21–30 of 42 posts
We've already been living with slow inflationary growth, despite the nonsense spewed by the government. In 1985, a single wage-earner could support a middle-class family. In 2005, two parents need to work, mostly to pay a mortgage and pay a few minimum wage earning daycare workers.
Earlier quoted context omitted.
Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.
Would this mean that the U.S. dollar, being fiat currency, would not be a good place to keep your wealth?
What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.
If there's a better place to keep wealth than US Treasury securities, nobody seems to know what it is.
Like anything else in America we're going to need a crisis for anyone to even consider doing something to resolve the problem. It seems to me that a drastic cut in military spending, raising the retirement age to 70, raising taxes on everyone , closing tax loopholes, and an across the board cut of 5%-10% should be a good start to get this resolved in the next 20 years.
That's idiotic. The official US unemployment rate is nearly 10%. The U6 unemployment rate, which is probably closer to what one actually means when one asks "how many people are looking for work" is twice that high. One in every four Americans who wants a job does not have one and we're going to raise the retirement age? What earthly good will that do?
It's interesting that many people seem to have accepted that endlessly taking on more debt is a good idea. Debt has to paid off and you can't just take it on endlessly. I wonder what the future looks like if the United States continues to take on more and more debt. Right now we can't really pay it off ever so we're stuck servicing it forever. Seems like we're giving our children a much worse world than the one we we…
That is simply not true. Governments are different than you and me. James Galbraith:
http://voices.washingtonpost.com/ezra-klein/2010/05/galbrait...
"Government does not need money to spend just as a bowling alley does not run out of points."
"Since the 1790s, how often has the federal government not run a deficit? Six short periods, all leading to recession. Why? Because the government needs to run a deficit, it's the only way to inject financial resources into the economy. If you're not running a deficit, it's draining the pockets of the private sector. I was at a meeting in Cambridge last month where the managing director of the IMF said he was against deficits but in favor of saving, but they're exactly the same thing! A government deficit means more money in private pockets."
"The way people suggest they can cut spending without cutting activity is completely fallacious. This is appalling in Europe right now. The Greeks are being asked to cut 10 percent from spending in a few years. And the assumption is that this won't affect GDP. But of course it will! It will cut at least 10 percent! And so they won't have the tax collections to fund the new lower level of spending. Spain was forced to make the same announcement yesterday. So the Eurozone is going down the tubes."
"On the other hand, look at Japan. They've had enormous deficits ever since the crash in 1988. What's been the interest rate on government bonds ever since? It's zero! They've had no problem funding themselves. The best asset to own in Japan is cash, because the price level is falling. It gets you 4 percent return. The idea that funding difficulties are driven by deficits is an argument backed by a very powerful metaphor, but not much in the way of fact, theory or current experience."
Earlier quoted context omitted.
Higher taxes might actually lead to lower tax revenues or a tax revolt. There's no such thing as a free lunch.
We're not so far down the Laffer curve that raising taxes would lower revenues, and it's unlikely we will be anytime soon.
Martin Gardner’s improved depiction: http://books.google.com/books?id=oXEaTdstD7gC&pg=PA133&#...
It's interesting that many people seem to have accepted that endlessly taking on more debt is a good idea. Debt has to paid off and you can't just take it on endlessly. I wonder what the future looks like if the United States continues to take on more and more debt. Right now we can't really pay it off ever so we're stuck servicing it forever. Seems like we're giving our children a much worse world than the one we we…
Debt has to paid off and you can't just take it on endlessly. That is simply not true. Governments are different than you and me. James Galbraith: http://voices.washingtonpost.com/ezra-klein/2010/05/galbrait... "Government does not need money to spend just as a bowling alley does not run out of points." "Since the 1790s, how often has the federal government not run a deficit? Six short periods, all leading to recessi…
Because the government needs to run a deficit, it's the only way to inject financial resources into the economy.
