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The Republican party is generally claimed to be the party of fiscal responsibility. Note the term "claimed" here; I do not think the record of Republican governance proves this claim at all well, but nonetheless the default expectation seems persistent. When I was younger, this was certainly a selling-point of the party to me, and I voted for Bush II in the hope that he'd get government spending under control. Then 9/11 happened, and he wasted trillions wandering our military through the middle east.
Now the debt is very bad, and people are once more raising the banner of Fiscal Responsibility. Is it in Republicans' interest to enforce "fiscal responsibility", and if so, how? If we were to seriously cut spending and raise taxes, as people claim the fiscal situation demands, this would almost certainly cost us the next election. In the best possible case that I can see, we would be expending our political power to create stable economic conditions for our opponents to then rule. The more likely case would be us expending our political power to ameliorate spending that our opponents increase to gain power for themselves, resulting in a much shakier economy and our complete political irrelevance.
Why not offer the Fiscal Responsibility mantel to the Democrats? The economy is very complicated after all, and they are at this point clearly the party of Expert Opinion: who better to determine and implement the hard-nosed measures necessary to right our economic vessel? When I was younger, the obvious rejoinder would have been that they would do a bad job of it and disaster would result, but it seems to me that we have not done all that much better, and disaster seems likely in any case. If disaster cannot be meaningfully avoided, then why expend limited resources demanded by a serious political conflict on an unfixable resource-sink of a problem? What's the actual plan, here?
Governor Desantis of Florida achieved a record budget surplus for the state in 2022.
He's had a budget surplus literally every year he's in office.. INCLUDING the years kneecapped by Covid.
His budget this year is literally titled Focus on Fiscal Responsibility, with a ton of tax cuts involved BECAUSE the state has been so fiscally successful.
The state has 120 BILLION dollars in reserves.
Government spending in Florida actually DECREASED from 2020-2022 (it has increased since, mind).
Can you show me a SINGLE State in the Union that is primarily run by Democrats and has done something remotely similar?
Or are we still doing the very tempting but fallacious thing where we assume ONLY the Federal level party represents the whole?
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Granted, I don't understand economics very well. That said, I doubt that the amount of government spending as a fraction of the total economy is going to decrease, barring a collapse of the United States. The US federal budget as a fraction of the US GDP has actually been rather constant since the 1950s, with a slight but not huge upward trend: https://fred.stlouisfed.org/series/FYONGDA188S.
If we assume that government spending as a fraction of the economy is very unlikely to substantially decrease, which it probably will not since the political will for that simply does not exist on a large scale, then I figure that the government running a deficit is actually a good thing for me. Sure, they are spending a lot of money on stuff I do not want them to fund. But they are very unlikely to significantly reduce how much they spend, so for me at least having lower taxes seems beneficial, as opposed to having the government spend just as much money as now, but also fix the budget deficit by taxing me more.
This does not mean that we should stop trying to get the government to spend money on different things than it currently is. I'm just saying that, even if less government spending would be beneficial (a complex question), I don't see any realistic political pathway to making it happen.
What am I missing?
Deficits aren't free money. You either pay for government spending via mostly property or income taxes now, or via an effective wealth tax-- inflation-- later.
If neiither the republicans nor democrats raise taxes, then the federal reserve will raise them on their behalf. There's no way out of paying the piper.
Inflation isn't an even wealth tax because it's not uniform. If you own a diverse basket of real assets, they appreciate at the rate of inflation (definitionally).
It's hardest on folks with any kind of financial asset in nominal dollars: defined-benefits pension plans, social security etc....
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Why would they be interested? They are the party who's identity is in opposing spending cuts. Even the "Big Beautiful Bill" has spending cuts, it just also has larger tax cuts.
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I've said this before, but I'm pretty sure a lot of members of congress have learned at least some MMT stuff about banking & government finance accounting. They pretty much all still use the deficit, debt, and fear of large numbers as rhetorical weapons against their opponents when out of power. But we seem to see fewer people than ever signing up for the mistaken sucker play of being in power and actually crashing the economy with austerity. Maybe more senators than house members understand the reality; surely more democrats than republicans have been incentivized; and definitely more congressional aides and rank&file treasury/fed people know how the financial plumbing works compared to elected & appointed officials (but in the US in particular, these types seem to effectively be able to get the word out to stop politicians from wrecking things usually). This time around, Trump even potentially had Elon as a perfect fall guy to take any blame, if Trump actually wanted to cut the deficit (luckily he didn't).
To be economically literate, one would have to know that saying the government deficit should be cut is identical to saying the non-government surplus should be cut. Or that the government's debt is not "our" debt, it's our asset: the government is just a balance sheet entity we made up, which we use to emit IOUs that we (the actual people) get to hold & use. It's much more akin to a scorekeeper, tracking the points everyone has. The national debt is essentially the net money supply, and that money is being created by running a deficit (constantly for hundreds of years, with no reason to stop if the people keep wanting to accumulate monetary savings). Government deficit & debt are good things, and the only problem is along the lines of 'too much of a good thing' (inflation, which is the self-correction mechanism).
I think MMT was especially catching on amongst politicians around like 2018-2019. The inflation of 2022 probably put it on the backburner for awhile. But even back in 2012, here they are talking about how a load of congress members understand things but just can't say anything publicly: https://youtube.com/watch?v=ba8XdDqZ-Jg&t=1h4m25s
What will inevitably happen is that some lefty will use this bullshit to do what they always do and spend with abandon until collapse. It will not be like greece, who was bailed out by the nordic german taxpayer (while being decried as evil austerites), more like venezuela. Oh, how surprised they will all be, that the infinite money machine did not, in fact, work.
That seems to be the driving fear, although we've never seen it happen in a productive democracy. In the real world, regular people seem to hate inflation so much that we almost always err on the other side: too much unemployment from taxes being too high.
It would definitely be weird if the US ended up looking like a country that gave up their own currency or a country that relied on a single export while borrowing in a foreign currency they didn't control.
The closest, though imperfect, metaphor for the US is actually Japan, which is significantly hampered by its public debt as a gigantic percentage of GDP. It sees inflation, stagnation, but not that bad.
In which area do you see them being hampered by the public debt? The usual story goes that ever since the 90s crash, Japan had mostly been unable to generate any inflation, in their constant fight against dipping into deflation. The only exception being the 2022 inflation where basically every currency got the same tick up.
As far as how this coincides with the story about government debt corresponding to monetary savings desire, a plausible story is that the Japanese people don't trust the stock market after the crash, and thus most of their asset allocation is monetary (cash/bonds), especially as an aging society trying to save for retirement. So for the japanese government to really juice the economy with stimulus, it would have to try a lot harder with a huge deficit (instead they often balked and pulled back multiple times over the decades).
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Relevant xkcd.
Also, why is weimar germany or argentina quote-unquote unproductive?
I thought the 70s stagflation had put to rest the silly notion that high inflation equals low unemployment.
Germany lost a war and a ton of productive capacity, and had to pay war debts in foreign currencies. The other one about 'productive' was Zimbabwe destroying their own real economy with land reforms.
Don't remember what Argentina's deal was, didn't they keep borrowing in USD and do multiple voluntary peso defaults? Or recently they mistakenly were causing inflation by increasing their interest rate which was supposed to fight inflation, until they finally realized that and cut the interest rate which cut the inflation proportionally? Getting the gas & brake pedals confused is a rough time.
Anyway none of these were some policymakers learning the forbidden dark arts of 'oh the only constraint on fiat currency deficit spending is inflation, not insolvency? That doesn't sound bad, let's spend with abandon!'
Well the premise would be: if prices are going up because 'people just have so much money they can't spend it fast enough', businesses would be booming and would be desperate to hire anyone that's available. But yeah, the '70s shows that if inflation is 'cost-push', ie caused on the supply side by something like an oil embargo out of nowhere, then it doesn't matter if you try to wreck the economy (as volcker tried), those prices may not be tamed by more unemployment slack. May need to deregulate natural gas in that kind of instance, to get costs back down.
If Argentina can cause inflation by mistake, and Japan wants inflation, why can't they copy Argentina?
Now at 3.5% they're acting like it's crisis mode on the other side (too far above 2%), so they're probably shying away from argentina style for now.
But yeah with Japan's public debt size, they were definitely confusing the brake pedal for the gas pedal in the 2000s, and should have checked out what a 2% rate hike would have done as stimulus. (or just cut taxes)
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Do you think lowering your target interest rate lowers inflation? Like erdogan?
Or does it mean you endorse milei's policies, the austerity poster boy?
It surely depends on the government debt to gdp ratio. But yeah interest spending is government spending like any other, so turning on the fire hose and blasting people with free money is probably more stimulative than high borrowing costs are constrictive. You would have to think the propensity to spend interest income is near 0 to think otherwise. I don't know if that's the same reasoning as neo-fisherians use, or what erdogan is working from.
I'm not up to date with milei either, though I like his chainsaw schtick. If it was his policy to cut rates, the 10-year charts are pretty striking: interest rate, inflation rate. The last I had heard was years ago, that argentina was probably accidentally making their inflation worse by following the orthodox advice of raising rates. It wasn't until yesterday that I looked this up and saw the cut rates preceding the inflation drop.
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The problem is never the amount of debt, but the backing of that debt. It is true that government debt is useful: money is a government liability (zero coupon, infinite maturity for cash) and treasuries are a safe security (until we default) in a world where safe securities are scarce. In the 90s, people were worried that by lowering deficits we would create a shortage of government debt and safe assets. This was completely misguided because we can always issue more debt and use the proceeds to buy valuable assets to finance the repayment.
When people say that they are worried about government debt, they mean relative to the ability to repay. Since we see that increases in debt don’t go towards increasing our ability to repay it but rather decrease it, it is natural to say that we want government debt to stop increasing.
I actually think that there is not enough Treasuries around as we can see by the convenience yield that they have. This convenience yield says that we could profit by issuing debt and investing in real assets, turning the federal government into a massive bank (which it kind of is). Yet issuing more Treasuries and then wasting the proceeds is not sustainable.
But what are the 'proceeds' in your formulation? They issue a government liability that pays the policy rate, swap it for a different government liability that pays the policy rate (central bank reserves), and then spend it. There is no difference between reserves and treasuries, so calling one 'money' and calling the other 'debt that requires backing and an ability to repay' is only serving to confuse your thinking.
It's akin to printing up a new $5 bill, then exchanging it for quarters because that's what the arcade takes. No more or less money in any form. They can print as many central bank reserves or treasury securities as they want, so 'repayment' is a non issue. Inflation is the only relevant concern.
When the government issues treasuries and receives money, it can spend that money. When the federal reserve “issues securities” (more accurately, the ON RRP), it withdraws that money from circulation.
If the government were to just take the money from the issued bonds and just sit on it, then there would be no effects (except those via the relative supply of money and treasuries). But it issues debt to get money to spend, so after issuance, the amount of things the government can afford at that moment has increased.
The point is that issuing debt gives you resources now that you have to repay later. Money or nominal versus real does not change that.
My thinking is not confused because I admit that money and treasuries are (consolidated) government liabilities, both of which need backing and ability to repay. People get confused with “fiat money” and think that it doesn’t require any backing. But the value of fiat money today depends on the expectations of its value in the future; that value depends on the demand and supply of money then. If the federal reserve has no assets, then it cannot react to a lower demand for money by withdrawing the money from circulation so the value of money would be lower. Therefore, if you don’t have “ability to repay”, your currency in aggregate and in real terms cannot be too valuable.
The usefulness of money allows you to get some value without any backing (for a different example of that look at Bitcoin). But at the margin, if you want an economy with enough money in real terms you must have backing.
Finally, repayment in real terms is the concern. Inflation is default. No serious monetary economist will ever tell you that a central bank has no meaningful budget constraint (but you might read that in a paper in the AER).
