Monday, October 15, 2012

Eight causes of the deficit "fiscal cliff." Which party is most responsible?

To many U.S. voters, one issue towers foremost -- the Fiscal Cliff of rising public debt. We appear to have come a long way since Vice President Dick Cheney famously said "deficits don't matter." Today, frightened by much-worse debt crises in Greece, Spain etc, Americans fret about floods of red ink that reached more than a trillion dollars a year under George W. Bush, and that have gone down only slightly under Barack Obama.

Wasn't it just a little while ago that we were paying down the debt, under Bill Clinton?  So rapidly that Alan Greenspan even worried that the U.S. treasury might cease issuing bonds, forcing down interest rates to dangerous levels?Even now, with interest rates at an all-time low, the actual cost of borrowing money is very small. For the U.S. that is. Our fundamentals are far better than Europe's, for the time being.  Nevertheless, everyone -- democrats and republicans alike -- admits that fixing the deficit has become urgent. 

And something will be done soon! If republicans and democrats cannot end gridlock with a compromise this December, the Bush Tax Cuts will automatically expire, triggering a sudden return to rates we saw during the Clinton era.  

Is that prospect so bad?  Weren't those good times? The resulting take -- calculated at 600 billion dollars -- would more than cut the current deficit in half.  And all we have to do is -- nothing.  Just let the Bush cuts expire.

Alas, having barely veered out of a genuine Depression and into deep recession, this is no time to reduce the velocity of money by hitting the spending power of the Middle Class. Some up-ratchets are needed, not hammering the middle class. 

== Getting better at last? ==

Worth noting: according to statistics released this week, the average American has finally paid down most of the excess private debt that he or she built up during the Bush years. This de-leveraging process has been hard and painful, especially during a depression-recession.  But Personal debt levels are now down to Clinton Era ratios. 

Combine that with rapidly rising consumer confidence, plus gradually improving employment, plus very fat company cash reserves, and you have a recipe for good things in 2013.  Whoever wins this election will claim credit.  But in truth, we all participated in digging ourselves out of this mess.

So, if citizens and the private sector can climb out of their deep debt hole, what will it take to de-leverage the biggest debtor of all?  The U.S. Federal government?

== Eight Major Causes of the U.S. National Deficit ==

Surplus-deficitFirst, we must (at last) calmly list the reasons why the U.S. went from Clintonian  surpluses to devastating hemorrhages in just a few years.  

Second, where possible, we must assign blame for the things that got us in this mess.  And if our list proves that one party was more responsible? Then it's our duty to give that party less credibility. Less opportunity to repeat the damage.  

So let's go after the reasons for the deficit, in approximate order of importance. 

1) Number one on our list is the tanked economy.  That plummet both steeply reduced tax revenues and sharply increased the number of Americans needing help to get across lean times.  There's a lot of blame hurled around.  But a few top culprits for the collapse stand out. And the first of these was bipartisan:

 An asset bubble popped, tipping the already wavering economy into a ditch. That asset bubble was largely tied to an overheated housing market, the mortgage industry, and Wall Street speculators who overheated both while creating a swamp of toxic derivatives to poison capital markets. We'll set aside the crimes of Wall Street and the CEO caste for #2.  But the housing/mortgage bubble was the work of both parties. 

Over-building and lax rules allowed millions of unqualified buyers to leverage themselves beyond their ability to pay. (It is the same thing that shredded the otherwise healthy Spanish economy.) Democrats were fully culpable in this topmost sin, because they saw it as a social program to get poor people into homes. And Republicans claimed to have the same generous motive! The core moment was George W. Bush's "Ownership Society" speech that then led to passage in the Republican-controlled House and Senate -- but with plenty of Democratic votes -- of bills loosening mortgage rules, for example letting FanniMae and Feddie Mac and Countrywide run wild. 

The good news?  That failure mode is over. The bubble burst.  Citizens -- even many who had sunk beneath underwater mortgages -- have by now largely dug their way out and housing is recovering toward its approximate real value.  

The bad news? This was a harsh blow and both parties took part. What made the bursting of the housing bubble especially gruesome, however, was the second whammy.

2) Criminal fraud and culpable failure of regulatory supervision over banking, Wall Street and wealth funds, allowing them to use other peoples' money in a casino of fevered gambling that became un-tethered from reality. The central example was conversion of dubious mortgages and other questionable bets into "securities" that became grotesquely toxic, amounting to trillions in losses. It was enough to transform a bad asset bubble into what could fairly be called the Second Depression. 

Top culprit: the removal of restraint from Wall Street and Banking gambling with depositors' funds by allowing merger of deposit and investment banking. Plus the crippling of regulatory agencies charged with checking fraud, plus the scandalous conflict of interest built into the bond rating agencies. And the redefining of securities to include phantoms made of hot air.  

As for blame? Some of the first deregulatory steps were taken by the Republican Congress during Bill Clinton's term as president, and Clinton went along, in trade for things he wanted -- a reluctant acceptance that he now says he regrets. But the full dismantling of regulatory oversight of Wall Street took place when the GOP controlled all three branches of government.   Even now, the GOP's top agenda item (other than "making sure Obama fails") is to prevent the Consumer Financial Protection Bureau from becoming fully functional. 

Together, items #1 and #2 (assisted by #3 below) dumped us into the Second Depression. That depression (since moderated into a deep-long Recession) devastated the economy and the resulting plummet in tax revenues became the biggest contributor to the deficit.

NoLosersTAx3) Tax "largesse" gifts to the aristocracy.  With tax rates  - especially on the rich - already near a 70 year low, the radical wing of the GOP took advantage of Bill Clinton's departure (he had been paying down the debt) to pass the Bush tax cuts.  In fairness, Clinton had not been doing the responsible thing all by himself.  A consortium of moderates from both parties had negotiated budget plans with Clinton that emphasized paying down debt during "fat years" so that we might be in good shape when, or if, lean years returned.  Radicals of the left and of the right railed against this, but the middle class, according to many polls, favored debt pay-down over grabbing the surplus as a temporary "largesse." 

But sensible, bourgeois prudence did not outlive the election of 2000, when the radical right controlled all three branches of government. They soon -- (even amid crisis and war) -- doubled down on the voodoo called "supply side" economics, a mythology proclaiming that -- (take a deep breath and hold on) -- money flowing into the pockets of the rich will immediately be invested in entrepreneurial new enterprises, into research and development and into the capital equipment needed by old businesses to deliver new products and services, resulting in skyrocketing business activity and a burst of prosperity that will then be taxable at the lower rates, erasing the loss to the treasury. 

(Okay, you can inhale now. But do compare this prediction to Cause Number 6, listed below.)  