The central fact of economics is: The economy grows. The number of people on earth is still growing. The productivity of individual workers is still growing. We are capable of making more stuff in every year than we did in the previous year.
Now, suppose the supply of money were finite. But the amount of stuff being made keeps getting larger. So, every year, the price of everything goes down, because there's an ever-larger supply of pizza and beer but a constant amount of money.
But this creates a serious problem for the economy. Because now we've got deflation. And that produces a really big incentive to save. Too big an incentive. Everything will be cheaper tomorrow, so every individual benefits by burying money in the backyard and spending as little as possible.
But as people bury more and more money, the economy shrinks, because there is less and less money to spend, and everyone is trying to hang on as long as possible without spending anything. You end up with lots of people sitting, unemployed, with tools idle, and resources idle, and money buried in the backyard, staring at each other and waiting for someone to make the first move. Because, thanks to deflation, the first person who spends anything is a relative loser. And now your economy has deadlocked.
And that's why the government always runs a deficit, and why the inflation target is always higher than zero. The government prints money to make sure that the supply of money stays good. This produces some amount of inflation, of course, but the growth benefits of liquidity outweigh the inconvenience of having to do something more interesting with your money than bury it.
(Why don't more people understand this? Partly it's because the growth of the economy is a historically new phenomenon, dating back only about 150 years. Before that, as far as we can tell, human economic production per capita barely grew throughout millennia of history:
http://www.amazon.com/Farewell-Alms-Economic-History-Princet...
The other cause for misunderstanding is that if you, say, define "gold" or "silver" as equivalent to money, and your society's economic productivity grows, but society's ability to dig up gold or silver grows exactly as fast as overall productivity at all times, the currency magically manages itself. Because of this, for a hundred years and more of the Industrial Revolution the world managed to struggle along with a gold-based money system. But, of course, the gold standard was abandoned when people finally figured out that this process is very haphazard -- indeed, it cannot be controlled. You can't discover gold overnight, but sometimes you need more money in the economy overnight. Like now, for example.)
Like anything else in America we're going to need a crisis for anyone to even consider doing something to resolve the problem. It seems to me that a drastic cut in military spending, raising the retirement age to 70, raising taxes on everyone , closing tax loopholes, and an across the board cut of 5%-10% should be a good start to get this resolved in the next 20 years.
raising the retirement age to 70 That's idiotic. The official US unemployment rate is nearly 10%. The U6 unemployment rate, which is probably closer to what one actually means when one asks "how many people are looking for work" is twice that high. One in every four Americans who wants a job does not have one and we're going to raise the retirement age? What earthly good will that do?
Earlier quoted context omitted.
raising the retirement age to 70 That's idiotic. The official US unemployment rate is nearly 10%. The U6 unemployment rate, which is probably closer to what one actually means when one asks "how many people are looking for work" is twice that high. One in every four Americans who wants a job does not have one and we're going to raise the retirement age? What earthly good will that do?
I'm guessing he means "raise the age when folks begin collecting social security benefits"
Earlier quoted context omitted.
Would this mean that the U.S. dollar, being fiat currency, would not be a good place to keep your wealth?
Let's let James Galbraith answer that: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in…
"Better" does not imply good.
Earlier quoted context omitted.
raising the retirement age to 70 That's idiotic. The official US unemployment rate is nearly 10%. The U6 unemployment rate, which is probably closer to what one actually means when one asks "how many people are looking for work" is twice that high. One in every four Americans who wants a job does not have one and we're going to raise the retirement age? What earthly good will that do?
I'm guessing he means "raise the age when folks begin collecting social security benefits"
I suppose great-grandma can always move in with her grandkids. Of course, the grandkids are also 25% likely to be unemployed.
Naturally, there is a subset of people for whom Social Security is a needless luxury because they are living off of private investments. The proper way to target these people for additional funds is to nudge up the marginal tax rate on those private investments. This is difficult to accomplish, of course, because people with lots of money can afford to buy votes.