bought this farm for a touch short of £20m when he retired. He nominally is now owner of a farming business, and has been for around a decade, although all the work is contracted out, and he doesn't care very much about whether it makes a profit. I imagine that when his children inherit, they'll sell on to someone else who has done some tax planning. If you're going to have such exemptions, they have to be framed very carefully.
Farming: the only profession where you can invest millions of dollars worth of assets into having the jobs of a mechanic, driver, and ditch-digger, rather than just living off of financial investments. It has never made much sense to me.

cerat0n1a

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #90 on: September 02, 2021, 07:35:07 AM »
We say a country can run deficits indefinitely because it controls the money supply.     A country (with its own currency, not the Euro for example), can never default on its debt, because it can just create the money needed to pay the debt off.

The downside is that the consequences of doing this are unclear and depend on inter-relationships that are poorly understood and dynamic.    For example, it may be inflationary, or it may affect the forex rate. 

I think the first line could be more accurately expressed as 'a country which can borrow in its own currency'. I think central bank interest rates could perhaps be added as a factor into your second line too.

The US is able to buy goods and services from the rest of the world in exchange for (imaginary) pieces of green paper. The US is able to create as many of those (imaginary) pieces of green paper whenever it likes, by pressing some buttons on a computer, and enjoys an extraordinary standard of living as a result. The US government could choose to pay off the entirety of its debt in a second, if it so chose. Every debt has to be matched by a corresponding asset somewhere else - my personal savings are a debt for someone else. The size of the deficit matters, but nowhere near as much as conservative commentators like to portray. And it's certainly not something that's going to lead to a collapse or a huge future problem.

People really ought to read 'The Deficit Myth' or some other pop MMT book if they're interested in this topic - even if it's only to work out where they disagree.

cerat0n1a

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #91 on: September 02, 2021, 07:37:03 AM »
Farming: the only profession where you can invest millions of dollars worth of assets into having the jobs of a mechanic, driver, and ditch-digger, rather than just living off of financial investments. It has never made much sense to me.

Until recently, farmers here made most of their money from EU subsidy payments, which were made irrespective of whether you actually farmed anything.

maizefolk

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #92 on: September 02, 2021, 08:35:20 AM »
Farming: the only profession where you can invest millions of dollars worth of assets into having the jobs of a mechanic, driver, and ditch-digger, rather than just living off of financial investments. It has never made much sense to me.

Which is the other side of this whole conversation: a whole lot of family farms get sold off (or more frequently rented out to a neighbor who plants and harvests it) when the parents die simply because even with 5-6 adult children, all of whom would really like to still have a farm in the family after growing up seeing how hard their parents worked none of them are interested in actually being the person in the family who runs the farm.

A few years ago we have a documentary plan at the local college by a young film maker which was centered around the tragedy of how none of her siblings were willing to move back and take over the farm when her parents got too old to work it themselves.

zolotiyeruki

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #93 on: September 02, 2021, 08:39:22 AM »
Why do we think "people out of work" is the source of inflation? If they get jobs, they have more money, and less time to bargain hunt.
The idea is that they are not working, i.e. putting goods on the market, yet they are being paid (unemployment) and are still consuming goods.  More money (or the same money) chasing fewer good/services means inflation.  If they were not working and also not spending money, then yeah, you'd be right.

I don't buy it. Not only is my paycheck way more than unemployment (even enhanced unemployment), but a lot of our goods are imported. Having trouble recruiting workers might raise prices in stores by virtue of having to pay them more, but that is a different argument than "more money chasing fewer goods."
I read yesterday that somewhere between 7 and 8 million people lost their jobs because their employer shut down.  That's "production" (often services, including restaurants and movie theaters, other entertainment venues) that is no longer happening.  Or, put another way, all that money has fewer places to be spent, so more money is spent in the places that are left, which means inflation.  We've seen it most visibly in cars, housing, and the stock market.  Heck, my sister just sold their two-year-old car back to the dealership for more than they paid two years ago.

Sure, we import a lot of stuff.  But, the pandemic has also severely disrupted all sorts of supply chains.  Lots of that stuff is sitting on ships, in ports, and in rail yards, because there aren't enough workers and trucks available to move it.  Not to mention the global computer chip shortage, which is affecting all sorts of industries.

If the price on Widget A hasn't risen, but you can't actually buy it, you can afford to spend more money on Widget B.  So yeah, people out of work is absolutely contributing to inflation.

PDXTabs

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #94 on: September 02, 2021, 09:18:29 AM »
Why do we think "people out of work" is the source of inflation? If they get jobs, they have more money, and less time to bargain hunt.
The idea is that they are not working, i.e. putting goods on the market, yet they are being paid (unemployment) and are still consuming goods.  More money (or the same money) chasing fewer good/services means inflation.  If they were not working and also not spending money, then yeah, you'd be right.