I don't know what you would mean by "backing" in this context. The treasury issues IOUs that pay interest (bonds/bills/etc), and they make those interest payments by issuing more of the same IOUs in the future: they indefinitely roll over. The central bank issues IOUs that pay interest (reserves), and they make those interest payments by issuing more of the same IOUs in the future: it indefinitely rolls over. There is no promised future real 'value', it is what it is, and if there's inflation, so be it (other than the inflation-indexed bonds). And the only thing any of these government IOUs can be redeemed for when returned to their issuer is tax relief (or you can freely swap them for other different types of government IOUs).
They are the monopoly issuer of the currency, and thus can either control price or quantity. There was a bit of a monetarist experiment with Volcker where they tried to control quantity and let price float, but that just caused the price (interest rate) to keep ratcheting up, because commercial bank lending creates deposits endogenously. They have since recognized that they just have to fix price and let quantity float, to run the system properly. So they just set the interest rate and do not care about 'demand for money' - it's infinitely available at some price. We're simply talking about numbers in account balances.
Whose concern? The government doesn't care. And no one else's opinion matters. They are not beholden to the market. If inflation ticks up, that is definitely not the same as defaulting on the debt. We still need the government's IOUs to pay taxes, so they will perpetually be valuable to that extent.
Not sure what you mean by a central bank budget constraint. They have various expenses each year, but any preparation of a formal budget is to make their case to congress that they're behaving well and shouldn't be slapped on the wrist. It's not an economic constraint. They tend to end up in profit every year and just dump that amount into the treasury's account.
Bitcoin has no issuer offering a redemption value, and thus is a commodity rather than money. As an economic instrument, the fair value is $0. Any valuation above that might be a small amount for the utility of making transactions (would work if each btc were 1 cent or something), and otherwise just speculative (don't get caught holding the bag).
If you're saying that bitcoin has no 'backing', but US dollars have 'backing', maybe you're using that term for what I'm calling IOU 'redemption'? (returning an IOU to its issuer, to get what is 'owed')
Yes, there is. It made somewhat explicit by inflation targets. I don't understand at all what you mean by "if there is inflation, so be it."
Sure, they set a price but how is that implemented? It is implemented by changes in the quantities. Yes, the rule says adjust the quantity as much as needed to get to the price. But to do that quantity adjustment sometimes you need to reduce the quantity in the market (OMOs sometimes require 'buying back' money) and for that you need assets that the market values.
This is my point about budget constraints. The central bank supplies money which, to think clearly, we should measure in real terms. The amount of money in real terms that a central bank can supply is limited by the assets that they hold because otherwise the bank cannot maintain the real value of money in the face of demand shocks. Demand matters because it is obviously easier to maintain the value of your currency when its demand is growing than when its demand is declining. I don't see how this point is hard to understand, but it is easy to show in a very simple model.
The difference between defaulting on debt and defaulting on money (inflation) is who gets to bear the losses of the default. This is easy to see if you think of money as an infinite-maturity bond with zero coupon (for currency) or some coupon (for reserves). Your argument proves too much: if it were true, there would be no issues with the monetary crises in the late 20th century. Taxes are set in nominal terms, but they are set with a delay so the government will lose in real terms with inflation (after we are all bumped up to higher brackets).
In monetary economics, commodity money means an asset or durable good that has intrinsic value. That is, value for non-monetary uses. In this sense, Bitcoin is not commodity money. Backing need not be about redemption. Think of stock buybacks, stocks are backed by the companies cash flows. You can't show up with one share and demand a payment from the company, but there is an implicit expected future value of the stock and the buybacks help maintain it. Bitcoin doesn't have that and the dollar could work without that, but it would mean a low aggregate stock of money in real terms which is bad because we need money valuable in real terms to make transactions.
This was the old rate maintenance regime, but unfortunately you're almost 20 years out of date here. The way they implement the policy rate is by simply paying that chosen rate of interest on reserves directly. They absolutely flooded the banking system with excess reserves, in order for the interbank lending rates to get pinned to that same 'floor' rate. For those entities holding reserves which aren't legally allowed to be paid interest directly, the Fed pays them interest anyway, using overnight reverse-repos that you mentioned before.
I believe basically all central banks switched to this approach rather than OMOs with 0 excess reserves (it's way easier this way).
And with this regime, there's basically no difference to the banks whether they're holding reserves or short-term securities, so the Fed's balance sheet composition and size can be changed at will.
I can't exactly tell, but it kind of sounds like you're describing some kind of conception of banking like they're storing real objects. Like you 'deposit' some gold bars and your jewelry, and they issue you an account balance and/or a paper money receipt for it? In that kind of idea, I can see how you would be talking about the bank's assets and how they 'back' the value of the credit money. And that kind of story is like where the 'fractional reserve -> money multiplier' ideas came from.
That just has nothing to do with how modern banking actually works (nor even really past banking apparently, the goldsmith idea was basically always a misconception or story for convenience). The Fed's balance sheet assets are almost entirely just treasury securities, which they 'bought' by creating their own liabilities (reserves). It was just a pure balance sheet expansion, which is how modern banks work. Maybe the terminology here is that banks in the real world use 'finance' model of banking while some dated textbooks discuss hypothetical 'intermediation' models.
You're basically just referring to things having value for various reasons. 'Backing' means there's a subject behind it, guaranteeing a value (or trying to). It's just going to serve to confuse thinking to bring out 'backed by' when it's not an actual strong case. Does a government want their currency to be more valuable than less, like a company wants their stock price to be higher rather than lower (because look at our great cash flow this quarter)? Yeah, but those are categorically different than an IOU that promises some redemption value like gold or PS5s. Now if a company has a standing offer to buy back any existing stock at some price, that is more of a real backing.
I didn't follow this part, can you mention the crises you're referring to?
You should be more charitable than this. How do you think the level of reserves changes over time, simply from the payment of interest on reserves? How do they go down then? You can check the NY Fed for this; there is also data.
Perhaps I wasn't clear enough. The point is that the amount of money in nominal terms is not economically relevant. (If you search for the "most valuable currencies," you will encounter articles like this one in Forbes that are completely useless). The economically relevant quantity is the "real value" of the stock of money or the market(!) value of money in terms of other goods and services. You can do this without 'backing' as in Bitcoin or monetary models where money is inherently useless and the aggregate nominal stock of money is held constant; so it is a separate concept from backing. As a follow-up point, I mentioned that if you want to increase the real value of the total stock of money, you need more backing.
Here we have a strong disagreement. In my view (which I believe is in line with theoretical models of money), a key component of money is simply asset pricing with a 'convenience yield' or non-dividend uses. Of course, there is more to it, but understanding that gets you a long way. The 'convenience yield', which is the spread in return between money and the risk-adjusted market portfolio, is like a (rental) price for money (in real terms) and it is lower when the central bank supplies more money (in real terms) as the central bank simply works its way down a demand curve. So money is just a security, a very special one for sure, so the same ideas of 'backing' for stocks and bonds apply to it.
I was referring to episodes like the ones explored in The Monetary and Fiscal History of Latin America. I might be able to understand your argument better if you tell me how it is consistent with these episodes.
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The damage isn't done by money simply being created or spent. It's done when it's used to Dig Up and Fill Holes Again, or worse, paid to my political enemies to actively undermine my interests. The money is then "backed" by holes dug up and filled again, or hit pieces against Twitter nobodies.
These things probably don't generate as much real wealth as what the private sector would back it with instead, if it was allowed to create the money instead.
Well the private sector definitely creates money and real wealth as well, so it's not a competition for any kind of limited quantity of financing. But it does so pro-cyclically: when times are good there's lending & investments everywhere, but everyone clams up when times are bad. The government can be the counter-cyclical engine, stopping the paradox of thrift.
If you would have otherwise had high unemployment, then creating money and paying those unemployed people to dig holes is at least better than letting them atrophy away, in terms of "damage done", because at least they go on to spend that money and generate more demand. But yeah it would always be a better idea to put people to work generating some kind of base-level valued output (goods/services). Ideally the government catches people at the bottom unemployment end, and they can as quickly as possible transfer back into the private sector to make more money and do something valuable.
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MMT is a relatively accurate model of how modern Western monetary policy works. But have you sit down for a second and asked yourself if that's a good thing that it works like that or not?
Because if you did not, I don't think you're equipped to engage with its actual opponents.
Does the State having control over the rate of interest incentivize good or bad investments? What's a good rate of inflation and who does that good rate benefit and harm? And most importantly, what happens to all this the day that people stop buying US debt no questions asked?
MMT is mainly about describing how fiscal policy and money itself works, and it apparently has been essentially the same throughout human history. The word 'modern' was a joke from a Keynes quote about "the past 4000 years, at least". Mesopotamian temple accounts, European tally-sticks, various stamped coins, etc. Always money being transferable credit, and dominated by credit from the authority of the day. It's how you would bootstrap a monetary economy into existence, whether you're talking about a hippie commune, a Lost desert island situation, or a new nation, without relying on any circular reasoning "lets call this seashell money: I value it, because someone else will value it, because someone else...". Using the authority's power of taxation (and power to punish/expel those who don't pay) to give value to money is an imposition, but it appears to be the least barbaric method for organizing society we've come up with so far.
Monetary policy as the business of setting interest rates, isn't of that much concern to me. I think they've landed on basically sane goals of desiring slight inflation over time, and a policy regime of simply paying interest on reserves to set the base interest rate (much better than the pre-2008 system of open market operations). I would like to see them just set the interest rate at 0-1% and leave it there forever, as I don't think there's good evidence that it controls inflation or the economy like they wish it did, and I think interest payments are maybe some of the worst government spending.
I was basically a libertarian before I learned MMT and became a normie, although I never really had that core furious uncomfortability that someone else's decisions can affect 'my money', which seems to really animate some people in these questions you're raising.
The whole current system especially in the US is downstream of hundreds of years of business interests, ideological libertarians, and others clashing over precisely the kind of political questions you listed. The core economic logic is actually extremely simple, but there are a million self-imposed constraints, strange terminology, and extra steps between it all (leftover from the gold-standard era mainly, but it's been through a lot).
It's almost purely a charade that they pretend the market has a role in buying US debt. 'Almost', because they currently do like to take the temperature of market predictions on longer-term securities, and let those rates up the yield curve fluctuate with market sentiment. It's a self-imposed constraint that the treasury and central bank are separated, a self-imposed constraint that the treasury can't go into infinite overdraft on their account, a self-imposed constraint that they can't directly swap liabilities with each other, etc. After WW2 when they re-imposed that last constraint, the Fed chair Eccles told congress exactly that the market plays no real role and that it was a charade, but they re-imposed the pretend restriction anyway for the optics.
The current system of maneuvering around the laws in the US is that the central bank contracts commercial banks as 'primary dealers' who have an obligation to make sure every treasury bond issuance goes off perfectly without a hitch at the chosen policy rate. No bond vigilantes get a say in the process.
Frankly, you just sound like a tits and beer liberal, if you're not mainlining Mises to the degree that it affects your metaphysical outlook, you're not really doing a libertarianism in my opinion. But that's a fine and reasonable position. I was once just such.
"It says here in this history book that luckily, the good guys have won every single time. What are the odds?”
I notice you're stalling on answering the question, and trying to get into procedural matters. Nobody gives a shit what the US' opinion of their own system is, they give a shit about the real economic effect of US debt being toilet paper.
Moving the ball is not making it disappear. I too can borrow to myself infinitely in made up me-bucks. But in the scenario where US debt is no longer the world's reserve currency, that doesn't translate into any ability to buy goods.
"Primary dealers" of monopoly money can surely not fail in delivering it to the US government, but how exactly does that translate into food rations for GI?
Not sure you're following the point, that was saying that we have a goofy system precisely because different people have been trading off who wins & loses all the time. Especially in the 19th century the winners didn't exactly know what they were doing (constant boom & bust cycles with many severe depressions).