Like most voodoo-cult incantations, there is barely a grain of truth. For one thing, the high marginal tax rates under FDR and Ike blatantly did not repress economic growth.  Indeed, the 1940s and 1950s and 1960s featured the most rapid rise of the middle class and new business startups and proportionate increase in prosperity in the history of our species, alongside the lowest disparities between owners and workers in U.S. memory, all at very high marginal tax rates. In other words there was no tradeoff, there was synergy!

JFK did reduce top rates from 90% to 70% and that was probably called for.  Reagan's initial supply side experiment, though, plunged us into red ink.  Whereupon Reagan did something responsible. Something that would get him drummed out of today's GOP. He raised taxes six times!  In order to adjust and bracket and fine-tune his tax policy, as any pragmatic person would do, when predictions don't jibe with reality.

In fact, there has never been proof that supply side cuts ever correlated causally with bursts in economic activity!  This is because most rich people do not take sudden cash infusions and invest them significantly in entrepreneurial new enterprises, or risky R&D, or the capital equipment needed by old businesses to deliver new products and services. Nor do they rush out to spend the money on purchases, thus adding high velocity transactions to the economy. Not at the spending ratios of a middle class family. Ever since Adam Smith's time, we have known what most members of any aristocracy do with such largesse. They spend it in low velocity ways, on passive securities and land (feeding asset bubbles), on what Smith called "rent-seeking," on gambling speculations, and on being richer.  

All of which explains why #3 -- the giant Bush tax cuts for the wealthy, enacted as soon as Bill Clinton was out of the way, did not erase their own cost to the treasury, as predicted. Instead, they opened up a huge deficit hole and contributed to the asset bubble collapse.

The astonishing thing is that now, amid a near depression, the GOP is doubling and tripling down upon their mantra.  The Bush tax cuts did not improve things from the Clinton Era?  Then do more tax cuts. For the rich. It'll work this time fer sure.

4)  Two multi-Trillion dollar quagmire wars of "nation building." Pouring hundreds and hundreds of billions into far-off deserts where we were hated, are hated and will be hated for generations to come. Republicans have long admitted that our reasons for going to Iraq were at best mistaken, at worst concocted lies. So those reasons got replaced with idealistic ones. Nation building and spreading democracy -- in the rockiest, worst soil that anyone ever tried to plant democratic seeds. 

In retrospect, we have to ask, "why didn't anybody warn us that this was repeating the calamity of Vietnam?"  

Well, in fact, the generals and admirals did exactly that. They complained like hell! Many were fired by Bush and Rumsfeld for daring to foresee us getting stuck in asian quagmires.  

Who benefited? Well, for starters, Halliburton, of course.  Funny, that. Who else benefited?  Guess who. 

Iran.  All of Iraq and half of Afghanistan were doomed from the start to become satrapies of Iran. No other outcome was ever possible. All other fantasies were delusional. Was that worth the loss of lives and treasure in both of America's longest wars? (See: How Republicans and Democrats Wage War.)

Oh, and the war cost was never put on the books. It was armwaved away.  Till honest accountants took over. And now we must pay the piper. 

== The scorecard so far ==

Those are the four biggies. So can we assign blame yet?  

The number one cause of the deficit -- an asset (housing) bubble that plopped us into recession -- was bipartisan, though the biggest steps took place when the GOP held all the reins of power in all three branches of government.  

Cause number 2, which turned a recession into a borderline depression, was almost entirely Republican in origin. As were causes 3 and 4.  GOP-instigated, stage-managed and caused, top to bottom.

But our list is not finished.  So far, we've covered only the worst budget-busting calamities.  But not all of them, by a long shot.

5) Medicare Part D, a wholly GOP-devised program, was never funded through hard choices, but simply slapped into general obligation as an new and unfinanced entitlement. (By contrast, Obamacare is funded by hard-nailed tradeoffs. We'll see if they work, but the CBO says they at least look sincere.) 

What's Medicare Part D? A vast expansion of the government's obligation to pay for prescription drugs, which was heavily backed by (surprise) the Pharmaceuticals industry. Abandoning any pretense of negotiating over prices (Obamacare will reinstate some bargaining) Medicare Part D was denounced by the libertarian wing of the GOP as both socialism and a blatantly pandering voter bribe.  In fact, this part of Medicare could be considered a "Tytler largesse." It was a budget buster because no attempt was ever made to shift funds or otherwise pay for it.  Not even a fig leaf!

It passed when all three branches of government were completely controlled by the Republican Party.

6) Failure of creative breakthroughs.  This is my own candidate for a major budget buster -- perhaps the most significant, from my admittedly skewed perspective as a Big Picture Futurist.  But any economist will at least admit that it belongs on the list.

Can we pause while I explain? Across the last 70 years, of Pax Americana, the world has seen a boom in prosperity unlike any other, with 70%+ of the planet's population arguably in some kind of middle class, moving into homes that have electricity and hot water and kids in school.  The biggest driver of economic development has been the American consumer, buying trillions of dollars worth of crap we never needed.  Elsewhere I argue that this trade pattern was established deliberately by George Marshall, by Acheson, Truman and Eisenhower.  It has been the world's hope... though ecologically dangerous, unless we innovate ways for seven billion middle class lives to impact the world far less. Remember that word, innovation.

Closer to the point, how have we Americans been able to afford the endless trade deficits that propel world development? Simple. Science and technology.  Each decade since the 1940s saw new, U.S.-led advances that engendered enough wealth to let us pay for all the stuff pouring out of Asian factories, giving poor workers jobs.  Jet planes, rockets, satellites, electronics & transistors & lasers, telecom, pharmaceuticals... and the Internet. How I'd love to see a second "National Debt Clock" showing where we'd be now, if we (the citizens) had charged just a 5% royalty on the fruits of U.S. federal research. We'd be in the black!

The first decade of the 21st Century -- the Naughty Oughts -- was the first (since the 1940s) that saw no such technological tsunami, making America rich enough to buy from the world.  As the internet boom petered out, we could have made sustainable energy our Next Big Thing. It was proposed, and the rate that China and Germany are getting rich off solar and wind is most impressive! 

By coincidence, that was also the decade when the Fox War on Science hit full stride. When science became the right's enemy number one.

If not for that, and Bush cuts on R&D and all the rest, would we have had another renaissance and tech-driven boom by now? I cannot prove might-have-beens.  But it is no accident that this failure of the expected decadal innovation wave happened in the wake of an epochal and telling event. When the GOP banished from Capitol Hill all of the advisory panels on sci and tech that had helped Congresses to legislate wisely for 60 years.

I will never forgive Nancy Pelosi for failing to reverse that scandalous treason, so yes, I can name some democrats who share blame. Still, American scientists are voting with their feet. Only 5% of still call themselves Republican (it used to be about 50%). 

