Cutting the deficit, post 2017 tax reform

[LordKiran]

No, that's just moving money around. It is taking the money in with one hand and doling it out with the other.

Handwave response. Why not explain how "that's just moving money around."?

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No, that's just moving money around. It is taking the money in with one hand and doling it out with the other.

No, what? What is spending and selling bonds but "moving money around"? You're vague to the point of incoherence.

Because he doesn't actually know what he's talking about...Hence the vagueness.

 

[Lumpenproletariat]

(Lower taxes = more "jobs" + Higher spending = more "jobs") = higher and higher debt.

No one's head was chopped off because of unemployment.

Well, no one's head was chopped off because of unemployment until the rulers ran out of cake to give to the starving.

It was not because of unemployment that they ran deficits or chopped off heads -- before or after or anytime up until 1930. To prevent recession or unemployment was never the reason to run deficits until 1930.

Anyway, Trump's coming deficit is not caused by giving people jobs.

All our deficits now are to prevent recession. That's always the reason given why we cannot balance the budget. If we balance the budget it will throw the economy into recession. And there's some truth to this. But so what? Why not have the "recession" until it runs itself out, as recessions always did prior to 1930? e.g., like the great recession of 1921 did? It was as bad as the recession of 1929, and yet it ran itself out without any deficits.

It will be caused by giving the rich more wealth.

But why are they "giving the rich more wealth"? The reason is in order to stimulate the economy and create more jobs.

So then you are agreeing that we should stop trying to create "jobs" by running deficits? Are you agreeing that this notion of running deficits in order to "create jobs" is faulty, and so we should get rid of this notion? and stop running deficits to stimulate the economy and create jobs and prevent unemployment?

Company taxes down. Income taxes down for those in the upper tax brackets. You know, that sort of thing.

So then you agree that we should either reduce the spending or increase the taxes in order to balance the budget, and stop using the "jobs" or "economic stimulus" (or reducing unemployment, or preventing recession) babble as a reason for continuing the chronic deficits.

Everyone should admit that higher taxes and reduced spending do lead to higher unemployment. And that reduced taxes and higher spending do lead to less unemployment. (In the short run, anyway.)

Left-wingers recognize that higher spending > more "jobs" (less unemployment)

Right-wingers recognize that lower taxes > more "jobs" (less unemployment)

They're both right, and so they come together in agreement on one doctrine: always run more and more deficits.

So, isn't it time to stop obsessing on employment/recession/"jobs! jobs! jobs!"? This common obsession on both sides continues to drive the debt up and up. Why does this have to continue?

 

[bilby]

It was not because of unemployment that they ran deficits or chopped off heads -- before or after or anytime up until 1930. To prevent recession or unemployment was never the reason to run deficits until 1930.

Anyway, Trump's coming deficit is not caused by giving people jobs.

All our deficits now are to prevent recession. That's always the reason given why we cannot balance the budget. If we balance the budget it will throw the economy into recession. And there's some truth to this. But so what? Why not have the "recession" until it runs itself out, as recessions always did prior to 1930? e.g., like the great recession of 1921 did? It was as bad as the recession of 1929, and yet it ran itself out without any deficits.

It will be caused by giving the rich more wealth.

But why are they "giving the rich more wealth"? The reason is in order to stimulate the economy and create more jobs.

So then you are agreeing that we should stop trying to create "jobs" by running deficits? Are you agreeing that this notion of running deficits in order to "create jobs" is faulty, and so we should get rid of this notion? and stop running deficits to stimulate the economy and create jobs and prevent unemployment?

Company taxes down. Income taxes down for those in the upper tax brackets. You know, that sort of thing.

So then you agree that we should either reduce the spending or increase the taxes in order to balance the budget, and stop using the "jobs" or "economic stimulus" (or reducing unemployment, or preventing recession) babble as a reason for continuing the chronic deficits.

Everyone should admit that higher taxes and reduced spending do lead to higher unemployment. And that reduced taxes and higher spending do lead to less unemployment. (In the short run, anyway.)

Left-wingers recognize that higher spending > more "jobs" (less unemployment)

Right-wingers recognize that lower taxes > more "jobs" (less unemployment)

They're both right, and so they come together in agreement on one doctrine: always run more and more deficits.