The government prints up some IOUs called treasury securities, and swaps them for some other government IOUs called central bank reserves, in a primary dealer auction completely unencumbered by "people choosing to buy debt". Then they use those IOUs (widely called 'money') to spend and/or give to people out in the economy, who are willing to trade goods & services for those IOUs. These government IOUs are valuable because they're the only way to settle your taxes that the government declared that you owe.
If that sounded like gibberish to you, well I already said most people don't understand the monetary system and never learned about it. If you think there's "a" world reserve currency conferring special status to a single country, that does explain where you're at, but the basic logic I just laid out also applies to other countries that issue their own currency.
What if people refuse to use your currency to trade goods and services? What if they tell you to fuck off when you ask them to pay you your own fun bucks? And I'm not just talking about Americans that you have over the barrel of your gun. I'm talking about the rest of the world.
This entire scenario is specifically about what happens when your power to enforce the privilege of exchanging debt for ressources ends.
What happens when US treasuries are no longer viewed as the most risk free investment vehicle in the world and are replaced by something else and demand craters?
The answer is usually that you'll have to dip into foreign currency reserves or sell hard assets, but what do you do when you run out?
What if I start paying your military men in the new harder currency to loot your country?
Money is debt. So that would be inflation, which was definitely covered from the start. That is absolutely the relevant constraint on government deficit spending.
As far as the exchange rate goes: in the very worst case scenario of your exchange rate suffering, you can always at least import as much as you export. That's true whether you even have your own currency or not. But if you have a currency that foreigners are willing to save in (a world 'reserve currency', which basically all currencies are to different degrees), that just allows you the luxury of importing even more than you export (not necessary, but can be nice, although then your exporter businesses might start bitching about your country's 'trade deficit', so it's not all roses).
As I tried explaining procedurally above, it doesn't matter a single iota whether there's any market demand for treasuries. That's the charade part of it. The government effectively is just printing money as they deficit spend, and they always have been. They print the money, they set how much interest money pays (if any), and we have to get the government's money regardless of anything, in order to pay taxes.
If the king wants something done, he levies a tax on the subjects. Then he prints up some tally sticks, and pays them out to people to do the thing. Then they pay their tax, and he burns the tally sticks. Same with colonial american paper money: levy a tax, print up some stacks, get the work done, then shred the money as it gets paid back in taxes.
So you're just going to repeat back MMT to me as if I haven't read Tcherneva and never heard of chartalism? Come on, at least engage with the idea of a debt crisis. Do you really think everyone from Louis XVI to Hindenburg was too stupid to realize they could just raise taxes to lower inflation? The political expediency of reasonable policy matters, and all I see from MMT proponents is a total faith in the impossibility of default or hyperinflation.
I'd like you to at least acknowledge recent history, seeing as though your model is supposed to model it.
This just isn't true. I've actually lived in countries where that wasn't true. Getting your state looted by foreign creditors is a real thing that really happens to people. Ask any Russian.
At some point people just start demanding real collateral. How does MMT explain the Pepsi fleet exactly?
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MMT is propably not a popular position here. Your comment mostly assumes its true, and your very long quote is entirely about why the reactionaries wont see the light. The justification is essentially this:
The rest is the same thing in different words. And as for that.
Why is inflation correcting it? We have over the last few years heard from many left-leaning economists that inflation is actually fine, the lower classes are just irrationally afraid of it, go right ahead Mr Biden. In a mostly cashless economy like the US, even the logistical problems of hyperinflation can be handled pretty well.
Indeed, it's true that if I want the government to lower its deficit spending on Hole Digging and Filling Up Again, then I am also calling for an equivalent reduction of surplus enjoyed by Hole Digging and Filling Up Again companies. The alternative isn't that money never being created, the alternative it is being created through other means. Under our current system it doesn't even have to be the government. The private sector can also spend money into existence.
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That is definitely the case, but I would be surprised if anyone could do the t-accounts for various government & banking accounting operations and actually put the liabilities & assets on the correct sides, etc. Even most economists mess it up completely. It's just not something most people learn or care about. My guess was definitely about US officials and how their actions may be explained by their private knowledge, rather than an estimation about our forum members' beliefs.
Identities are a basic check to make sure you're not getting something totally wrong. If you think the government deficit is a bad thing that should be reduced, you have to explain why you think that of the non-government surplus as well. It is quite literally the same thing. As Kelton said in that presentation, people goof up on this all the time. The WSJ in the late clinton years proudly proclaiming in one column "isn't this wonderful? This is the longest sustained budget surplus since 1929!" while the next column over is hand-wringing "this is very worrying, the private sector savings are plummeting!".
When collectively the private sector has more monetary savings than we want, we will value money less and increasingly try to spend it away - the hot potato effect. Prices will get bid up high enough from this economic activity (falling value of a dollar) until we have the correct/desired amount of savings again. Or before that, the increased economic activity will cause the excess monetary savings to get shed off in increased tax payments (monetary destruction, IOUs returning to their issuer).
So taxes being set at rates instead of flat amounts is therefore one of our main automatic stabilizer policies (the other being safety net spending): the government deficit automatically shrinks & grows depending on the state of the economy. Demand-pull inflation is the final relief valve after that, re-valuing money downward until we have the amount we want.
The point of me saying this was that in that situation you should put more effort on justification.
None of this describes an actual problem with inflation. It says that inflation will automatically regulate away any excess borrowings. Why then not set taxes to 0, and just let the inflation run its course?
Is there any reason this is unique to the government? Or is my deficit also literally the same thing as rest-of-the-economy surplus? Because if it is, then it seems noone else should have objections to me borrowing indefinitely, either - it just makes you better of!
Why would they not want more? You demand that I explain why we would ever want non-government surplus to be less, but now you just assert that it will be the case.
Yep fair enough, my initial 2nd paragraph was kind of declaring things outside the point of the rest of it. That was trying to punch up what people might 'know' which I think are incontrovertible, without going into subjective policy implications.
Having some amount of taxes is what gives the currency an initial anchor value. Those taxes being levied broadly and reoccurring every year is what makes the money universally accepted and used even in the private economy. The currency is an IOU where the only thing 'owed' upon redemption is tax relief. If you levy no taxes, then inflation definitely will regulate the value automatically to the desired savings amount of 0 (give or take some inertia).
The only thing unique to government is the ability to levy taxes (backed up by force). That's what allows them to indefinitely print up IOUs that promise to pay nothing but an abstract amount of value in a unit of measurement they make up, and people will still line up to earn those IOUs (working in the army or wherever).
The generalized logic is: "you will always value your creditor's own debt". Because you can cancel out the debts with each other. The government can decree that it's a universal creditor to everyone (everyone owes taxes, abstract amounts of value payable in nothing). Thus enabling it to actually simultaneously be a universal debtor to everyone (issuing IOUs far exceeding the tax liabilities, if people are willing to save some for a rainy day).
You can write any number of IOUs that say "I owe the bearer of this note 1 apple", and use that new money to pay for things. Maybe only people in your neighborhood will accept it (also helps if they know you have an apple tree in your yard, and that there aren't too many outstanding notes to enable a run on your apples). If you write "I owe the bearer of this note $1", then some people (particularly banks) may accept it as valuable if they trust your creditworthiness. Your deficit is indeed definitely everyone else's surplus, if splitting the economy into those 2 sectors is useful to any analysis. So we (in the non-Lykurg sector of the economy) do benefit. The only problem is you run out of creditworthiness before we get very stimulated.
Well, would you be happy holding millions/billions in checking/saving/bond accounts, or would you be tempted at some point to start buying stocks, yachts, and islands instead? It seems that most people tend to have savings targets to hit, after which they feel more free to spend any excess income. And their preferred asset allocation of savings maxes out at some desired amount of monetary savings.
But indeed, the government deficit could certainly be eleventy zillion dollars, if it were to end up in someone's account that has an infinite savings desire who wouldn't touch it. In the MV=PQ identity, that would be money increasing but velocity falling off a cliff, causing no effect on output or price level.
And I didn't say that there's no reason to want to shrink the government deficit, just that it does take an explanation. I could say that I do want to shrink the non-government surplus in hypothetical situations, if we're having obnoxious levels of inflation, maybe caused by too much government spending being indexed against the price level (causing a positive feedback loop that prevents automatic stabilization).
Finally, we indeed have basically never had much demand-pull inflation in the modern era of democracies with proper central banks using fiat currency (since the early 20th century at least). The bouts of inflation are usually better explained as cost-push, often from energy price shocks. The central bankers take credit for being wizards and steering the economies well, but it's probably those fiscal automatic stabilizers doing the work.
Ill note that you still havent explained why too much inflation is bad, or how we would know what "too much" is.
Transitioning out of just questions, I agree that the taxes give value to the IOUs, but I dont think the made up unit gives you all that much long-term. You can inflate away your debt, but expectations of inflation are built into the interest rate you are offered. Unless you can somehow inflate above expectations indefinitely, in the long term you need to tax back what you borrowed plus interest in real terms. There is no reason to borrow unless your position as the government gives you investment opportunities above market returns, youd just pay interest for no good reason.
I assume you're not asking for the various downsides of inflation in general and why people find it annoying when it's above some small amount like 1-2%? My original statement was that people should have the properly oriented mindset, where the problem of 'too much government debt' is along the lines of 'too much of a good thing'. The 'good thing' here is the money in the private sector, not inflation, if that was the confusion. This is all in contrast to most peoples' gut notion that "deficit" and "debt" sound negative and bad and worth minimizing on their own.
You don't think the US making up their own 'dollar' unit of measurement is too important? You must be on some kind of galactic time scale here for what long term means. This is surely one of the most important things about being a sovereign nation, creating and issuing your own currency.
Again, maybe I'm not thinking long term enough. But in the US, we went into millions, then billions, now trillions. Should we find the tens of trillions a special number, such that we wouldn't expect to see quadrillions? When and why would they ever need to 'tax back' this amount? The IOUs just roll over indefinitely.
Yeah once you recognize that all money is just transferable credit, you will notice that there is basically no economic difference between central bank reserves and treasury securities. So rather than one being 'money' and the other being 'borrowing', they are actually not 'borrowing' at all. They are just creating money in different forms. This fact has dawned on people like Larry Summers a decade after central bank reserves started paying interest just like treasury securities.
As for paying interest, it's purely a policy choice to pay anything other than 0% on any of these IOUs. It's a government subsidy to savers: they will give you more money for having money. There are various macroeconomic effects for any chosen rate. Currently the policymakers in charge think choosing to pay a higher interest rate is on balance more constrictive than stimulative, and think that low rates are on balance more stimulative.
Im asking for some kind of real economic cost; "Its annoying when the prices are different than I remember" doesnt count, no.
If you dont pay enough interest, people will stop lending you money.
Well, you said that the difference between me and the state is that the state can tax. If it doesnt actually need to do that, then whats the difference? Why cant I have ever-increasing amounts of debt that I service by taking on new debt?
What youre proposing here is "The Ponzi scheme that actually works". Because Ponzi schemes do work so long as the investors dont take out their money, ie stop letting you roll over your debt.
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Private savings don't have to be in T-Bills. To the extent the market is flooded with them, they crowd out private investment and savings in private instruments.
Still, the real reason government deficits are bad is that the bulk of government spending is bad. Transfer programs for the poor and elderly, government schools, subsidies for corn farmers, etc. When you spend money on these things you are buying fairly useless products, employing people in positions where they would be better for the country if they were employed elsewhere, etc. So even if some amount of T-bill generation each year is actually good, it would be best achieved by funding courts and police and setting taxes near to zero.
There's no crowding out there, it's just a price effect. The government sets the risk-free rate, and others price risk premiums on top of that. Finance is infinitely available: price not quantity.
