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PaperclipPerfector  6d ago (text post)   26771 thread views

Culture War Roundup for the week of June 2, 2025

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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?

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

Moderator: Can you answer the question of why does the system not adopt what you're saying?

Mosler: Yeah so last year we had the debt ceiling drama. Remember that last summer? And right after the State of the Union, Paul Ryan got up and said 'Look the US could be the next Greece, we're going to be on our knees to the IMF, interest rates are going to spike, we might get downgraded, we might default, we have to take $1 trillion out of the deficit, and we're not going to vote for the debt ceiling increase unless we do that'. And Obama actually agreed! The president agreed, and he had a plan to take 6 trillion out, but they didn't like what each other was doing, they got right down to the wire, they kicked the can down the road with a compromise... Interest rates had gone up in anticipation of something terrible happening, the stock market was crashing, and we got downgraded by S&P... And what happened? Okay, interest rates went down instead of up. 3-month treasury bills were going through at 0%. Everybody was like 'what's going on, how is this possible?' No move on the deficit, we're up over 16 trillion...and, you know this is supposed to be the end of the world. And then suddenly it started sort of coming out: you had Alan Greenspan come out and say 'well you know, we print our own money'. And Warren Buffett came on and said 'we're 4A not 3A, because the Federal Reserve prints the money'.

So I compare this to the War of 1812 and the Battle of New Orleans. The Battle of New Orleans was fought after the war was over. So what's happened is that moment when they came out realized that we weren't going to be the next Greece...okay the US was not going to be at its knees, that deficits don't drive interest rates up (and there's absolutely no reason to think they would when you understand monetary operations--they never do)... the war was over! Okay, we had won the war. The reason for deficit reduction was gone. It disappeared. All the reasons that, you know, Ryan and Obama..."we've run out of money", all these things were over! Okay, but they kept fighting the war anyway! And it's kind of the strangest thing. They just started pushing ahead with, 'okay, now we got to do it towards the end of the year...'. And nobody talked about Greece for a while, and then now all of a sudden in the last few months you're starting to hear Greece sneak into it again. Okay, that war is over, you're right, it should be over! Okay we know that deficits don't cause any default risks, they don't cause interest rates to go up, they don't cause any of that. Now, they might cause inflation, if we overspend. But let me say two things on that.

Japan's been trying to inflate as hard as it can for 20 years, and hasn't managed to get out of deflation. The Federal Reserve has been trying to inflate with everything it's got, every trick in the book, every tool it can imagine, for four years and hasn't done it, it's utterly failed. It's not that easy. I've been writing for years that central banks cannot cause inflation no matter what they do. And I think we've seen that proven out. So #1, inflation is not that easy. (The causes of these other things were all special circumstances, all the hyperinflations I won't get into that). But if there is any reason to think that we do need deficit reduction, that we should cut spending or raise taxes, it has to be inflation. Because none of the other things are a factor. So let's look at our inflation forecast: there isn't one analyst out there who has a reputation to defend that's forecasting any kind of inflation. The treasury index bonds, 30-years, are forecasting very very low inflation. There's not a single inflation forecast out there.

So I talked to representative, what's his name, Hollen--he's on the deficit reduction committee from Virginia, he's a progressive Democrat. I said "okay the war is over, why are you pushing for cuts in social security, cuts in Medicare? Isn't the burden of proof on the other side to tell you that we have to cut or else is going to be inflation? Maybe they have to do a little research, and prove to you that there could could be inflation and therefore we have to cut Social Security and Medicare? Because there's certainly no forecast out there. Why are you just voluntarily (the left, the Progressive Democrats) out there proposing these cuts?" He goes, "well, it's a pretty large number and I think we need to do something about it." It's like 'What??'

Okay there's something very wrong with the political process. And I think what's happened is they become victims of their own propaganda. They've gotten it so instilled in people that we have to do something about the deficit, they can't even begin to talk otherwise. Even though they know the war is over, even though they know they've lost any possible reason for it, even though they know the burden of proof is on the other side now to show that spending needs to be cut or taxes need to be raised for some reason... The polls show and the reactions show that if they come out and aren't for deficit reduction, they get laughed off the stage and they they lose their spot. So this is the the Battle of New Orleans being fought after the war is over because people don't realize the war is over. So even though the policy members might know that, they're dealing with a population that doesn't know...and is just an economic disaster, a real tragedy.