The verdict is clear. We know who has torpedoed the one thing that kept us rich.

7) Entitlements and Obamacare.  Everyone knows that entitlements need to be restructured.  In fact, compared to Europe, the U.S. is in pretty good shape.  Social Security is estimated to be almost able to handle the baby boomers. Why? Because past Congresses bit the bullet and passed - in a bipartisan way - graduated increases in the retirement age. (Further tweaking... plus the raising of income limits on FICA, could go the rest of the way.) And we never meddled in the labor market with stifling paternalism, the way European countries have. In this area, the Europeans are in crazy denial and badly need to emulate us.

On the other hand, we have been in denial re Health Care, which is inherently not a fungible commodity subject to market forces.  When we spend three to four times as much per patient and still leave tens of millions of terrified citizens not covered, only truly delusional people can call the US system the "best in the world." And only a lunatic would call the Emergency Room a "health care system." Something different from European-style rationing could have been negotiated... 
.. and indeed, negotiate was what Obama tried to do!  By abandoning all of the former democratic proposals and plopping onto the table the Republicans' own plan.  

At which point the GOP instantly disavowed its own plan and denounced it as socialism. (Do not cavil over slight differences. Those were on the table too. They could have been negotiated, had anybody tried.)

In any event, the range of predictions about the effects of Obamacare on the deficit is so wide, there is only one reasonable option, since going back to the insane former system is a non-starter.  Let's try it and see what happens... then pragmatically tweak the result.  Especially since those who foresee the worst outcomes have no credibility.  They happen also to believe in never-ever-right supply side economics.

The crux on entitlements? The method that was used to extend Social Security could be applied to other entitlements.  If Americans are living much longer, in better health, they should be asked to delay retirement a bit longer, and in return FICA could be made more progressive by removing income cutoffs.  Big deal.  Make a bipartisan deal and most of us will shrug and accept it. This already happened! The Clinton-Gingrich deal on Welfare Reform is another example that proved democrats and republicans can demand much from their constituencies, if common sense and bipartisan negotiation favor reasonable adjustments.

 Simpson-Bowles and other cross-party commissions have offered the political protection needed, if we ended Culture War and both sides wanted to negotiate a way to fix entitlements.  I believe the collapse of negotiation is rooted primarily in one party and its cosmically-frenzied polemical center (Fox). But in bending over backwards to be fair, I will allow this one to be blamed on both.

8) The discretionary budget.  Okay, Slay Big Bird in exchange for zeroing out all the generous tax and subsidy bennies given to coal and oil and other GOP donors?  Sure, I'll go with that.  

But first add them up.  Note how small the benefit to the bottom line.  For the most part, screaming about the discretionary budget is an effort to distract from the long list of disasters in other areas.

Remember, we paid for Big Bird and the other stuff just fine, under Bill Clinton.  If you're serious about looking for the reasons we're in a mess... look at what changed.

== So what's the indictment? ==

Eight causes for the deficit.  Can you think of others?  I'll add them to the list, if they approach the same scale.

As for blame?  Of the top five contributing causes, one was bipartisan (though GOP-led).  The other four were entirely Republican in origin and execution and (especially) in obstinate refusal to learn from the mistakes.

Number 6, I will argue, though not insist, is a huge calamity that I deem to also be largely GOP made.

Then we get to the parts that get the biggest noise, but in fact have the least impact on our plummet from Clintonian pay-down to skyrocketing Bushite debt (that has continued under Obama.)  Numbers 7 and 8 can and should be argued, openly, calmly and sanely by decent, intelligent men and women, compromising and negotiating plans to deliver the functions of government in lean and effective ways.

How I would love to see that conversation!  To assist Goldwater-style Republicans and Tsongas-style Democrats working their (and our) way to fiscal solvency.  

But let's not fool ourselves.  So long as we pay no heed to problems # 1 - 6, we are slapping on band aids.  And numbers one through six happened because of sickness.  Incompetence. Insanity.  Or something much, much worse.

The lesson from all of this?

The good news? Several of these failure modes are fading away.  Too slowly.  But soon we'll be out of the wars. Personal debt has been de-leveraged and consumer confidence is up. The Consumer Finance Bureau and other professionals are at least starting to watch out for us. Housing is recovering, In order to survive, the GOP will have to tell Grover Norquist to chase himself and reach a compromise over the expiring Bush Tax cuts.  And even science is starting to recover.  Indeed, if trounced, the GOP may take a veer away from Murdochian cliffs of insanity, back toward the traditions of Buckley and Goldwater and the fine art of sane negotiation.

The bad news? Unbelievably, in the present election, the citizenry might actually re-hire the gang that did all this to us. Proving that hypnotism and incantations can trump facts -- fooling some of the people, all of the time. Enough of the people.

The lesson is simple: do not re-hire the dopes who made the mess.  Who committed the first half dozen travesties.  If you do, future generations will have you to blame.

David Brin
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Anonymous said...

Re private debt and deleveraging of the consumer, there appear to be contrary opinions about this.
Basically what is private debt? The reduction claims seem to exclude car loans and student loans which are both increasing.
The deleveraging seems to be people going bankrupt and walking away from their mortgage and credit cards. Bankrupt consumers are hardly an optimistic sign.



Ian said...

"Each decade since the 1940s saw new, U.S.-led advances that engendered enough wealth to let us pay for all the stuff pouring out of Asian factories, giving poor workers jobs. Jet planes, rockets, satellites, electronics & transistors & lasers, telecom, pharmaceuticals... and the Internet. How I'd love to see a second "National Debt Clock" showing where we'd be now, if we (the citizens) had charged just a 5% royalty on the fruits of U.S. federal research. We'd be in the black!

The first decade of the 21st Century -- the Naughty Oughts -- was the first (since the 1940s) that saw no such technological tsunami, making America rich enough to buy from the world. As the internet boom petered out, we could have made sustainable energy our Next Big Thing. It was proposed, and the rate that China and Germany are getting rich off solar and wind is most impressive!"

Three points:

1. Just as US technology and science created wealth it creayed jobs, including manfuacturing jobs. Americans (mostly) stopped making shoes and switched to making cars; then they (mostly) stopped making compact cars and switched to making planes and heavy engineering equipment and machine tools and computers.

2. Part of the challenge the US has to face up to with competition from China is that China isn't just copyign or stealing US technology. China is investing tens of billions in R&D.

They've achieved their stated objective of producing more physical sciences and engineering graduates each year than the rest of the world combined. They're well on their way to achieved their next stated objective of having more working scientists and engineers than the rest of the world combined.

A few years ago, it was next to impossible to pick up an issueo f Nature and not find multipel articles with at least oen Chinese name amongst the authors. Back then, those papers were coming fro mwestern universities. Now, a signficant number of those grad students and post docs are back in China and the average issue of Nature has at least one paper from researchers working at a Chinese university.