That's exactly right, that's why we fight (politically) for our preferred outcomes. It's just a mistake to say the deficit has anything to do with the size of government or what we prioritize doing in the public sector. The size of the government deficit & debt have to do with the savings desires of the populace. So it's just the wrong target to look at.
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But that would have been right after the years the US federal budget had been running a surplus under the Clinton admin, no?
Equally thanks to pressure from the Gingrich era Republicans in Congress.
IMO it was a combo of Bush I tax increases (the ones Clinton attacked him on to get elected), the dot com boom and post cold war growth creating a larger base for those taxes, and gridlock between Clinton and the GOP limiting new spending.
If Bush II would have used the surplus in his first year to pay down the debt instead of doing tax cuts and spent less by not going so hard on the War on Terror the debt would be in a much better place now.
Absolutely it's multifactorial. Reduced deficits pretty much track divided government.
"Vote so as to minimize the probability of the House, Senate and Presidency belonging to the same party" is a pretty good maxim.
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My view is slightly different. Sometimes debt is good, you would buy a house on mortgage, for example. But the current debt is purely for buying trinkets, not good. The US is also a very strong economy, the best in the world. Some more debt is not going to bankrupt it. However, excess debt can reduce growth. The fact that the US was growing faster than other developed countries, is no reason to limit this potential. Therefore this debt should be eliminated as it would allow the US to grow even faster.
Now, Musk wants more growth. Everything depends on it. It is a long game he is playing, some moves might be wrong, but it all makes sense.
Current US debt is not for "buying trinkets". It's mostly funding people's lives of questionable leisure, and providing life extension for the aged and self-destructive.
That's what I mean by “buying trinkets”.
That is a very non-standard meaning of "buying trinkets", Mr. Dumpty.
I am sorry, I had seen this usage in some writings and thought that it is a standard English. But I am not a native speaker and make a ton of mistakes in every sentence.
I think ‘buying trinkets’ is an okay way to say essentially ‘frivolous spending that has no long-term advantage’.
Since we’re talking about literal spending here, perhaps more context would be better in this case to be clear that you aren’t literally talking about buying physical things like jet planes.
Thank you. That was exactly my thought. In my formative years I learned English from writings by Indians. I am well aware that many expressions I learned from them are unfortunately archaic or used only in India and not in the standard British or American English. I try to avoid them but it is not always easy in a second (actually my third) language.
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As RandomRanger says below, sometimes you have to think about more important things than winning the next election. The debt is a very serious problem that will be resolved either by fiscal responsibility or by default. Both of these are going to hurt, but one is going to hurt much more than the other. If the voting public can't look beyond the immediate present and choose the least worst option (rather than merely punishing the party that institutes fiscal responsibility), then we do not deserve democracy and would be frankly better off in a political system where people with low-time preferences aren't allowed to dictate policy. I have some hope that maybe people aren't quite as stupid as they seem. Last time we talked about politics, even my dad who is a staunch entitlements defender recognized that we need to do something about the deficit. Being a budget hawk is coming out of conspiracy territory and into the mainstream.
Will something actually happen to prevent default? I unfortunately doubt it. There won't be higher taxes for at least the next 3 years, and Trump seems unwilling to actually touch the big spending categories. And I sort of see why. Can't cut defense because we are on the brink of WW3. Can't cut medicaid or social security because your voting base will revolt. The theatrics of DOGE conveniently dance around this fact, and I have been disappointed to see how many otherwise very on the nose bloggers/posters here (John Michael Greer is at the top of the list) are unable to see that. Cutting the NIH and NSF budgets, while it might feel good, doesn't fix the problem (and actually makes it worse as you actively contribute to brain drain of talent). We basically need either the boomers to die much faster than expected, for them to take one for the team and not collect social security (I would eat my hat), or some kind of massive improvement in health of the general population that greatly reduces medicare/medicaid expenses. None of these are going to happen, so we are basically fucked.
Competent politicians recognize this as a strategem by which they may be tricked into removing themselves, and then most likely the "more important thing" they were convinced into sacrificing their political career for is then abandoned or betrayed.
Thus all progress depends on the incompetent politician. ... Hang on.
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I’m with you, zero confidence that Americans will go along with this, because Americans have been raised up until maybe 15 years ago in a world of abundant wealth where hard choices didn’t have to be made. Or the can could be kicked until basically now. They aren’t used to “suffering for the greater good”, making do or doing without. So they aren’t going to tolerate such a thing. Add in the opposition making a point to blame the GOP for the suffering and promising to go back to the before times when the public could expect high standards of living, cushy office jobs, university education, and cheap consumer goods, and you will see the revolt.
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I don't see why Trump gives a shit. He can't be reelected anyway, so who cares if the voters hate him? His career in politics is over either way. He's in the ideal position to do necessary-but-unpopular things. Granted that he needs Congress to play ball (he can't just cut spending on welfare himself), but Trump himself doesn't need to worry.
How is this not equally applicable to literally every other politician that has been term-limited out of office? Of all the Presidents to serve two full terms - and thus, their "careers in politics were over either way" - while Social Security, Medicare and Medicaid existed, which of them fell on their sword and cut those programs in their 2nd term? The answer is none, not Reagan, not GWB, not Obama. Singling out Trump for political cowardice on the matter amounts to special pleading; no politician intends to retire with the mantle of "single person who was responsible for their political party's complete collapse."
It is.
I'm not doing that. Trump was under discussion, not anybody else. Nor did I call him a coward.
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He himself? He's quite obviously someone who is obsessed with whether the people, or at least his own voter base, like him or not.
Good point. I was thinking in practical terms (where he has nothing to lose), but forgot how ego-driven the man is.
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This. Trump has a giant yet fragile ego. I think that the 2020 election denial can be understood not as a carefully designed lie to stay relevant, but as a knee-jerk emotional response. A world in which he fairly lost 2020 was a world where he was less popular than two-term president Obama and president-elect Joe Biden. This was not a world he could imagine inhabiting. Likewise, his 2024 statement to the effect that he would accept the election result if he wins.
In a way, when losing he is like an obsessive ex turned stalker, who can not accept that they got dumped, but tries to construct a world where they were forced by external factors to deny their love.
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To me he seems nothing like a visionary leader who accepts temporary pain for the greater, long term good of his people. His first and second priorities are his ego and his embezzlement.
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There is one more option, which is that AI causes GDP to grow fast enough that the government can fund obligations with no (or very little) tax hikes. This would be a ridiculous deus ex machina that would basically confirm that we live in a simulation.
And yet...
There is a common human thing where someone gets into a hole and takes a huge risk in hopes of getting out of that hole, which makes the problem much much worse.
If politicians embrace AI for this reason and then superintelligence kills everyone, I would describe this as that
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AI would need to deliver, like, 8% annualized growth or something to pull out of our debt problems. Our historical average has been 2%
Basically, this is in crack pipe fantasy territory. Not that a man can't hope though...
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Fiscal responsibility (in its ultimate form) comes above democracy.
If the US goes bankrupt, nobody is coming in with a bailout. Nobody can, America is too big.
If the situation is 'I can't trust that the other guy won't just rob the coffers once I've refilled them' then eliminate the other guy so he can't compete for power. You can't endlessly borrow money from the rest of the world to buy goods from the rest of the world at a rapid pace. It has to correct, regardless of whether you're a democracy or an autocracy or a theocracy. It's politically impossible to cut spending or raise taxes? Well it will become possible, it will become mandatory. Either you grow your way out of debt, or you have to rebalance spending and taxes.
Look at Bolivia: https://www.gisreportsonline.com/r/bolivia-political-chaos/
Currency down the toilet, overt threats of a military coup, vicious politicization of the judiciary, power struggle, lots of debt and no way to pay it. They can't just ignore the debt and economic crisis because they don't like it.
There are many things the left and right agree on in America, combatting China for one. Can't do that or anything else if you have no money! The consequences of a serious economic crisis like what's happening in Bolivia but in the US are unprecedented, it would probably be at least as bad as the Great Depression for living standards and might be sufficient to finish off democracy entirely.
Per WP, the federal debt amounts to some seven years of federal revenue. This is clearly not great, but it is also not obvious that this will cause a spiraling hyperinflation.
One early warning sign for being over-debt is that lenders are no longer willing to lend to you with low interests. The US still has a rating of AA+ with most agencies, and from my reading of Bloomberg, treasury bonds yield about 5% per year.
Also, the US is similar to Bolivia in that both have debts denominated in US$, but unlike Bolivia the US has the option to debase that currency.
Realistically, I think that the worst outcome for the US would be a bit tamer than the Greek debt crisis. Surely painful and something best avoided, but also not something which will end democracy and give rise to the next Hitler.
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A superpower going bankrupt is very much précédented(Russia in the nineties).
I’d also dispute that Trump going full thug and becoming a dictator would be able to meaningfully institute fiscal sanity.
The Russian economy basically disintegrated and the country was looted by oligarchs, democracy was snuffed out and massively discredited for decades. Now this was a semi-deliberate wrecking of the country to prevent the communists getting back into power, so not just a bankruptcy... but it bodes ill for the US doing the same thing.
Also the US could extend bailouts to Russia and did so to a certain extent, again trying to keep communists out of power.
Trump certainly wouldn't be capable of fiscal rectitude, that much is clear. But the status quo can't be maintained indefinitely.
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We're talking global reserve currency here. Did Rome ever go bankrupt? That's the closest analogy I could think of.
Yes, it caused the crisis of the third century. Imperial China has also bankrupted itself.
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I'm surprised people, sane ones are dismissing the entire issue despite the concerns. You go online and the Maga reaction is to call Musk shcizo for questioning a very real concern.
America is long past the point at which most countries would have seen fiscal collapse, default, or otherwise serious consequences from the debt.
It's not unreasonable to note that at the moment, America(and Japan, apparently) Is Different.
It's only different because it has the most powerful army in the world. Well that and dwindling traditions of people using the dollar to price things that come from it.
The day that people stop fearing the US is the day that it collapses. And those soldiers, like the praetorian guards of old, need to see real value to remain loyal, not mere debt.
America's doomed like all empires are doomed, the only way out is growth. Ironically the MAGA people refusing to look at the number are the saner party here. There is no government cut that could ever pay this off without completely destroying the US and the world.
Musk is smart, but you can't outsmart that abyss.
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There's have only ever been a handful of fiscal hawks in Washington (people who would vote for higher taxes and less spending to reduce the deficit). Almost everyone who calls themselves a fiscal hawk is just using it as a pretext to get half of those done (higher taxes and more spending for Ds lower spending and lower taxes for Rs).
I think the voters who support fiscal responsibility are so demoralized from never getting what they want every time it's been promised, they've taken the black pill and are just expecting a default.
Maybe without leaded gasoline the average IQ (or brain health, if IQ is too gross) of the United States would have been raised just enough to prevent this.
IQ too gross? Do you know where you're at, sonny?
Yeah. In addition to that, I regret using the word "gross" in an internet vernacular sense
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Spandrell proven right again. Bio leninism works because capital or class based ideologies are no longer viable, biological ones are much more intense. Neither communists nor capitalists would ever vote for someone who goes agaisnt their own holy cows on ethnic lines. Hating the host population in caseypf leftists.
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My impression is that they think the deficit/debt is both less immediately important and less tractable than dealing with immigration. The attitude is something like "Let's kick out 10+ million illegals and then see where entitlement spending is at". And without giving details, I'll just note that I see people who don't speak English interacting with expensive government benefits every single day. I would be very surprised if they weren't mostly right, in that mass deportation was de facto the largest cut in entitlement spending in history.
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The issue being dismissed for as long as I was alive might have something to do with it. Also the whole point of MAGA is that it's not basic "muh fiscal conservatism".
I only ever see some liberatarian types discuss this. Do know that MAGA is different.
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In such situation the US would indeed just print the money to save itself from bankruptcy causing immense inflation. It will cause worldwide financial crisis. It is possible that the GDP for many countries will fall by 50% or even more.