So, isn't it time to stop obsessing on employment/recession/"jobs! jobs! jobs!"? This common obsession on both sides continues to drive the debt up and up. Why does this have to continue?

Why shouldn't it? Why your obsession with nations being debt free? What do you think is the point of all of this economic activity anyway? What would YOU have the economy achieve and WHY? Who benefits from a nation without debt, and why should I care about those people?

 

[Lumpenproletariat]

What scientific discovery led to the adoption of chronic budget deficits beginning in the 1930s?

So, except for the "Jobs! Jobs! Jobs!" babble, we would not need to run these deficits. Right? Instead, we could gradually pay down war debt like before 1930. So, why don't we ever question the "Jobs! Jobs! Jobs!" religion?

Because if people don't have jobs, you either have to pay them to do nothing, . . .

Before 1930 they didn't pay them to do nothing.

People didn't want to be paid to do nothing, they needed a job!

Of course they did, just like in 1921, and in earlier recessions.

The point is that the government did NOT run deficits in order to create jobs, nor did it pay them to do nothing. Before 1930 they did not run deficits to create jobs, which worked OK, even when there was a recession. I.e., OK in the sense that the outcome was no worse, or was better, than the outcome of the deficits of the 30s.

The Great Depression really screwed things up, . . .

How have we improved it by running up the national debt? with still no end in view?

There was an equally bad recession in 1921, and no deficit to fix it. Things were just as screwed up in 1921 as in 1929-30. But no deficit or spending measures were needed to correct it.

. . . and Great War veterans were marching in the streets wanting pensions to help deal with the economic problems in the US thanks to a bunch of dumb ideas by businesses, investors, and global Governments.

And one of those "dumb ideas" was the idea that we needed deficits to create jobs. Another was that we needed to have higher wages to stimulate more demand. Both these ideas originated in the early 1900s and were tested in the 20s and 30s. And they're still being tested, with higher and higher debt being the result.

But meanwhile, prior to the 30s, we never operated on these ideas, and there was no chronic debt like there is now. And all the recessions ran their course, just as they do today, except that today we have to keep running up higher and higher debt.

Paying people to do nothing is more common now than back before chronic deficits.

So we keep being told. I've yet to see a conservative actually take advantage of such pay for nothing.

Whatever "paying people to do nothing" means, it was less common before the 1930s. It was not something they did as an alternative to running up deficits in order to "stimulate the economy" and "create jobs" as we do now. The recessions played out and the economy resumed without any need to run up debt, like we do today.

Before 1930 countries did not run up deficits to combat unemployment.

Nor did doctors treat cancer patients with chemotherapy either. Did you have a point?

Nor did humans land on the moon.

The point is that no one is explaining why we need to "stimulate the economy" with budget deficits today but did not need to back in the 1800s.

 

[Hermit]

But why are they "giving the rich more wealth"? The reason is in order to stimulate the economy and create more jobs.

Guess who they are laughing about? Yes, you. You among millions of other suckers. There's a difference between what they tell you and what actually happens. I suspect understanding historical data is beyond you, so here is an explanation in pictures.

 

[Canard DuJour]

No, that's just moving money around. It is taking the money in with one hand and doling it out with the other.

Then it isn't depleting "loanable funds", is it? Look again at the sectoral balances graph.

Deficit spending, by definition, precedes tax receipts and puts money into circulation.

A gov't surplus is taking the money in with one hand and not doling it out with the other.

You have it backwards coz, like most folks, you assume the gov't is a currency user like you, rather than an issuer. To be fair, the byzantine double-entry machinations of treasury and central bank don't help.

 

[Loren Pechtel]

Why shouldn't it? Why your obsession with nations being debt free? What do you think is the point of all of this economic activity anyway? What would YOU have the economy achieve and WHY? Who benefits from a nation without debt, and why should I care about those people?

Governments should borrow only in the same situations people should borrow: When what you get from what you spent the money on will outlast the debt. Little of what governments borrow to do meets this criteria and if debt simply rolls over nothing meets this criteria.

 

[Canard DuJour]

Governments should borrow only in the same situations people should borrow: When what you get from what you spent the money on will outlast the debt. Little of what governments borrow to do meets this criteria and if debt simply rolls over nothing meets this criteria.

Govt "borrowing" is so unlike what "people" do when they need to get money from somewhere else, that this is nearly meaningless.