The Chinese aren't going to be satisfied simply making knock-offs of western goods. They'll be satisifed when the west is making knock-offs of Chinese goods.

3. The Bush era Future Car and Constellation programs COULD have led to the fundamental breakthroughs to fuel the next era of technological advancement - had they been adequately funded and competently run.

Then too it may be that in a couple of years we'll see some of the robotics initiatives coming out of DARPA emerging as the next great technological innovations. These things are always easier to see in retrospect.

Ian said...

From the last thread:

While I do not argue in favor of protectionist policies -- that really is a dead end for reasons you have already stated -- what do constructive policies do you propose, with your economic background, to help the people who happen to be caught in the midst of this economic trauma?- BCRION

Well, one key element is research and development as discussed above.

For the rest, take a look at Germany - the most successful large developed economy of recent years.

When David talks about the failure of European countries to make the necessary adjustments to demographic and economic hange, he omits the one big exception to that general pattern - Germany and specifically Agenda 2010 (

Agenda 2010 was a policy initiative of the Social Democrat/ Green coalition government of Gerhard Schroder.

Agenda 2010 cut welfare benefits, increased co-payments for health services; cut employment-related taxes for both employers and employees; raised the retirement age, started a program to assist new industry start-ups and put more money into retraining an job placement.

Importantly, this was all done by a left-wing goverment and was designed to protect the German welfare state by making it economically sustainable. In this, it resembled the reforms of the Keating-Hawke Labor governments here in Australia; successive New Zealand goverments; the Da Silva social democratic government in Brazil and successive Swedsh governments after the crsiis of the 1990s.

(This is going to be long one so I'll break here.)

Ian said...

Now let's move on to the US specifically:

"Contrary to popular perception, the U.S. does not suffer from a massive shortage of high-skilled manufacturing workers, but the country will face this problem by the end of this decade, according to a new report from the Boston Consulting Group.

The management consulting firm estimates that U.S. employers currently lack 80,000 to 100,000 high-skilled manufacturing workers. The shortage is relatively small, the equivalent of about 7% of the nation's total pool of 1.4 million high-skilled manufacturing workers.

BCG found that this shortage of high-skilled manufacturing workers is not nationwide but only in certain areas of the country and in certain occupations. For example, there are not enough welders, machinists and industrial machine mechanics in the Southeast and gulf coast areas."
"Many companies say they are willing to hire but can't find qualified workers. But some labor experts have noted that employers can't find the workers they need because they aren't willing to pay them adequate wages or provide short-term job training."
"Though the report dismisses concerns of a current skills shortage in manufacturing, it warns there will be a shortage of 875,000 machinists, welders, industrial engineers and industrial machinery mechanics by 2020.

The problem will be caused by the retirements of thousands of high-skilled manufacturing workers and BCG's prediction of a resurgence in U.S. manufacturing. According to BCG, the average U.S. manufacturing worker is 56 years old.

The consulting firm is forecasting that up to 1.3 million direct manufacturing jobs will be added in the U.S. by the end of this decade, thanks to rising exports and factory work coming back to the country because of higher wages in China.

"We need to put people in training programs," Sirkin said. "The smart manufacturers will invest the money to do that."|newswell|text|Michigan%20news|s

One of the key points to note here is that these are "high-skilled" and "direct manufacturing" jobs.

If employers can't increase production because of shortages in these specific areas then they'll employ fewer people in ancillary jobs (everything from janitors to accounts officers and sales staff) than would otherwise be the case and so will both their suppliers and their customers.

So that 100,000 shortfall in direct employment in manufacturing probably traslated into several times that in terms of total employment.

They'll also likely make less profit and pay less in taxes.

(And here I break again.)

Ian said...

So let's see: fundamentally the US needs to make it more profitable to employ people.

In the jargon of economics, you need to cut the tax wedge - that's the difference between the total cost to the employer of employing someone and the net wage that person receives. So, for example, in the US the tax wedge includes the income tax paid by employees and the social security taxes paid by both employers amd employees. Oddly, given the name, it also includes employer-paid benefits like health insurance.

Unfortunately you can't really follow the Germans in the way they did it.

See, they cut minimum wages and welfare benefits from extremely high levels and used the money to also cut taxes for the lower-paid so that they were better off in net terms.

US minimum wages and welfare benefits are much lower - if you tried cutting them significantly:
a. you'd cause unacceptable human suffering;
b. you'd kill consumer demand (since even people in work are afraid of being unemployed so they tend to increase savings and cut spending when welfare benefits are cut)
c. you probably wouldn't produce enough savings to let you make much of an increase in in-work benefits (another peice of jargon that, confusingly to non-economists, includes tax cuts).

Additionally, the Clinton-era Earned Income Tax Credit already picked up a lot of the low-hanging fruit in this area by making low-paid employment more attractive.

There is however one big area of employment costs where the US could make huge cuts: health benefits.

If the US health care spending was as efficient as health care spending in other developed countries, you could provide health care for EVERY American for the money already being spent to provide healthcare for roughly 1/3 of Americans via Tricare, Medicare, Medicaid and various state programs.

Do that and you could save US employers trillions, literally.

Unfortunately short of adopting a single payer system, you aren't going to be able to do that.

So let's look at soem of the second-best options.

Anonymous said...

@Ian,one of the German economy's defining characteristics is the Mittelstand (and the Landesbank-driven financial system that supports them). Such mid-caps strike an excellent balance between being large enough to be internationally competitive, but small enough to ensure diversity, flexibility, and resilience for the system as a whole. America's biggest problem is over-centralisation, the end-game of which is always a small number of ossified, too-big-to-fail, extractive institutions running the economy into the ground. Transferable investments (such as with training, since employees can leave) make no sense in highly concentrated markets – the training programmes would have to be big (since the total number of companies is small), competitors would be able to spend money they save on not training to offer better salaries to hire away the people you have trained, and most up-start competitors, who would otherwise be able to offer a challenge and disrupt existing leaders are comparatively tiny enough to be trivial to buy-out or crush before they can become a credible threat.

Macroeconomic tweaking by the government is not going to solve any of this (not to mention that large enough players would always be able to lobby any such tweaking into paths that help entrench the status quo).

Ian said...


Here I'm going to invoke one of David's favorite concepts: the positve sum game.

People tend to assume that labor markets are a zero sum game - if somebody gets a job they're getting it at the expense of someone else.

But that's incorrect - higher employment means higher profits and wages which mean more demand and also more taxes which, hopefully, means more public serivces and more investment in infrastructure.

However, lots of the strategies that we know actually work to create jobs are counterintuitive and will be opposed.