That will not be good neither for the US, nor the world peace. Possible some other countries will arise more arise more powerful, especially China, Russia or Iran. The countries who have learned to become more resilient due to constant sanctions.
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The Republicans haven't been the party of "fiscal responsibility" any more than the Democrats have been the party of the working class in living memory.
Are you just making a somewhat sardonic argument for accelerationism ("we should just loot the treasury since that's what everyone does when they're in power?") or do you actually have a proposition for how we could right the ship in some fashion? I feel like you're really just making another pitch for accepting that America is over, and so, okay, then what?
The actual solution to the debt is what we've discussed many times: entitlements and defense spending, both of which are regarded as more or less untouchable. Every other "budget-cutting measure" (including and especially DOGE) is just theatrics. Since most people agree that neither party will have the stones to cut Social Security or Medicare or really meaningfully slash the military, the actual question seems to be, can we somehow survive this? (Here we hear arguments for AGI saving us, or asteroid mining opening up a new frontier, or Modern Monetary Theory being real, all just variations on "Wish for a miracle.") Or are we debating how much ruin is actually left in the nation and whether we or our children will outlive it?
There is always the option that we face reality and do the hard things, and I think that is still possible - sometimes people do the hard things when they actually have no other choice. But you do make a compelling case that rather than hoping for actual economic reform even if it does mean I personally will see my retirement amount to less than it should have been, I should be selfish and just try to grab what I can and hope I'm dead before the shit really hits the fan. Sucks for the kids, though.
I know. I said as much.
The way you are framing the issue here is illuminating of my point, I think. I did not use the word "looting". Do you personally recognize entitlement spending as "looting" in other contexts? Does the Democratic party generally? I appreciate that many Republicans have considered entitlement spending as "looting", but why should the party as a whole do so now? Why not argue that the Democrats were right, that government spending is good, and make our own case for the best way to do it? Nor would this be pure cynical posturing. The SLS is a national disgrace in terms of achieving the goals the money was earmarked for. In terms of maintaining some sort of "productive" economic activity in a number of geographically-dispersed communities around the country, maybe it's actually the best of a bad set of options? And if not, under what principles, and who are these principles supposed to be championed by? To the extent that "Entitlement spending is looting" is a case that needs to be made, why not openly invite others to make it by legibly abandoning the position oneself? My party actually spearheaded the GWOT, and a lot of the current tumult is us making a serious effort to strip power from those members of our faction responsible. It is not guaranteed that this will actually resolve the problem, but it's something, isn't it?
In any case, whichever angle one chooses to approach the problem from, it seems unlikely to me that the old shibboleths are productive here.
From my perspective, DOGE's value comes from it attacking Progressive patronage networks that turn federal tax dollars into progressive political influence, with secondary purposes of normalizing the idea of disruption of disruptive reorganization of sclerotic federal bureaucracy. It actually balancing the budget appears to be a novel political tactic called "lying". It will be interesting to see how this new technique alters our political landscape now that its usefulness has been demonstrated.
This could actually be a very good time to cut defense spending drastically, provided we can be pretty sure we won't have to fight a war in, say, the next decade. An unknown but likely very large percentage of our current equipment is pretty clearly now obsolete, and the new paradigm has not solidified. Until it does solidify, it seems to me very likely that most military spending will be pure waste. Funding for Ukraine is, perversely, probably the exception, as it can at least be argued that it helps establish the new paradigm. One of the major downsides is that it appears to increase our risk of an actual war.
Which is a roundabout way of saying that, in my view, Defense spending should absolutely be as touchable as entitlement spending, maybe even more so.
Deus Ex Machina or Ruin do appear to be the likely outcomes, with one significantly likelier than the other. But more generally, the question is whether the tactics we've historically relied upon offer any real traction on these probabilities. Republicans have not, in fact, proved themselves capable of "fiscal responsibility" in any meaningful sense, and it seems at least arguable to me that pretending otherwise makes actual fiscal responsibility harder, not easier.
"We", surely. Looting individually is far less efficient; many hands make light work. But more generally, if this is the situation, what benefit is derived from pretending otherwise?
Oh, I'm not disagreeing with that, even though it would be to my personal detriment. But on the one hand, you are talking about things we could do to improve the economy and the country. On the other hand, you argue that we should not bother to do that because you don't want the other party to have a stronger economy to work with when they come into power. So I am a little confused what you actually want if it's not "Assume everyone is in defect mode and loot what we can."
I am rejecting the Russell's Conjugation of "My entitlement spending is investing in the future of the American people, your entitlement spending is defection and looting." Notably, I'm rejecting it both ways, and precommitting to accept whichever half you or others prefer. If you believe that Entitlement/Defense spending has heretofore been defection and looting, than I am willing to agree that I am endorsing defection and looting of the exact sort that has been the bipartisan norm for my entire life. If you believe Entitlement/Defense spending has heretofore been investment in the future of the American people, then I agree that I am endorsing that my party should make such investments also. In neither case do I believe my faction should act unilaterally as the "adult in the room" who imposes hard-nosed, unpopular restraint on spending. The purse is common. Its benefits and costs should be common as well.
This is prompted by repeated claims here by a number of posters that MAGA should disapprove of Trump due to his fiscal irresponsibility and the fact that his budget bill results in considerable deficit spending. I understand that the Republican Party has previous held opposition to deficit spending as a shibboleth. The Republican Party has also held foreign interventionism as a shibboleth. Things change, and it seems to me that this change is preferable to the alternatives.
But it's not a binary, it's not as simple as one party being the "responsible adults" and the other party being spendthrifts. Unless you are an ancap, almost everyone will agree that some level of defense spending and social welfare is necessary, or at least desirable, and everyone has some threshold at which it's excessive, and then we start getting into favorite or least favorite programs and Russell's Conjugations.
Neither party is ever going to be happy and get everything it wants. I would rather neither of us precommit to maximal defection. So you actually think the responsible thing to do is make unpopular budget choices, but you refuse to do it because you're afraid your party will suffer for it and the other party will enjoy the benefits? Yet you reject bipartisanship.
Any MAGA who honestly believed that Trump was serious about reducing the deficit and thought this was a good thing should presumably be reconsidering their position. If you never cared about that, then sure, you're consistent in supporting Trump for other reasons. OTOH, if you were one of those who was against deficit spending, and now that it's clear Trump played you, the MAGAs switching to "This was the plan all along and it's good" strike me as merely the worst sort of defectors. If Trump announces a new Smaller Prettier Bill tomorrow that in fact reduces the deficit, will deficit spending suddenly be something to oppose again?
The problem is that "deficit spending" isn't a thing. It's two things, the revenue side and the spending side. The Democrats generally want to increase taxes, not just for revenue but as primary policy. The Republicans generally want to reduce them (or so they say, anyway). Both sides want to spend, just differently. A deficit hawk generally wants to reduce spending and increase taxes. This means Republican deficit hawks have no leverage against the Democrats; they can't really trade reduced spending that they want for tax increases the Democrats want, because the Democrats know they want those tax increases too.
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IMO he’s saying that:
In short, play the game of chicken to its end in an attempt to reverse the usual dynamic where Democrats make heartrending pleas and inspiring plans while Republicans explain why lots of things have to be cut and dodge rotten tomatoes.
@FCfromSCC is this a fair summary?
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The reality is that to balance the budget you have to answer- who do you want to kill? Grandma or our soldiers? And nobody willing to answer that question will ever get elected.
The political realities mean the debt will be paid for by 1) inflation and 2) lying about the debt(your social security checks will not go as far as promised, sorry). The government will bail out load bearing sectors of the economy, maybe at third remove, but the average person will see a decline in purchasing power. Maybe to Western European levels, maybe not. It’ll be a prolonged economic crisis and that will cause political instability but there’s a lot of ruin in a country.
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I think OP is agreeing with you about the Republicans. Their reputation is "the fiscally conservative, small government party" despite them actively increasing the debt and expanding government for decades. See also "the party of Christian family values" despite doing little to nothing to oppose the normalization of progressive values.
you have the answer already:
Hard reforms may have been possible back when America was a nation. Here in Japan, people are just buckling down and weathering the long running currency devaluation because (they believe) the alternative is worse. There's a sense here that everyone is suffering together which makes it bearable. Unfortunately, America is not a nation anymore, it's a multiethnic, multicultural, multi-faith empire that include groups who bitterly hate each other, which means it's nearly impossible to get all the different groups game-theory-cooperate to avoid disaster (barring an existential threat, and even then...). Instead, we will have factional war to the knife as the coffers run dry and systems gradually break down.
I don't expect a collapse that will make good TV, rather it will be a slow version of South Africa where everything gets gradually shittier, punctuated by sudden slips along regional/local political and social fault lines that result in brief but bloody spasms of violence.
So yeah, I think you would be wise to start grabbing what you can now while praying for a unifying moment that will help us avoid that future. I also recommend moving to a place where you're around ideological, religious, and or ethnic allies so that you're not the odd man out when broadcasts from Radio Télévision Libre des Mille Collines start to reach your neighborhood.
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How exactly does one “offer the mantle”? I can’t think of any historical examples where one party politely set its opponents’ agenda.
If you’re actually asking why people aren’t blaming Democrats for Trump’s indiscretions, I assure you that they are. On this very board, even! If this is a suggestion that Trump might secure peace in our time by looting a little bit harder, well, you can consider me unconvinced.
I think people—voters—react to situations based on vibes. Losing my job to a financial crisis is bad. Cheap gas is good. Paying for someone’s abortion is bad. Defending democracy is good. Stick enough of these reactions together, draw a rough, inconsistent set of principles around them, and you’ve got yourself a political movement. The agenda of that movement, then, is largely downstream of its members’ reactions to whatever situations are most salient.
When the towers fell, public opinion was firmly in favor of massive retaliation. W was quite willing to oblige, and most of the opposition fell in line. There was never a dignified, first-principles discussion over who got to lead the charge. Even once the public soured on it, Obama picked up the bag and kept at it. Right place, right time.
There’s a bizarro alternate universe where Trump’s foreign and economic policies dovetailed into a strong COVID response. It’s one where the doomsday preppers felt vindicated as suburban liberals insisted that lockdowns are just racism. That possibility faded away as Trump began to downplay the virus. Once relaxing measures was Trump-coded, there was no chance in hell that Democrats would give up on the issue. Wrong place, wrong time.
The only way parties adopt an issue is if they’re in the right place when the vibe shifts. The only way for us to see a vibe shift on entitlements is if they somehow become obsolete. I think that either means mass mortality or mass productivity. I don’t believe the Republican Party can “offer” either.
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You just explained why any party that campaigns on cutting spending will never do it.
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The US unironically needs to raise taxes on the rich (I mean actual rich, not those earning large salaries). (Non-land) Wealth taxes are usually bad, but with the global reach of the IRS and their policy to tax worldwide income, there's no reason the US can't easily adopt a policy of taxing worldwide assets without too many bad side effects. This would raise significant money, imagine even a 1% worldwide non-US housing asset yearly tax on all US permanent residents and citizens (temporary residents get a pass because you don't want to discourage smart wealthy people from the rest of the world coming to the US), it would easily fill the black hole.
Why then would the wealthy hold such taxable property in their own name? It will be in a trust or foundation or in the name of their foreign cousin.
Second order effects dominate here.
One could tax every property by default. A mailbox company in the Bahamas hold that tenement? Either they cough up the taxes, or they lose their property. A publicly traded company increased its market cap by 20% in a year? Great, just print shares for Uncle Sam worth 0.2% or the market cap.
This might deter foreign investment, but especially in housing, foreign investment is just driving up prices, which is a boon only to a minority.
In the entire world?
Nah, collect the taxes in countries where the assets are. If people want to invest in China or India or Somalia instead, let these countries decide if they want to tax them and how much.