I don't buy it. Not only is my paycheck way more than unemployment (even enhanced unemployment), but a lot of our goods are imported. Having trouble recruiting workers might raise prices in stores by virtue of having to pay them more, but that is a different argument than "more money chasing fewer goods."
I read yesterday that somewhere between 7 and 8 million people lost their jobs because their employer shut down.  That's "production" (often services, including restaurants and movie theaters, other entertainment venues) that is no longer happening.  Or, put another way, all that money has fewer places to be spent, so more money is spent in the places that are left, which means inflation.  We've seen it most visibly in cars, housing, and the stock market.  Heck, my sister just sold their two-year-old car back to the dealership for more than they paid two years ago.

Sure, we import a lot of stuff.  But, the pandemic has also severely disrupted all sorts of supply chains.  Lots of that stuff is sitting on ships, in ports, and in rail yards, because there aren't enough workers and trucks available to move it.  Not to mention the global computer chip shortage, which is affecting all sorts of industries.

I fully support the idea that manufacturers closing is leading to supply shortages. Also, supply chain problems. But, Where Did All the Shipping Containers Go?

zolotiyeruki

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #95 on: September 02, 2021, 09:59:57 AM »
I fully support the idea that manufacturers closing is leading to supply shortages. Also, supply chain problems. But, Where Did All the Shipping Containers Go?
The article you linked answers that question in the second paragraph:
Quote
The steel boxes are harder than ever to find as surging demand to restock inventories and a series of shipping disruptions has left many thousands of containers stranded at sea on ships anchored near jammed-up ports. Still more are stacking up at inland freight hubs in the U.S., Europe and Asia as companies struggle to cope with the cargo flows that at times have overwhelmed their operations.

It's not just businesses closing.  Disruption is enough by itself.  I'll speak to the chip shortage, since that's the one I'm most painfully aware of, both as a manufacturer and consumer.  When COVID hit, a whole lot of consumer goods manufacturers (I'll call them CGMs) canceled semiconductor orders, expecting a big recession.  Semiconductor manufacturers cut capacity and slowed production as a result.  But then an unexpected thing happened:  consumer demand didn't drop.  All of a sudden, the CGMs had to frantically re-order all those chips, and found themselves at the back of the line, staring at 6- to 12-month lead times.  Naturally, this leads to CGMs placing larger orders so they don't get caught out again, plus a healthy dose of hoarding and scalping.  So even though the semiconductor manufacturers weren't shut down for long, the disruption is causing a massive ripple effect.

Ford/GM/Chrysler are one example of CGMs that got caught.  They have factories shut down because they can't get the chips for the various computers they put into cars.  The a Ford dealership across the street from me normally has nearly 200 brand new vehicles for sale.  Currently, they have maybe 40, only a handful of which are new Fords.  The rest are used vehicles of whatever brand they can get their hands on.  There's a GM dealership a mile away with a similarly-sparse lot.

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #96 on: September 02, 2021, 10:48:11 AM »
German makers also had to shut down or work half time because of no chips. (You can't use the Bitcoin miners from China lol)


If the price on Widget A hasn't risen, but you can't actually buy it, you can afford to spend more money on Widget B.  So yeah, people out of work is absolutely contributing to inflation.
People out of work are deflatory because they have lesss money. People not producing is (likely) inflationary. Important difference.

btw. You could say that MMT is proven correct here.
The normal statement is that pumping money in the economy as long as produciton capacity is not fully used does not lead to significant inflation.
But in this situation it's a bit different, coming from the other direction: Because production capacity has dropped, it suddenly is fully utilized and inflation happens.

zolotiyeruki

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #97 on: September 02, 2021, 10:53:25 AM »

If the price on Widget A hasn't risen, but you can't actually buy it, you can afford to spend more money on Widget B.  So yeah, people out of work is absolutely contributing to inflation.
People out of work are deflatory because they have lesss money. People not producing is (likely) inflationary. Important difference.
Fair enough, let me rephrase: "People being paid but not working is absolutely contributing to inflation."  Certain jobs, if not performed, will induce greater inflation than others, e.g. a trucker shortage strongly impacts the supply of other goods, more than a food service position.

PDXTabs

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #98 on: September 02, 2021, 10:59:59 AM »

If the price on Widget A hasn't risen, but you can't actually buy it, you can afford to spend more money on Widget B.  So yeah, people out of work is absolutely contributing to inflation.
People out of work are deflatory because they have lesss money. People not producing is (likely) inflationary. Important difference.
Fair enough, let me rephrase: "People being paid but not working is absolutely contributing to inflation."  Certain jobs, if not performed, will induce greater inflation than others, e.g. a trucker shortage strongly impacts the supply of other goods, more than a food service position.

I agree that a trucker shortage is bad for supply chains. But it predates the pandemic.

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Re: Implications of 1 to 2 trillion yearly deficits as far as the eye can see ?
« Reply #99 on: September 02, 2021, 12:53:47 PM »
Why do we think "people out of work" is the source of inflation? If they get jobs, they have more money, and less time to bargain hunt.
The idea is that they are not working, i.e. putting goods on the market, yet they are being paid (unemployment) and are still consuming goods.  More money (or the same money) chasing fewer good/services means inflation.  If they were not working and also not spending money, then yeah, you'd be right.

My mother-in-law left the labor force eight years ago. Her watching our children enables my wife and me to continue working and earning much more money than we could otherwise.