For example;

- More skilled immigration. Remember those unfilled welding jobs? There are only a couple of ways to fill them in less than the 2 years it takes to train more welders. one of them is importing welders (or chefs or software engineers).
-Higher retirement ages. Higher retirement ages have obvious benefits in terms of reducing pension costs but they also obviously retain the skills of the older workers in the work force. Australia and several other countries have systems where working past the normal retirement age gets you tax credits or higher pension payments when you do retire. The idea is not force people in minimum wage jobs to work until they drop, the idea is to keep skilled workers working longer. The incentives can be structured to encoruage that. (Australia has a system of slef-funded retirement pensions known as superannuation, keep orkign past the age of retriement and you can put more money annually into your tax-advantaged supaernnuation account. The amount is linked to your salary (and capped) so there's more incentive for someone on $50,000 to keep working than there is for someone on $20,000.)

Cutting protection: I've already mentioend a bunch of myobjections to protection. Here's another; tariffs don't just hit consuemrs, they hit businrsses. US tariffs on light trucks (a category thst inlcdues pick-ups and SUVs) may help US truck makers - they impose an additional cost on every business in the US that uses a light truck. Now I know there's a tax credit that's supposed to offset some of the disadvantage in that specific case. But take it from a small business owner (and importer)the costs of applyign for such programs (including the opportunity cost of the time it takes to fill out the paperwork.

Relocation assistance; As that article I cited points out, the shotages in skilled labor, which are slowing down the recovery in employment, are largely regional.

Paying people to move to where the jobs are makes a lot of sense

But good luck explaining that to the voters of either the state that's "losing people" or the state that's "paying outsiders to come in and steal jobs from our own people".

There's also other stuff you can do: R&D grants; investment allowances (which I believe you tried).

There's also the Small Busienss Association, which is a brilliant, brilliantly successful and uniquely American institution which should be funded as much as possible.

Finally, here's another idea that will probably never fly in the US: both Germany and Australia have government/employer/union tripartite bodies that work to ensure that new workers have the required skills, that existing workers get ongoing training to ensure they continue to have the appropriate skills and to retrain the unemployed so theri skills match the jobs available.

Good luck gettign that past the Tea Party.

So, for now, I'm done. Except for one final note: remember, the measures I'm talking about where introduced by social democratic and socialist governemnts specifically to defend and strengthen the social democratic welfare state and as the unemployment figures show - they work.

Political TroubleMaker said...

Note this blog page about institutional investors bidding up detached single-family home property rates by purchasing in bulk and then flipping.

And speaking to BillK's point, here is Yves Smith of Naked Capitalism making the same argument:

Ian said...

The source Smith cites doesn't support his claim:

The principsl cause of th reduction in gross mortgage debt outstanding is not write-offs, it's the decline in new mortgages.

Ian said...

"Transferable investments (such as with training, since employees can leave) make no sense in highly concentrated markets – the training programmes would have to be big (since the total number of companies is small), competitors would be able to spend money they save on not training to offer better salaries to hire away the people you have trained, and most up-start competitors, who would otherwise be able to offer a challenge and disrupt existing leaders are comparatively tiny enough to be trivial to buy-out or crush before they can become a credible threat."

Hence the need for government/union/business-run schemes with compulsory contriutions from all firms to prevent the free rider problem.

Political TroubleMaker said...

Hey Iain,

This is what Smith wrote:

Unfortunately, the economy bulls are leaving something very significant out: defaults. The data is pretty clear. In the latest quarter, first and second lien charge-offs were $303.7 billion (with Home Equity Lines of Credit defaults high and continuing to rise). Meanwhile, aggregate consumer debt dropped by $53 billion. That’s better than 2012 Q1, but the drop in debt from defaults is six times larger than the total drop in debt.

Consumers aren’t paying down their debts, they are simply defaulting. And here’s another way to look at the problem. One in seven Americans is being pursued by a debt collector. And the average amount of that debt pursued has increased by about 8% in just six months.

Is she wrong here? Or are they correct yet irrelevant facts to her thesis?

Political TroubleMaker said...

Also Iain,

Did you see this?

I've argued in previous posts that due to the large population still living off subsistence farming, the Chinese people will ultimately purchase these properties to provide housing for family.

But is that really happening? Or are reports like this not to be believed?

Political TroubleMaker said...

Ian, not Iain. My error. Apologies.

Michael A. Rothman said...

Although I respect what you're saying - I do want to point out that Clinton, although almost achieving a net lowering of debt, never achieved a real surplus.

FiscalYr Year Ending National Debt Deficit
FY1993 09/30/1993 $4.411T
FY1994 09/30/1994 $4.692T $281.26B
FY1995 09/29/1995 $4.973T $281.23B
FY1996 09/30/1996 $5.224T $250.83B
FY1997 09/30/1997 $5.413T $188.34B
FY1998 09/30/1998 $5.526T $113.05B
FY1999 09/30/1999 $5.656T $130.08B
FY2000 09/29/2000 $5.674T $17.91B
FY2001 09/28/2001 $5.807T $133.29B

These numbers are from the Treasury figures themselves.

So why do they say he had a surplus?

As is usually the case in claims such as this, it has to do with Washington doublespeak and political smoke and mirrors.

Understanding what happened requires understanding two concepts of what makes up the national debt. The national debt is made up of public debt and intragovernmental holdings. The public debt is debt held by the public, normally including things such as treasury bills, savings bonds, and other instruments the public can purchase from the government. Intragovernmental holdings, on the other hand, is when the government borrows money from itself--mostly borrowing money from social security.

While the public debt went down in the last four years of Clinton's term, the intragovernmental holdings went up each year by a far greater amount--and, in turn, the total national debt (which is public debt + intragovernmental holdings) went up. Therein lies the discrepancy.

The reality is…..Both the democrats and republicans are to blame…..they'll both point fingers…. and the "facts" aren't always what they're made out to be. Once you take the union of the explanations from both sides to explain their viewpoints will you start to understand the real problems.

Tip o' the hat to you my good man.

-Mike Rothman

Ian said...

"Consumers aren’t paying down their debts, they are simply defaulting.'

I'm abotu to go to bed and I haven't followed all the links to check the sources but that bit is definitely wrong.

Standard mortgage repayments were ca. $25O billion versus ca. $300 billion in write-offs.

The $53 billion in toral net debt write-offs isn't directly comparable since I don't have enough information on where the offsetting debt increases are occuring.

Also, with the economy growing and incomes rising again even if debt were static, it'd be falling as a proportion of income and capcity to repay would be increasing.

Similarly, the increase in share prices and the recent increase in house prices would mean a fall in net debt even if gross debt weren't falling.