Unless those assets ultimately are controlled by Americans?
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So what happens once nobody that owns anything of substance is a US Person? Are you going to start seizing American companies from their shareholders or something?
More importantly, does anybody even read Hayek anymore?
My proposal did not hinge on the nationality of the owner, or them being a natural person or identifiable. As long as the asset is physically within the US, the US can tax it just fine.
I also think it fairer to tax investors in the country of their assets than in their country of residence, which is the opposite of what the US is doing. If a US citizen builds a thriving business in Somalia, I simply do not see how this is Uncle Sam's business (apart from the wealth transferred in or out of the US, perhaps). She is certainly not depending on the US to secure her property rights or provide legal security. By contrast, if a rich Swiss person is buying a mall in the US, he is asking the US for a lot more: that the US shall uphold the doctrine that individuals can own unlimited amounts of land, that the police please prevent robbers and looters from ruining his investment, that the court system be fair and not rule against him just because his name sounds too French. Let him simply pay the same capital gains tax a US citizen who owned the same property would pay, and if he does not like it, he can always invest in China or India instead.
This would have an additional practical advantage. For the billionaire class, becoming a citizen of a tax haven is not a big problem, while investing their wealth in a tax haven will likely be difficult. Sure, your social media company will not pay taxes, just restrict profiles to residents of the Cayman Islands. You want to pay taxes in Ireland? No problemo, just design, produce and sell your smartphones there.
In so far as taxation is theft, yes.
I just looked up the guy on WP and did a ctrl+F tax:
Hm, it seems some vandal replaced his ideas with neoliberal strawmen.
I disagree with him about inheritance tax. Say we have a progressive inheritance tax which caps the amount parents can pass to their children at 10M$. A billionaire with a single child might spend 990M$ to on "placing them in prestigious and high-paying positions", instead of only the customary few millions for Harvard, private tutors and so on. But he will find that spending money on education and prestige has diminishing returns. The last million he spends on his kid will not be increase their lifetime earning potential by 1M$. Turning your child into a movie or sport star, or sponsoring them to run for public office is all nice and well, but even if it works, most stars are not billionaires and most public officials do not manage to grift billions either.
Progressive taxation can very easily be justified through utilitarianism. There are diminishing returns to wealth and income. The difference between driving a 500$ car and driving a 10.5k$ car is a lot bigger than the difference between driving a 100k$ car and driving a 110k$ car.
I think it is generally more enlightening to look at wealth inequality than income inequality, because what counts as income will be subject to zillions of complex regulations of tax law, while wealth is much more easy to quantify. Just assume that everyone gets born in some natural state without a penny to their name, and if they end up being a billionaire, they must at some point have increased their net worth in a way which would in principle be taxable (unless the gains were made in Somalia).
The wealth Gini for the US is 0.85. Students of mathematics will notice that this is a lot closer to one (one person owns everything) than zero (everyone has equal wealth). If we use wealth as a proxy for "taxation potential", we can see that Hayek when he asserts that raising the taxes on the 0.1% would amount to insignificantly small amount of total tax revenue.
In the US, the marginal federal income tax goes from 10% (for the first 11k$/year) to 37% (for dollars made above 578k$). Looking at WP, it looks like the highest income quintile pays more than twice as much taxes as all the other quintiles combined. This means that if you do not want to change the budget, a flat tax rate would have to be roughly the same as the 24% effective tax rate charged to the fifth quintile, say 22%. (In reality, it would likely be a bit closer to the 29% the top 1% are paying.)
If you tax the poor quintile (currently taxed at 1.5%) that amount, the effect will be that they will unable to make ends meet, so one way (social security) or another (prisons), the state will have to pay for their cost of living.
When he whines about the rich people being suppressed by the poor minority, my response is that there is no human right to unlimited wealth. Capitalism is neither just nor god-given, but it is a system which works much better than all the other systems which have been tried, so societies are willing to accept high income inequalities to reap its benefits. The present deal seems very favorable to the 1%, and asking them to pay a lot to keep the status quo does not seem inherently unfair.
Assuming that the WP excerpt was a fair summary of Hayek's ideas about taxes, I can understand why he is not widely read today.
Your policy specifically encourages people not to have wealth in the US.
It's not like nobody tried this. François Miterrand famously did in 1981 and pretty much destroyed French industry. With disastrous enough consequences he had to reverse course.
People will move investment away from the US if you do this. All that nice Silicon Valley startup nursery environment will not remain. They will go elsewhere. And if you successfully suffocate your ability to innovate, you'll slowly bleed out like Europe is bleeding out right now.
Fairness doesn't enter into it. It just doesn't actually work unless you're willing to back your words with arbitrary arrests like the Chinese do. And it's unsustainable in the long term because it destroys your mechanism for innovation. Which is where the neoliberal is of any relevance.
I don't really care that there is or isn't high inequality, I care that my society survives and thrives. Eating the rich doesn't actually do any of that.
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Trusts and foundations can also be taxed like the UK does today (6% of their assets every 10 years, but equivalent to a 1% yearly tax is more like 10.5% every 10 years). The foreign cousin problem is harder to fix, but then again, if you're in the top 1% do you really trust your foreign cousin enough to not run away with your $40 million you've just put in his name legally? Very likely you'd want to insure against this risk and I think the yearly rate for such insurance would be above 1%. At that point it's just cheaper to pay the tax...
Trusts and foundations can be taxed by the country in which they are incorporated. Poland can't just randomly start taxing Italian foundations.
They can if the trust holds Polish assets or the ultimate beneficial owners of the trust are Polish (they shouldn't though because they don't have world hegemony or something equivalent to the IRS, they actually need to remain attractive to capital to succeed). All you do is require US citizens and permanent residents to declare details of any trusts they benefit from, subject to the usual penalties the IRS have if they fail to do so and then tax the value of them. Plus you put in FATCA sanctions for any place which doesn't willingly share this info. Already most places in the world don't let US citizens open bank accounts easily because of all the extra regulatory burden the US currently imposes on third countries for US persons, there's no reason they can't extend that to trusts and foundations.
This is something that only the US can do btw due to its exorbitant privilege, a very bad idea for basically any other country.
Discerning the true beneficial owners through multiple layers of indirection is highly non-trivial. Threatening sanctions over it isn't addressing the core issue: the majority of countries (mostly) readily turn over specific details pursuant to a particular investigation.
They can extend to US trusts and foundation, but when a Qatari firm shows up, that's not gonna apply.
[ It's also quite clear that the wholesale financial surveillance required here would make the debanking phenomenon seem quaint by comparison. A superweapon kind of thing.
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Please, do the math. Get some data on how many wealthy people are there, how much you expect to get from each, multiply one figure by the other, and get surprised about how paltry it is.
As it happens, US already has the most progressive tax system of all developed countries. In US, it is disproportionately the wealthy how pay the bulk of the taxes. In contrast to that, in Europe, the bulk of the taxes is paid by the middle class. For example: in US, you only enter the 32% tax bracket once you’re above $192k/year. In France, and I shit you not, you start paying 30% tax starting from 27.5k EUR. On top of that, when you actually try to spend whatever you’re left with, you pay 20% VAT, whereas in US, the highest sales tax rarely exceeded 10-11%.
The result is that people making 60k EUR/year are the backbone of French budget, whereas in US, if you make $60k, you barely pay any tax at all, considering deductions, EITC, etc.
Seriously, just do the math.
I believe what's missing from this analysis is the employer-side taxes in France are an additional 40-45% of employee compensation, whereas in the US the rule of thumb is more like 10%
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It's ironic that the Buffet quote about how he personally pays less tax than his secretary stimulates outrage about capital vs labor, but if this outrages you then you should be especially outraged by how much of the tax burden is being carried by the middle class in more socialist nations.
Buffett made that statement in support of tax increases that would have made his secretary pay even more.
Buffett ALWAYS talks his book, he wants to sell annuities to people making 200k to 1m a year and knows they could set his tax rate at 200% and he still wouldn't pay taxes (because he almost never does anything that is taxable).
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If you consider health insurance companies to be outsourced tax collectors and insurance premiums to be a payroll tax in all but name that's mostly imposed on the middle and upper-middle class, I wonder how different the tax burdens really are.
Unclear. Employers in the US vary on how comprehensive a health plan they will buy for their employees. Additionally, some households will have one spouse enroll in their employer's family plan while the other opts out entirely (and maybe even gets a monetary rebate for declining it).
Another complication is even with 65%+ total employee cost going to taxes, professionals in France opt for additional supplemental insurance so they don't have to share services with the poors.
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Top 1% wealth for a household requires a minimum of something like $15 million these days. So basically for the top 2% (who all have wealth above around $5 million) the median wealth is around $15 million and the mean will be significantly higher than this. A 1% yearly tax on wealth for those in the top 2% will thus raise at least $150k per person (in reality a lot more because of the skew). The US has about 130 million households. So even if we assume we don't hit anybody below the top 2% at all we'll raise at least 1.5*10^5*0.02*130*10^6 = $390 billion.
Note that this is a gross underestimate because it fails to account for the skew. The US budget deficit is around $1.6 trillion (and this is with the super expensive Trump tax cuts, naturally if they expire things will look much better) so this is *only* 25% of the full deficit, but like I said, it fails to account for the skew. Gemini 2.5 Pro thinks the mean wealth in the top 1% is $37.7 million (so ~40 million) while for those in the 2%-1% bracket is probably around 10 million. Using these numbers the 1% yearly tax on the top 1% will generate $520 billion and on the 2%-1% will generate another $130 billion and so together we get $650 billion, that's 40% of the deficit gone like that...
It's precisely the obscene levels of wealth in the US that allow this sort of tax to be viable. A similar wealth tax in Europe would fail for precisely the reason you are talking about: In Europe they really don't have enough wealthy to make taxing them raise significant money (besides not taxing their citizens world wide); in the US they do and the IRS is perfectly set up already to make this a much easier task than say for the Germans.
A 1% yearly wealth tax is pretty high though - you have to compare that to interest rates and inflation. Ten year treasuries are 4.5% right now, so this is like another 20% capital gains tax, and thats low due to the circumstances in the US - relative to Euribor its 50%.
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The FairTax would make it so the truly rich couldn’t spend money without the government getting a quarter of it. Anything else either has loopholes or drives them out of the country.
The FairTax proposal does not tax anything rich people spend a lot of money on.
The section of Wikipedia page on FairTax titled "Taxable items and exemptions" says:
It also says that rent would be taxed. It's not specified there, but reading into the sources, I see buying a house would not be except for new construction (unclear exactly what that means if most of the price of the house is the land it is on? Is that amount re-taxed every time a new building is built on it?).
Sure, rich people spend more on food and other everyday expenses than poor people, but not a lot more. Many more expensive purchases (housing, education, companies) are exempt from the tax or could easily just be made in a different country (yachts, private planes) and carefully never "imported". Those purchases are currently made with money that's at least theoretically taxed as income.
Investments aren't spending, they are a form of savings.
Sure, that's the way they act for the middle class when who are just buying enough stock to fill out a retirement account. But for the wealthy making investments large enough, they are buying power.
TANSTAAFL, no matter how rich.
If they’re financing businesses through loans, the businesses will be buying services and goods on the open market using the loan money, and those will be FairTaxed. The goods or services those businesses sell will be FairTaxed. That’s less money returning to the investor.
If someone rich buys a used mansion, either they’ll refurbish/remodel it to their own standards using FairTaxed services and goods, or the seller will refurbish/remodel it before putting it on the market and raise the purchase price from “fixer-upper” to “like new”. And if they try to work around the FairTax to refurb it, the contractors will get caught and charged with tax evasion, so the contractors will be sure to include FairTax in their receipts. Trickle-up taxation.
According to Google search summary by AI, “New home sales and improvements, which would include land, would be subject to the tax. Sales of existing homes and, presumably, existing land, would not be taxed. This is consistent with the FairTax's exemption of ‘used items’ to prevent double taxation.”