Let me say one more thing about taxes, if I can, and the size of government because I want to make this entirely apolitical (which it should be). The size of government is a political question. How many teachers do we want in the classrooms, how many soldiers do we want in the army -- if you take too many there'll be nobody left to grow the food and we're going to starve, if you take too few we're going to lose the war. These are all political decisions of what resources we want to move from the private sector to the public sector. And you'll have differences of opinion: some people think we need more government, some people think we want less government. But once we've settled politically on the right size government, then there is an appropriate level of taxes that allows the right size deficit, so we have the right amount of savings, to offset our pension needs and stay at full employment. So given that the size of the government is a political decision that shouldn't be based on whether the economy is good or bad -- 'we need a a legal system, how many judges and clerks do we need?' Well you know if there's a 10year wait, maybe we need more. If they're calling you up asking you to see 'why don't you go out and sue somebody, we have people waiting around to have a trial', maybe we've got too many of them. See, you've got to come up with the right size legal system and everything else.

But once you've done that, taxes are the thermostat on the wall. If the economy is ice cold and unemployment's high: you're taking too much money out for the size government we have, and you need lower taxes for that size government. If on the other hand it's overheating, there's too much spending, and prices are going up too fast, and unemployment is too low (whatever that means): then taxes have to be raised because for the size government we have, taxes aren't high enough (we're not taking enough money out). So for this right size government, taxes are the thermostat on the wall. They're not there to balance a budget, to bring in money. We're just changing numbers down, we're changing numbers up. The deficit is a residual. You find out afterwards if it was a right size deficit by counting the bodies in the unemployment line. Not by worrying about 'paying it back' or 'becoming Greece' and all that nonsense -- there is no such thing.

So your question now is "why can't the political process get us there?" And now that you know all this, I'm going to ask you for the answer. Because it's becoming more of a mystery every day. Because the more people I know who know the right answer.... you know, it's almost like the less willing they are. I talked for hours to Senator Blumenthal who read my book Seven Deadly Innocent Frauds (you get it free online, it's an easy read). And he gets the whole thing and he won't do anything -- just sits there. Same with Lieberman from Connecticut (I ran for Senate from Connecticut a couple years ago). Talked to these people, I talked to Hollen, I talked to all kinds of people over the years... and they're not going to be the ones to move us off the dime on this. We've got the academic community starting to get some of the right answers and through the blogs. And it's called mmt: modern monetary theory (somebody gave it a name, wouldn't be the name we chose). It's been expanding rapidly. But it's not there yet: that the only thing between us and full employment and prosperity beyond what anyone can imagine, is the space between our ears. There's nothing else in the way right now: there's no food shortage, there's no shortage of housing, we have surpluses of everything.

Kelton: Warren, remember. I won't say who it was, but Warren and I met with a member of Congress together. And we went through all of this with this person, and when we got done, this person looked at us and said "I can't say that". Not "I don't believe that", "I disagree with that", "you're wrong", "you're crazy" -- "I can't say that"! We have to make it increasingly safe for these folks to say that, to take these positions. And wasn't it FDR who said 'I can't do things, you have to make me do things'.

Mosler: And this is pro-agenda for all of them. The Republicans would love to cut taxes and not have to cut spending. They could agree to that. But they can't...if they cut taxes, they've got to cut spending even more because they think they have to balance the budget, so they don't even do their own tax cuts. Democrats would like to increase spending.

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.

What will inevitably happen is that some lefty will use this bullshit to do what they always do and spend with abandon until collapse.

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 will not be like greece, who was bailed out by the nordic german taxpayer (while being decried as evil austerites), more like venezuela.

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.

That seems to be the driving fear, although we've never seen it happen in a productive democracy.

Relevant xkcd.

Also, why is weimar germany or argentina quote-unquote unproductive?

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.

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!'

I thought the 70s stagflation had put to rest the silly notion that high inflation equals low unemployment.

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.

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?

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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