Finally, "mortgage defaults and write-offs" invokes images of families being thrown out into the streets. In reality, some of that write-off figure will involve, for example,banks agreeing to write down the capital value of a property either throguh private agreemnt or under the government program to promote mortgage adjustments. You also have situations where, for example, someone owes $50,000 on an investment property, the bank auctions it off for $60,000 and they pcoket the $10,000. That's a bad outcome but again, not families thrown into the streets bad.

I don't have time to check at the moment to check how those mortgage default figures are colelcted either. I'd be interested to know if the default figure includes mortgages which the banks have already made a bad debt provision againat which they've expensed off.

Ian said...

Sorry, one more piece of bedtime reading:

Five years after the onset of the 2007 subprime financial crisis, U.S. gross domestic product per capita remains below its initial level. Unemployment, though down from its peak, is still about 8 percent. Rather than the V- shaped recovery that is typical of most postwar recessions, this one has exhibited slow and halting growth.

This disappointing performance shouldn’t be surprising. We have presented evidence that recessions associated with systemic banking crises tend to be deep and protracted and that this pattern is evident across both history and countries. Subsequent academic research using different approaches and samples has found similar results.
... our initial published study on this topic, in 2008, we showed that systemic financial crises across advanced economies had far more serious economic consequences than borderline ones. Our paper, written nine months before the collapse of Lehman Brothers Holdings Inc. in September 2008, showed that by 2007, the U.S. already displayed many of the crucial recurring precursors of a systemic financial crisis: a real estate bubble, high levels of debt, chronically large current-account deficits and signs of slowing economic activity.
Figure 1 (attached) compares the still unfolding (2007) financial crisis with U.S. systemic financial crises of 1873, 1893, 1907 and 1929. As the figure illustrates, the initial contraction in per-capita GDP is smaller for the recent crisis than in the earlier ones (even when the Great Depression of the 1930s is excluded). Five years later, the current level of per- capita GDP, relative to baseline, is higher than the corresponding five-crisis average that includes the 1930s
The most recent U.S. crisis appears to fit the more general pattern of a recovery from severe financial crisis that is more protracted than with a normal recession or milder forms of financial distress. There is certainly little evidence to suggest that this time was worse. Indeed, if one compares U.S. output per capita and employment performance with those of other countries that suffered systemic financial crises in 2007-08, the U.S. performance is better than average.

This doesn’t mean that policy is irrelevant, of course. On the contrary, at the depth of the recent financial crisis, there was almost certainly a risk of a second Great Depression. However, although it is clear that the challenges in recovering from financial crises are daunting, an early recognition of the likely depth and duration of the problem would certainly have been helpful, particularly in assessing various responses and their attendant risks. Policy choices also matter going forward.

Ian said...

Hi Political troublemaker, I missed your post regarding the Chinese real estate market first tiem around.

My view is that in soem of the poorly palced developments - and Ordos may be one of them - it's possible that some of these buildings will never be finished. They'll sit there for decades and eventually be demolished.

The question is how common that's goign to be and will it be enough to derail the whole economy.

I tedn to think not because, as well as the peopel migrating from the countryside to the cities, there are hundreds of millions of people in the cities living in substandard housing.

So, hopefully, when privaye developers go bust the properties will be bought up cheap by peopel who then onsell them at prices ordinary Chinese citizens can afford.

One of the big problems which the article touches on is the semi-legal underground banking system in China. The official banking sector is dominated by four big state-controleld banks that tend to lend to other government bodies for "policy loans". Private borrowers have to borrow from dodgy semi-legal unregulated lenders. They pay massive interest rates. loan assessment is weak, fraud and violence are widespread and it's net to impossible to even guess how much money is being loaned.

Cobb said...

It troubles me that you are so quick to assign political blame for economic decisions. It's as if you actually believe that there are no other incentives for people to spend or save money, smartly or otherwise than for them to interpret policy and change behavior. The effect is a reductionist view of human behavior which smells Marxist.

Consider the very simple economic concept of opportunity cost.

In item two, you blame the Republican party for creating a climate of corruption on Wall Street which you seem to believe inevitable given the law allowing commercial banks to make investment vehicles out of mortgages. It's rather incredibly obvious to me that the reason that opportunity arose is because America has no Savings & Loan industry.

How many years, and through how many administrations have we not had a Savings & Loan industry. And which party said "we don't need a savings and loan industry". Evidently everybody said we don't need one, and everybody was happy with that until the new system broke.

Right now as of this very moment, there is nothing like ringfencing banks, utility banks or a revitalized, local savings and loan industry on the table, despite the obvious fact that for most of America's history, this was how it was done.

If all we can do is blame a party for what has gone wrong, we are thinking politically, not economically.

Ian said...

Meet Alpha Centauri Bb - the lightest adm closest exoplanet yet found.

The Earth-sized planet orbits Alpha Centuari B eery 3.2 days at a distance of ca. 6 million kilometres, making it far too hot to be habitable.

(Although if it were tidally locked, I wonder what the dark side tempweratrues would be like.)

Anonymous said...

Theres a great article in the New York Times about the 1% becoming an oligarchy. It discusses the rise and fall of Venice. very interesting:

LarryHart said...

Oh, man, the debate is half over, and I honestly can't say how it's playing to the general public.

President Obama is calling Romney on the lies this time, but does he look forceful or hyperactive? Really, I can't tell.

In both this debate and the last one, Romney is like a siren song. You really do want to believe what he's saying is true--that he knows how to get this economy going again if only the president's policies would get out of the way. It's just that we already tried Supply Side, and it didn't work.

When business gets a tax break, they don't use the extra to "hire more people."

The pipeline from Canada to the Gulf of Mexico won't increase domestic (US) production--it allows oil to be directly exported instead of contributing to American supply.

The middle class hasn't been hammered because of Obama's policies, but because of a mess the GOP made of the economy the last time around.

But dang if "Trust me, I know how to fix this" isn't alluring.

I'm completely immune to wanting a Republican president, but I'm not sure I'm a representative sample.

Joel said...

Romney keeps pointing out that Canada's federal corporate tax rate is 15% (true except for Financial Institutions who pay more) though it was 16.5% last year and higher the year before that. In comparison the US has a tax rate of 35%.

Sometimes, you cut taxes not to give money to the rich corporations (who might sit on it), it's to keep them from declaring their headquarters as Toronto to pay less tax (or to another government).

Strangely, the reductions in the Canadian corporate tax rate have caused corporate revenues to stay almost completely flat. The 1.5% reduction caused a 1.06% increase in revenues, as the country itself grew 1.5-2.5%.

The tax cut cost nothing - it's a wash (but also not any sort of magical multiplier improvement either).

I do believe that reducing the US corporate tax rate from its present 35% to 21% would put it on equal footing with Canada (their provincial rates are higher than the state rates) and might not reduce or add to the existing deficit at all.