If the rich are buying used stocks (not IPO), why should they pay FairTax? If they’re buying new IPO stock, they’re transferring ownership of a used company from the private proprietors, who built it by buying and selling FairTaxed goods or services. If they’re buying and merging companies, same deal. The difference is they can’t just sell it at a loss to cut their tax liability. (I’m looking at you, Hollywood Accounting!)
If the rich buy a big, big boat worth a bunch of bucks in Bahrain and keep it in the Bahamas, why should the federal government of the USA get a single dime of that purchase?
As to the fairness of power, prestige, reputation, value speculation, and all the other ancillary benefits of capitalism, the existing income and investment tax system has no ability to curb them, so the FairTax doesn’t even try. The tax system should be focused primarily on efficiently collecting necessary revenue for the government, not solving all the social ills caused by the 1% of the 1%. That’s what antitrust is for.
Thank you for engaging with me on this, there’s little I love as much as talking FairTax.
I think this is a really cool idea, and I appreciate being introduced to it. Thank you.
How on earth does it work with buying a house vs renting?
If I buy a house for $100,000 and then sell it for $150,000, is the new buyer taxed on the incremental $50,000? How does that change if that $50k comes from land appreciation vs renovation? What about if you sell a house at a loss?
Does this play as an absurd penalty to rent vs buy? Does renting get 30% more expensive while purchasing used housing stock stays the same price?
Second buyer doesn't get taxed on the appreciation; the developer pays FairTax out of the first “retail” sale if the first sale occurs after the FairTax is legislated into existence, otherwise the govt. already got embedded taxes a myriad of ways. Sell at a loss, the govt. doesn’t pay anything.
As a renter, you’re already paying the income taxes of your landlord and property mgmt company’s hirelings, embedded in the price of your rent, similar to “utilities included”. This is a market distortion which is expected to be compensated for by rentals dropping 23% and then having the 23% added back in (30% exclusive) on the receipt as FairTax.
Used homes not being FairTaxed (except renovation/remodel costs) is a philosophical reward similar to owning DVDs costing less than renting them a dozen times or paying streaming and rarely watching. Besides, the homeowner will be paying FairTax on everything they’ll use for upkeep in the future.
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The US already taxes Americans living overseas.
Yes, and that is exactly why it, unlike say the UK, is perfectly set up to start taxing American wealth overseas too!
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I think that’s actually a terrible idea. While wealth is global and markets are global, citizenship is bound to a government and land, while the humans that create it are not. What I fear would happen is that not only would wealthy and smart people abroad not want to come here, but that a good number of people would renounce citizenship and simply go to a place with good infrastructure and low taxes. A smart country like Ireland or Russia or Korea could reap the benefits of our stupidity simply by not taxing the geese laying the golden eggs. All they have to do is resist the temptation to tax the free money coming in and reap the benefits of jobs created, inventions patented, wealth spent in their country by billionaires fleeing high taxes in America.
Wealth of any sort has pretty free exit, as do rich people.
That's trivially (although I admit not easily) fixable. Just make it a US government policy to seize noncitizen wealth in or outside its borders. Make lettes of marque great again!
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There is no place on God's green earth free from the clutches of the IRS; well, at least no place that a normal American would want to live in. The US already taxes Americas overseas on their worldwide income and the IRS has enough fangs that the victims have to pay up or face real consequences. Doesn't make too many Americans renounce their citizenship each year. I am also proposing to extend the long arm of the IRS to American assets abroad too at the same time you start taxing wealth, that way there's no point for the Americans to move their money overseas as it's gonna get taxed anyways...
Of course, as you say, there will need to be an exemption for temporary residents in the USA otherwise people aren't gonna want to come here, but those people are on average much poorer than US citizens and so the loss of income from not taxing their wealth would be minimal.
I think I remember some IRS rule going into effect a decade ago that said that if you renounced US citizenship you get taxed on all your assets as if they were income for that year.
I only knew about this because I studiously have followed libertarian arguments for a long time, including "if you don't like it you should leave" and the rejoinder now being obvious "ya and have a third of all my wealth stolen for the privilege of leaving, thanks assholes".
I think there was a lot of people leaving right before this rule went into effect.
It looks like you only get taxed on the gains on your assets when you expatriate; you don't get re-taxed on anything that's already part of their cost basis.
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I mean it depends on how much you raise the taxes. You might get away with a modest 5% increase in taxes, maybe even 10%. But if you go too high, the victim of those tax increases is going to be much more interested in being not American because nobody sane is going to agree to give a country he doesn’t even live in 60% or more of their earnings. Why do that when you can become Romanian or something and only pay a third or less in tax? What would these overseas Americans gain from remaining American when the things they have in other countries can be just as good?
Empirically, there are some rich people living in Sweden, where the total income tax can be 55.6%.
If you go to a poor person and tell them they will have to pay another 20% of their income as taxes, it might well be that they will face the choice between emigrating and raising their kids under a bridge.
By contrast, if you tell someone making 1M$ a year (after taxes) that they will have to pay another 200k$ of taxes, they will have to adjust their life-style a bit or accept that their net worth will grow slower than it would otherwise.
By revealed preference, the US seems to be a pretty great place to be rich. Rich people could already move to poorer countries where they could afford to be attended by dozens of servants, and yet they mostly don't. I do not think that having to cut the private helicopter and riding limo like the plebs would change that.
If you are rich, you can afford to worry about tail risks. Despite all the CW, the US still has some of the best institutions in the world. If you are accused for some political crime, would you rather deal with the US justice system or the Romanian one? Do you want your kids to go to Ivy League or get the best Romanian education? Or consider political stability: the US voted for Trump, while Romania voted for some pro-Russian populist. While their courts invalidated the latter election, I have much more trust in US institutions to limit the damage a populist can do. Romania has been in the NATO since 2004, which limits the risk of invasion, at least as long as NATO continues to be a thing. Mainland US has not faced a credible threat of invasion by foreign powers since at least 1900. Likewise, the US has a great track record of not having mobs or governments expropriate rich persons or guillotine them. If Romania experiences a severe financial crisis in 2045, "expropriate rich ex-Americans" might be a platform which would be popular with the plebs and tolerable to the native elites.
Then there are practical costs to emigrating. You might want to learn the language, lest you stay part of a small expat community. You will need to spend a lot of time to get the design of your villa just right, again.
Then there are power costs. Your bank account can be converted to the local currency just fine, but if you care about having political power where you live, you will have to build this up from the scratch. You know the proper etiquette for bribing a US senator, but likely you will not know much about how the local politics work, who will stay bought and who won't. Likely, your opponents will be local oligarchs who have been playing this game for generations. The elites will not see you as one of them, but as a resource to be exploited.
Wealth and income have nothing to do with each other in Sweden. You become wealthy by either starting wealthy, starting a company, or in extremely rare cases invest your way there (or win the literal lottery). Capital gains are practically not taxed in Sweden so being wealthy here is great! Having a high income what's taxed and that doesn't lead to wealth.
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Fiscal responsibility is a component of right wing ideology, but it is soundly rejected by the left. Conservatives may not be that responsible in practice, but even the idea is a nonstarter for the libs. Extensive spending on social projects is a cornerstone of their ideology.
The Democrats created Social Security and Medicare, and even if the Republicans don't have the guts to repeal it, at least they won't go for establishing a program even more of a boondoggle, which I'm sure the Dems would jump at.
My position of authority on this subject is pretty weak (1 american polisci class) so take this with a grain of salt.
I agree that fiscal responsibility is a component of right wing ideology, but I want to point out that the deficit is not just enlarged by govt spending but also by tax expenditures. When the govt encourages certain actions through tax deductions (say a student loan deduction) its losing potential revenue. Trumps 2017 tax bill reduced the fed revenue by an estimated 1.9 trillion over the following 10 years. Also studies (Tax Policy Center) say it didnt end up paying for itself. In this way the deficit can be expanded through means besides dems funding trans operas in latin america.
Tax cuts are far more fiscally responsible than an equivalent amount of deficit spending. With tax cuts, you can always raise taxes later and people will grumble and accept it. But god forbid you try to take away someone's gibs. Remember that Elon literally killed over 300,000 people by cutting usaid.
I don't recall it going that well for George HW?
Unclear how much it actually hurt him, given that the election also had a bizarre spoiler candidate.
Anyways if he promised no new taxes and then cucked to Democrats who wanted to raise taxes, I think it's a bit self-inflicted.
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Defense spending is the republican equivalent. They are just as happy to feed Baal, it's just that the prefer to put the food in a different mouth.
As a longtime "Reduce Defense!" hawk and a former left-libertarian, it's just not enough. The Pie Chart doesn't lie.
I have enough friends in the MI complex to know how fatty and corrupt the whole thing is, but if you're serious about cutting spending, you actually shouldn't start there for two reasons:
Oh I completely agree, but the solution to the underclass lies outside the usual democratic process just because there are so many of them. You can't cut their entitlement and at the same time let them have the vote. One or the other has to be given up.
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True in some degree, but it was the Democrats who spearheaded billions in weapons for Ukraine.
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Defense spending in the US (about $800 billion) is about 1/3 the dollar amount spent on Social Security, Medicare, and Medicaid (about $1.9 trillion). Even if the US spent closer to what a typical country spends on defense (about 1.9% of GDP as opposed to the US's 3.4% of GDP) it would still spend about $450 billion on defense. Right-wing love of defense spending doesn't even hold a candle to left-wing love of entitlement spending.
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You're only looking federally (and even then I'd say the GOP still has a slight edge because they're less willing to waste money on patently obviously useless spending like trans operas in Latin America etc.). But at the state and local levels, the GOP is clearly the party of fiscal responsibility, as can be seen by comparing debt levels (absolute and per capita) between various strongly blue vs strongly red states and cities.
The case that trans operas in Latin America are useless to American interests has not been made. Whatever you think of trans operas in the abstract, it seems quite likely that transing a neutral country will bring it culturally closer to the American universal culture fold. This makes it less likely that it will randomly kick out or tax American businesses, thumb its nose at American products, back Russia or China in some international affairs matter or even host a Chinese military base. The trans operas might well be the by far most cost-effective way to reap those benefits, and it's not even clear if they benefit the trans agenda at home all that much.
If South Korea had a nationalist faction that opposed k-drama on aesthetic grounds, would it make sense for it to prioritise going after its foreign distribution?
I would have thought that trying to "trans" a Central or South American country would be net negative in this regard. It would make them more want to bail and side with Chinese who don't give a damn about their local culture and social norms.
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Transing Afghans didn't exactly work out. Seems like bringing in lgbt and feminism just made them hate us more.
Uniquely, the Afghans saw the American Empire's cultural exports as the net-negative that they are (the bombs themselves didn't help either), were in a very unique position to reject them, so they did.
Transing other countries very observably makes them weaker, and as such doing so is generally in the US' interests. That this also applies to the US itself is not as much a concern.
I think that the narrative that LGBT makes the US weak while rejecting LGBT is what makes the Taliban strong rings even less true than the usual version of the Fremen mirage. The US has the Taliban beaten by a mile on every civilizational and capability index I care about, GPD/person, infant mortality, education attainment, military capabilities, freedom of speech, etc pp. The Taliban clearly beat the US in TFR, but that is not all that hard to do if you are willing to subjugate half of your population and ban non-reproductive sex. "Don't sell your 15 yo daughter to some man twice her age who will breed her continuously for her fertile lifespan" is not a trans agenda. It is not even a feminist agenda, unless your definition of feminism is something wholeheartedly embraced by 95-99% of the US population.