 

[bilby]

Why shouldn't it? Why your obsession with nations being debt free? What do you think is the point of all of this economic activity anyway? What would YOU have the economy achieve and WHY? Who benefits from a nation without debt, and why should I care about those people?

Governments should borrow only in the same situations people should borrow: When what you get from what you spent the money on will outlast the debt. Little of what governments borrow to do meets this criteria and if debt simply rolls over nothing meets this criteria.

The things that make me hesitant to borrow far more than I already have, are mostly things that don't apply to governments. I am at risk of falling ill or being injured, and as a result having an unexpected and severe drop in income. I shall, at some point, retire (or die), and that will dramatically impact both my ability to service any debts, and the willingness of lenders to allow me to take on new debt.

Governments are effectively immortal and have an ever increasing revenue base. They don't get sick; they don't retire; they don't have to provide for their descendants on their death, or fund terminal care, or pay for geriatric support.

The idea that governments should only borrow in the same situations where individual people would borrow is deeply wrong, for reasons that ought to be obvious. It's also wrong for other, less obvious reasons; but you don't even need to try to understand the difficult stuff, because it's obvious from just looking at the easy stuff that this commonly held opinion, which you once again trot out here as though it were a law of nature, is utter bollocks.

 

[Loren Pechtel]

Governments should borrow only in the same situations people should borrow: When what you get from what you spent the money on will outlast the debt. Little of what governments borrow to do meets this criteria and if debt simply rolls over nothing meets this criteria.

Govt "borrowing" is so unlike what "people" do when they need to get money from somewhere else, that this is nearly meaningless.

Only to those who want to benefit from that government borrowing.

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Why shouldn't it? Why your obsession with nations being debt free? What do you think is the point of all of this economic activity anyway? What would YOU have the economy achieve and WHY? Who benefits from a nation without debt, and why should I care about those people?

Governments should borrow only in the same situations people should borrow: When what you get from what you spent the money on will outlast the debt. Little of what governments borrow to do meets this criteria and if debt simply rolls over nothing meets this criteria.

The things that make me hesitant to borrow far more than I already have, are mostly things that don't apply to governments. I am at risk of falling ill or being injured, and as a result having an unexpected and severe drop in income. I shall, at some point, retire (or die), and that will dramatically impact both my ability to service any debts, and the willingness of lenders to allow me to take on new debt.

Governments are effectively immortal and have an ever increasing revenue base. They don't get sick; they don't retire; they don't have to provide for their descendants on their death, or fund terminal care, or pay for geriatric support.

The idea that governments should only borrow in the same situations where individual people would borrow is deeply wrong, for reasons that ought to be obvious. It's also wrong for other, less obvious reasons; but you don't even need to try to understand the difficult stuff, because it's obvious from just looking at the easy stuff that this commonly held opinion, which you once again trot out here as though it were a law of nature, is utter bollocks.

Except they don't have an ever increasing revenue base. While a government isn't going to break a leg and have a drop in income there are natural disasters and wars that cause similar problems.

 

[SimpleDon]

The assumption "all money comes from the govt."

Have you ever watched Shawshank Redemption? Do you remember when Brooks was about to be released, and when crazy? Red described him as "institutionalized"? Our experience with Central Banking and Fiat Currency has left us "institutionalized", we are living in "prison normal." I've got some news though, prison isn't normal.

(responding to Jason above)

Fiat currency with central banking is patently the norm (Shawshank notwithsatnding).

I think you misunderstand what was meant by "all money comes from the govt", which was intended in the context of sectoral balances. Ninety-odd percent of the money in circulation comes from private sector bank loans, but nets to zero since it's "created" along with corresponding private sector liabilities via double entry book keeping. Only gov't can create debt-free, net-plus money. Anything else is counterfeiting or fraud. And gov't mostly doesn't do that, but "borrows", i.e. issues bonds i.e. private sector financial assets along with corresponding tax liabilities, i.e. runs deficits. Thus a gov't surplus is necessarily a private sector deficit and vice versa (or as near as dammit) :

View attachment 13963

Now you might prefer something else - as might I - but that doesn't make the above wrong as a matter of fact.

This is very good and correct. I would only add two things, in my usual spare words.

One of the problems with private debt is that rather than destroying the same amount of money that was created when the loan was taken out it effectively destroys more because of the interest paid in the duration of the loan.