Romney should be screaming about Ireland's 12.5% corporate tax rate.

David Brin said...

Ian spoke of many things. But I am frustrated by the current stupid arguments over immigration policy. Everyone thinks the GOP is tough at the border and in restricting illegal immigration, while the Dems are soft.

The exact opposite is true. Illegals undermine union labor. The backers of the GOP love illegals and dems hate em. What the Tea Partiers should be screaming at is what the dems ACTUALLY did... open the floodgates of LEGAL immigration! Folks who can become citizens, union members, voters. Moreover, the WAY legal immigration is done is dumb. Unlimited family reunitings. Fah! That does not make a person more deserving. Indeed, skill-related intake makes it a positive sum game for us.

Mike Rothman and Cobb, there is one crucial factor... debt as a fraction or either national wealth or of GDP In both cases, the debt load went DOWN under Clinton, even if the actual dollar amounts were flat or even slightly positive.

Sorry, dems and goppers were NOT equally responsible. That is the Fox party line. That is the line taken by Republicans who admit "my side has been crazy and horrible... but I'll keep voting for them because the Dems are as bad or worse!"

It is a religious mantra. It bears no glancing relationship with reality.

NOTE ALSO THIS... not one of my attacks on the GOP have come from a "leftist perspective." Every single accusation was of a betrayal of classic conservative principles. Why would you still call these guys "conservative?" They are a criminal gang.

David Brin said...

Finally! Details on the Romney tax plan!

Ian Gould said...

It's worth noting that there isn't a simple direct relationship between the US budget deficit and the US national debt.

For starters, there's off-budget spending. the Bush administration, notoriously, insisted for every year after 2003 that spending on the wars in Iraq and Afghanistan was emergency, one-off, unplanned expenditure and as such didn't need to be included in the budget - or in the official calculation of the budget deficit.

ChicagoDan said...

Instead of raising the retirement age (which disproportionately affects the poor since they tend to have shorter lifespans), we should eliminate the cap of ~$110,000 for FICA. Or, we should simply do away with the notion of a Social Security Trust and pay Social Security benefits out of general revenue. We could replace the Social Security Trust with a "National Defense Trust" from which all military spending would originate. Want to start a war? If it costs more than in the NDT, better raise taxes.


Joel said...

Maybe we could introduce a voucher plan for National Defence. You can choose to support the federal National Defence system OR you can support a private militia!

The ability for the federal government to begin a new war will be directly dependent on their ability to convince you to send them your vouchers.

Alfred Differ said...

We used to have something like a voucher system except it started with your money in your hands instead of the government taking it and then asking you where you want them to spend it.

They were called war bonds.

Jacob said...

Ian said, "It's worth noting that there isn't a simple direct relationship between the US budget deficit and the US national debt."

Ian are you sure you want to devalue the concept held by 'US budget deficit'? I understand and agree with the point that ~Official budgets may fudge on spending and thus can't be used a real metric.~ I, however, commonly use the term to mean 'Money in - Money Out.' Perhaps you have a better term, but I worry that causally aware people will only be confused by your post.

Perhaps you'd prefer us to use 'US Spending(or)Expenditure/Revenue Deficit', but I didn't get that message in your post.

I like to encourage people to use fiscally responsible rather than 'fiscally conservative' because the later isn't responsible at all.

I enjoyed the link David.

Ian said...

Another point about foreclosures: they're a lagging indicator.

It takes a year or more from the time when someone misses a payment until a property is auctioned and the bank records the write-off.

So finalized foreclosures being reported now reflect the state of the property market a year ago.

"The number of Californians entering foreclosure dropped in the third quarter to its lowest level since early 2007.

Foreclosure filings have fallen as banks work toward completing more loan modifications and short sales. An improving economy and rising prices have also helped.

“Prices in most areas today are up significantly from their low point in early 2009,” John Walsh, president of San Diego real estate firm DataQuick, said in a news release. “Additionally, during the past year, we’ve seen short sales overtake the foreclosure process as the procedure of choice to deal with homeowner distress.”

Notices of default fell 10.2% from the prior quarter and were down 31.2% from the same period last year, DataQuick reported. A total of 49,026 notices of default – the first stage of foreclosure in California -- were filed on homes in the Golden State last quarter.",0,4276025.story

Mel Baker said...

My greatest longterm fear is that Culture War shows no signs of ending. It is very much as if the old south has risen up again. They live in a different world and are even more radically fundamentalist Christian than they were in the Reagan era. When several generations have become hypnotized inside a self referential bubble of propaganda, how do you reach compromises, seek solutions or even agree upon the same problems? Of course there are people of intelligence and good will everywhere in the nation, but what happens when a solid, unreachable majority is so different culturally that they think of the rest of us as the Liberal enemy, satan's spawn that can not under any circumstances be seen as part of the nation and therefore partners in government?

David Brin said...

In fairness, there are some crazed lefties who are as obsessed with stereotyping and hate as the mad right. But screw trying to bend over to be fair. Those lefties are Hannity's favorite people! They are few and impotent. And meanwhile, there are almost no islands of uncorrupt sanity remaining on the right.

(No matter what Tacitus says, I do not consider Goldwater conservatives like him to be anywhere on the right at all. And if he were in Congress, he would get sacked in the next GOP primary by some troglodyte proclaiming the world to be 9000 years old.)

Jumper said...

Tacitus, you have been challenged to run for Congress.

matthew said...

Well, I said it here first.
Johnson siphoning off votes from Obama in Colorado.

Tacitus said...

"DON"T...tempt me."

"Mind you, I would use the Ring to try to do good..."


David Brin said...

My friend John Mauldin, ( a renowned investment economist and much much smarter about these matters than I am, does not quibble with my overall list of causes for the debt, nor my general arguments about where we should be headed. He does, however, find fault with my "confusing correlation with causation." He also says I appear too eager to conflate "boneheaded monetary policy for partisan activity." Both criticisms are easy for me to grasp, squinting and trying to see these events from the perspective of a Goldwater-Buckly conservative. (I can do that!)

And yes... I can see John's point. It is always tempting to perceive a conspiracy or bad intent, when the true answer may be blithering incompetence. Still, aren't we behooved, when wrong choices have been made with such consistency, to adjust our behavior as if all of these bad things were the result of malignity or deep character flaws or a hidden agenda? Especially since "we wuz just incompetent" is not an excuse that should persuade us to trust a party with a burnt match.

John's biggest quibble? He believes I misunderstand the whole tax cut thing. Item #3. And of course we'd have plenty of arguments down among items 7 and 8! I look forward to being enlightened by him and then getting back to you all. Meanwhile, how I wish the GOP were still run by fellows like him!