I will not claim that transpersons will make superior frontline soldiers, having gone through male puberty and then continuing to produce male sex hormones is clearly advantageous physically, but I do not think that a few percent of trans people matter. Look, the obesity rate in the US is 40%, and even that is not an insurmountable difficulty for military capabilities. The US army tooth to tail ratio in Iraq was 1:8.1. Think about it as a pyramid. At the base, you have a ton of taxpayers. Then, you have people working in arms manufacturing, writing software for guided missiles and all that. Then, you have eight actual members of the military who are supporting one frontline soldier. Obviously you want that person to be fit, where your gender-neutral criteria may end up excluding many cis-males and almost all of the people who are not cis-males for the job, depending on the specifics (a commando has likely different requirements than a tank commander). But below this, your care for raw strength drops rapidly. Perhaps the person driving the supply truck is a cis-woman. And the guy operating the drone from 50km away is wheelchair-bound. And the person who wrote the software for controlling the drone is a trans-woman and so on.
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But LGBT might be unpopular enough to push them away from the US, especially in Africa but potentially also in Latin America, where the default position is to be part of the U.S. sphere and so changes need to be weighed against the generally favorable baseline.
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If the US makes receptive countries weaker with cultural exports, it weakens its own allies. Meanwhile, China has been shutting down LGBT centres.
Better to have strong allies than weak allies.
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Surely Coca-cola and McDonald's have been doing a better job for decades with less risk of cultural backlash? Or does it need to be specifically government-funded imperial initiatives that count?
I mean, pro-Americanism in the third world often has a different aesthetic- cowboy hats, pickup trucks, country music…
Approximately everyone, after all, likes dancing, beer, BBQ, sports, etc. But it’s often difficult to see the appeal of socially liberal norms when you don’t already want them.
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No, at this point you can like Coke and McDonalds without feeling kinship to the US for it, see CN/RU(sort of). Relatedly, the leading "anti-US" countries have made anti-LGBT a pretty prominent part of their brand, and not anti-fastfood.
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There are two separate questions here:
And maybe a third
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Behold the thirdworldification of American politics. “If we make the country better off, our political opponents will probably benefit more from it than us, so better for us to continue looting and pillaging from our common legacy until the country dies.” The reason you balance the budget is because you actually care about your country and its long-term well-being.
Sorry, but actually having nice things is not on the table during culture war.
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In the first place, it is not obvious to me how implementing "fiscal responsibility" measures actually results in the country being better-off in any meaningful sense. What can be implemented by one government can be overridden by the next government.
In the second place, it does not seem prudent to maintain a commons that others have no interest in maintaining and benefit greatly from depleting.
In the third place, "my country" is a phrase, not a reality. We are well into the "voting on our rights" stage of the split. Large portions of the country are places I will not willingly visit, much less consider moving to. Increased state capacity is not a benefit to me if I believe that state capacity will be used to violate my rights as a human.
Presumably you disagree. How does balancing the budget improve the country's long-term well-being, in concrete terms? Why is securing this long-term well-being solely the responsibility of the Republican party? If one actually lives in a third-world environment, what is the benefit of pretending otherwise?
...I appreciate that I am not exactly breaking new ground here. In my defense, it seems that neither are you, and of the two of us, it seems my position has more of a connection to bedrock reality. You are appealing to ideals. What evidence do you have that these ideals are workable, and that pursuit of them is likely to lead to an improvement of our actual situation? Do you think implementing Fiscal Responsibility will improve Republicans' electoral chances? Do you think Democrats, having won the subsequent elections, will scrupulously maintain those measures?
Scott once described how Conservatives were valuable, because they serve to moderate Progressives' worst impulses and bad ideas, thus smoothing out the road to Progress. To the extent that this role is legibly valuable to at least some progressives, why should Conservatives see it as valuable? We fight you to make your victory over us smoother, yay?
[EDIT] - I'm reminded of an old joke my father taught me once:
Three French convicts are scheduled to be guillotined. At the appointed hour, the first is brought forward to the apparatus. The presiding officer inquires:
"Would you like to face zee blade or zee floor?"
"The blade. I do not fear death."
The man is affixed within the fatal machine, the blade is raised, released, and flies downward, only to jerk to a halt three inches above his neck.
Shocked, the officer releases him from the machine.
"By zee laws of France, zee Guillotine's failure is a sign of divine pardon. You are free to go."
The Guillotine is carefully inspected, the tracks oiled, the blade polished. Then the second victim is brought forward.
"Would you like to face zee blade or zee floor?"
"The blade. One should always act with courage."
Once more the man is locked down, the blade is raised, released, and flies downward- and once more, it jerks to a halt two inches above his neck. Flustered, the officer releases him as well.
"By zee laws of France, zee Guillotine's failure is a sign of divine pardon. You are also are free to go."
The Guillotine is once more inspected, the senior engineer summoned, the machine partially disassembled and every part examined in the minutest detail. The machine is carefully reassembled, the tracks sanded and re-oiled with the most tender care. Several test-runs are performed, and the machine works flawlessly.
Finally, the officer summons forth the third unfortunate.
"Would you like to face zee blade or zee floor?"
"The blade, please."
His neck secure in the stock, the man watches as the blade is raised to the point of release-
"Hang on, I think I see the problem!"
Because lots of government debt is bad, so less debt is good
Yes but the logical conclusion to this train of thought is that government should never do anything, lest it gets undone in a few years. That sounds like a fucking awful society.
Why invest in defense to preserve sovereignty if the Democrats will just cut it later? Why improve the medical system if the Republicans will rip it up later? Why build this bridge to facilitate commerce if the $OTHER_TEAM might tear it down later?
This is true but again if this stance was held at all levels of power you're basically just advocating for anarchy? Why collect garbage and take it to a landfill if other people don't bother to dispose of their garbage properly? Because "most garbage goes to the landfill" is infinitely better than "no garbage goes to the landfill"
Western nations have gotten pretty cooked, but seriously man you should consider therapy or something because your outlook is profoundly nihilistic, pessimistic, and defeatist. It's making me sad to think about how you think about the world.
Also again, if your beliefs were scaled I'm pretty sure it would immediately lead to anarchy.
Because perpetual defecits that exceed GDP growth eventually lead to massive inflation, economic collapse, or both? This is bad.
It's not, but I think the defecits feel worse coming from them, hence the focus. They did love going absolutely ape shit over any/all democrat spending during the 2000s/2010s, so it feels hypocritical.
Kind of? You're incredibly negative and myopic though, which is a lens you are viewing reality through.
That's a good question, but I think you should ask it of yourself. If your ideals were implemented at a government scale, would that make the situation better?
Unfortunately not really, I'm honestly kind of worried about our societies inability to deal with anything, but if we give up then we go from "maybe fucked" to "definitely fucked" and I don't see that as an improvement.
Unfortunately not really
The part you are failing to engage with is that "fiscal responsibility" is electorally unpopular, while "fiscal irresponsibility" is electorally popular. Implementing "fiscal responsibility" will obviously cost one political power, while implementing "fiscal responsibility" will obviously gain one political power. So long as this is the case, actual fiscal responsibility is not a possible outcome in any but the shortest of terms.
To the extent that this is fucking awful, I direct you to the litany of Tarsky.
No. I am positing that political power is a scarce resource, and it should be used where it plausibly might deliver positive results. "Fiscal Responsibility" fails that test. If you don't like that fact, well, legibly admitting that it is a fact might just be the first step to changing it.
Aiming to secure what value might be gained under the conditions that observably exist is not nihilism, pessimism or defeatism, but rather realism and applied rationality.
Does the Democratic party agree? What's their plan for solving this problem? Is that plan realistic?
Perhaps. Can you lay out an equally-realistic assessment that's less myopic and more positive?
Yes, and we also spearheaded the GWOT, which added trillions to the debt. But notably, we have since exiled the faction that spearheaded the GWOT, and are trying to an isolationism that is the best possible path to reduced defense spending.
Alternatively, maybe making it clear that the Republican Party does not consider the debt to be a problem we're in charge of fixing will make it clear that someone else has to step up. Or else, we all accept that there is no fixing it, and at least we have the maximum warning possible that disaster is not, in fact, going to be avoided.
Then your plan is that Republicans should sacrifice their scarce political power for nothing, correct? Why would you expect Republicans to do that willingly?
You have many harsh words for my perspective, and many admonitions for why I ought to think differently, but no actual corrections about what is, no more credible account of the realities actually facing us. It appears to me that you are objecting to me pointing out obvious facts about how things actually are, and would prefer that I argue based on fantasy. I decline to do so.
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What is the point of my team advancing the football if the next possession by the other guy can advance it right back the other direction?
Well, for one, each administration starts whether the last one left off. So at the very least they have to spend effort and political capital overriding what you've done rather than on advancing their interests (in the counterfactual where you didn't have office last).
Fiscal responsibility appears likely to lose elections. Fiscal irresponsibility seems likely to win elections. spending political power to do something that the other side gains political power for undoing seems notably different from your football metaphor.
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Isn’t the solution to reduce executive power so whoever wins the next election can’t just destroy whatever’s been built? On the other hand, much of what restrained the executive was convention and tradition, which has been razed in the last 10ish years. This would force policy to become constructive instead of spoils based. I’m not exactly hopeful those in power (and the voters) will choose deescalation.
10 years? Try 200. There hasn't been any real appetite in the general public (nor amongst elected officials) to reduce the power of the executive since Andrew Jackson. Jackson, Lincoln, and FDR are some of the starkest examples of executive power increasing significantly (and never really decreasing after).
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Because taking on sovereign debt is borrowing from your children and incurring a obligation upon generations yet unborn for your personal benefit.
If great men are those who plant trees who will shade those long after they are gone, then the weak man consumes those fruits, and leaves the future to the harsh light of the unforgiving sun.
Goya: Saturn Devours His Son
/images/17492328076595979.webp
You’re right about this, but the problem is that the great man won’t look like democracy. Many “human rights” will be crushed out of existence on the way to resolving America’s fiscal problems.
This is, I think, the currently insurmountable mountain facing America. In order to resolve its problems, the great man will have to take the nation in hand, ignore a large proportion of the populace entirely, and take our present “leadership” behind the woodshed for a long time. That’s not happening anytime soon, because who’s going to be that great man?
Musk? Thiel? It won’t be a general or admiral, they’re all politicized non-entities these days. Maybe Hegseth, if he could be SecDef for 8 years and spend all that time ruthlessly purging the Pentagon until he had stacked the ranks with loyalists or ideological fellow travelers.
It’s sad, but I suspect America is on its way to experiencing its own Crisis of the Third Century, and someone with the vision and will to power of Diocletian is at least a couple of generations away.
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By what right does this forgotten future seek to deny us our birthright? None I say! Let us take what is ours, chew and eat our fill.
Man, I recognized that quote instantly, even after more than 25 years.
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If the alternative is someone else borrowing from my children for their personal benefit, it seems to me that borrowing myself is the better option. At least then I might be able to accrue something they might inherit.
I would be happy to plant trees to shade my children. I am not particularly interested in planting trees whose shade I am confident my children will never see.
Appeals to nebulous benefits are nebulous. Rather than platitudes, why not lay out a concrete case for how your preferred actions are likely to make the world better in a concrete way? Would that not be far more persuasive?
But the true alternative is you borrowing from your children's future followed by them additionally borrowing even more from your children's future. Not a hypothetical, but instead a decent description of presidencies. A D blows up the debt more than ever before. Followed by an R. Followed again by a D. Followed again....
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I think the argument would be that the deficit will eventually trigger some sort of economic death spiral that would be very unpleasant. So if your party can be reasonable, it might postpone said death spiral a few more years.
It seems it really depends on what you do with it. If you borrow from your children to build a something that gets a positive return after interest, it seems like a win still. There are legitimate business reasons to take on debt that aren't fatal spirals, and for various reasons printing cash looks more like printing shares, which can also be a positive.
The general question of which debts are useful is not trivial. And it doesn't just apply to debt: spending your capital assets for this isn't really much better even if it doesn't accrue interest.
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