Nonya said...

@Mel re: what happens when a solid, unreachable majority is so different culturally that they think of the rest of us as the Liberal enemy, satan's spawn that can not under any circumstances be seen as part of the nation and therefore partners in government?

War. Usually after vigorous persecution, escalates to pogroms & worse.

Unless there is somewhere to immigrate so the sane can escape the psychotics & self-destructives.

Tim H. said...

No escape, we have to fix this here. Some buiness creatures may complain of the restraint, but the rest of us live and work with restraint, so can they.

Ian said...

It looks like China has once again managed an economic soft landing - through the usual mixture of good economic management assisted by a bit of cooking the books.

Did China's GDP actually grow by 2.2% in the third quarter? That's more than most western economies recent annual growth.

Who knows?

But it does seem clear the economy is continuing its expansion and is nowhere near recession.

Ian said...

And for all those that think a carbon price would destroy the US economy; empirical evidence, it's not that difficult a concept.

THE carbon tax has helped drive a sharp fall in the carbon emissions of Australia's power generation as coal-fired stations are closed, mothballed or sell less into the electricity market.

Demand drop shocks power industry

As Victoria's Yallourn brown coal-fired power station became the latest to announce a production cut, experts said falling electricity demand, more renewables like wind farms and solar and the carbon price were all pushing Australia's coal-fired stations out of the market, making generation cleaner.

Electricity sold into the east coast market in the three months since the tax started created on average 7.6 per cent less carbon dioxide for each megawatt hour of power, an analysis of figures compiled by the Australian Energy Market Operator shows.

Compared with the same three months last year, the decline in emissions is around 6.3 per cent.

The Climate Change Minister, Greg Combet, talked up the role of the new $23-a-tonne carbon price in the shift.

''It is significant that the emissions intensity of the electricity generation system has fallen in the first quarter of the carbon price,'' he said.

''It is also significant that … about 3000 megawatts of high-polluting electricity generation has closed or phased down. The carbon price is a key driver of these changes, although it is not the only factor at work.''
Read more:

Australia's economy is continuing to grow at 3-3.5% a year and our unemployment rate is 5.4%.

Tim H. said...

Oops, stupid blogger. Tim H.

David Brin said...

Tagg Romney, the eldest son of the GOP presidential nominee, joked on a North Carolina radio station that he wanted to jump out of his seat at Tuesday's debate and "take a swing" at Obama as the president repeatedly called out Mitt Romney.

The day after Mitt said parents are at fault for their children's violent tendencies.

Alfred Differ said...

Amateur scientists at work? Iron dumping to fertilize the ocean... 8)

Ian said...

Ben Stein actually come out on fox News and admitted that America can't fix its debt crisis without raising taxes.

David Brin said...


David Brin said...

Cute, if highly perception-biased, history of the world in 2 minutes:

David Brin said...


Travc said...

I'm late to the party, but one huge factor is missing from your list: DEFENSE SPENDING

I'm referring to the 'baseline' even excluding the recent off-the-books wars. Just take a look at a chart (easily googled).

The pattern with respect to party to blame is also stunningly clear.

David Brin said...

I am perhaps more friendly to defense spending than some others who despise the GOP. I consider it to be fairly productive of technology and jobs and other good things (like survival).

It falls into "discretionary spending", a very small bucket overall. Still, you are right. It is a place for some savings. Though I would wait a year or two, letting the Army rebuild from devastation wrought by Bush.

Anonymous said...

Anyone who thinks that there was a surplus during the Clinton administration is purely delusional and has an aversion to the truth.

David Orban said...

Here is a very crisp 3 minute video analyzing the origins of the US debt from Upworthy:

The Complete Guide Of What's To Blame For Our Debt Problem. Brought To You By Math

Anonymous said...

I am surprised that overspending in the Defense Dept is not included in the list. I am an expert on this field like Ed Butowsky but the recent engagement of American to take down Bin Laden had been rigorous even during the time of Bush.

hemcoined said...

I like to encourage people to use fiscally responsible rather than 'fiscally conservative' because the later isn't responsible at all.


Jerry Bale said...

David Brin said: "And yes... I can see John's point. It is always tempting to perceive a conspiracy or bad intent, when the true answer may be blithering incompetence."

Is wilful blindness incompetence? They keep themselves in a bubble of information, they ignore all information that contradicts them. This isn't a bug, it's a feature of their system, it's designed in.

They may talk themselves into believing wrong things, but the propaganda system is a deliberately designed system. They have told their lies so long they believe them.

I suggest this is not incompetence, this is simply wilful ignorance, which isn't stupidity, but is a policy decision. And it's the worst possible kind. We see this in the Republican party (and the teaparty) again and again.

Jerry Bale said...

David Orban linked to a video on the source of the current debt.

The video said only 8% came from polices under Obama, excluding the stimulus but including extending the Bush tax cuts.

I would point out the extension of the Bush tax cuts was really not what Obama wanted, but if I remember correctly was the result of demands from Republicans who would not pass a budget without the extension.

Obama is responsible for even less then the stimulus, 6%, and other polices, 8%, a total of 14%.

Mike Crews said...

<< quote: "That asset bubble was largely tied to an overheated housing market, the mortgage industry, and Wall Street speculators who overheated both while creating a swamp of toxic derivatives to poison capital markets.">>

But why was the market overheated? Why would mortgage bankers sell money so cheaply to buyers who obviously could not pay it back even at firesale prices of nearly zero percent interest?

What could have led an otherwise sober and boring industry into madness that contravened every principle on which its business was founded? Lifting of regulatory constraints is not a satisfactory explanation for an entire sector committing financial mass suicide.

<< quote: "The number one cause of the deficit -- an asset (housing) bubble that plopped us into recession -- was bipartisan, though the biggest steps took place when the GOP held all the reins of power in all three branches of government." >>

You're not nearly as contrary as you make yourself out to be. When it comes to economics, your perspective is firmly rooted in orthodoxy.

The direct cause of the housing bubble was the shrinking of the money supply that had to occur in order to produce the Clinton surpluses. It had to occur not because of politics, not because of greed, but because of arithmetic. 1 - 1 must equal 0. There are no exceptions.

If a nation issues a fiat currency, and also runs a current account deficit with its trading partners, then if that nation's private sector wants to save, the government sector must run a deficit on the balance sheet. If the government enacts policies that lower the deficit without also lowering the current account deficit, then to make up the difference, the private sector must go into deficit. That's because the government deficit IS the private sector's savings. Money is introduced into the economy when the government spends it into existence. Taxation removes it; it does not finance government spending.

This mathematic inevitability is exactly what happened to the sector balances as a result of the Clinton-era surpluses.

Think more contrary, Dr. Brin. You're almost there.