Second, that the history of money shows that money has always been a fiat money created by debt, even before the invention of coins. That the short periods of "money that is really worth something," that is gold or silver based, have either degenerated into a fiat money system over time or resulted in economic disasters to the point that they were abandoned.

Money systems based on cows, temple goods or sheaves of grain were price fixing schemes that established the relative prices of all of the commonly exchanged commodities and many of the products. A sheep was worth five sheaves of grain, a cow was worth five splits or fifteen sheaves of grain, therefore one cow was worth three sheep, etc.

These price setting schemes were maintained by some authority, usually the sovereign or the temple. Purchases were made with promissory notes from the authority that were drawn against deposits held by the authority or more often, drawn against future deposits, i.e., loans. These notes, cuneiform tablets, counting sticks, etc. were circulated because they paid to the bearer, no questions asked.

This is a fiat money system and they worked so well, especially in domestic exchanges within societies, that there was no reason for anything else. Even when coins were invented they were used for small exchanges with larger purchases reverting to the fiat money. Gold and silver were in coins through history because they showed the coins were minted by the sovereign, because only they had sufficient gold and silver. What gave the coins value wasn't the metal in them but the fact that people needed them to pay taxes.

You don't know this history Jason, because these few paragraphs of history completely destroy the supposed historical basis of Austrian/Libertarian economics. Money didn't grow out of barter exchanges, with gold being the perfect, easily transportable, barter exchanged good with its intrinsic, universally accepted value. And price fixing by the government was the rule, not supply and demand setting prices through bartering.

This is the problem with believing in a fantasy economy to change our current economy to instead of looking at the economy that we really have, the one that has evolved with civilizations over thousands of years. The 18th century classical economists who provide the authority for Austrian/Libertarian economics have an excuse, they were just beginning the study of economics, it is understandable that they made mistakes based on guesses about how the economy works. You and the other neoliberals, i.e. classical liberals, don't have such an excuse. Not only has our understanding about the history and the workings of the economy dramatically improved, but the economy itself has changed dramatically in the last two plus centuries.

Please read Debt: The First 5,000 Years, by David Graeber, 2011, Melville House Publishing. Here is the 2014 edition which I haven't read or the first edition that I did read, which is here as a pdf if you don't have the ~$17 to spend. Greaber is not an economist, he is an anthropologist who became fascinated with the subject of debt from his work with Occupy Wall Street, and especially when he learned that there was very little literature on it and no studies of it, primarily because everyone thinks that they understand it. So he decided to tackle it the way that an anthropologist would, studying aboriginals and history to understand what it is.

 

[Lumpenproletariat]

Why must we have deficits every year?

why is it wrong for us to balance the budget?

If we want to incentivize savings, the govt must run deficits.

Why do we need to incentivize savings? There will be savings even if the budget is balanced. There was savings before WW1 prior to chronic deficits, when there were more surplus years than deficit years.

Otherwise, the govt will not be injecting enough dollars into the economy to enable savers, domestic or foreign, to save.

No, savers are able to save without needing the federal deficits.

Does anyone have a serious answer to the question: Why do we have to run deficits?

What if spending is reduced and taxes are increased enough to eliminate the deficits, over 3 or 4 years. Why would that be bad? It could be done, but we choose not to. Why?

What would go wrong?

 

[Horatio Parker]

Why do we need to incentivize savings? There will be savings even if the budget is balanced. There was savings before WW1 prior to chronic deficits, when there were more surplus years than deficit years.

We don't have to. We can tax savings and reduce the deficit.

What you're missing is that if the private sector saves, govt can't tax all the money it spends back.

Both sides cannot be in surplus.

Otherwise, the govt will not be injecting enough dollars into the economy to enable savers, domestic or foreign, to save.

No, savers are able to save without needing the federal deficits.

Does anyone have a serious answer to the question: Why do we have to run deficits?

What if spending is reduced and taxes are increased enough to eliminate the deficits, over 3 or 4 years. Why would that be bad? It could be done, but we choose not to. Why?

What would go wrong?

OTOH, what's so great about no deficit? As has been pointed out, there is a difference between a currency user and a currency issuer. There is no inherent need for currency issuer to run a surplus or a deficit.

If you really want to lower the deficit, we should eliminate the trade deficit. But that brings other choices. Do you like the situation where the US gets products for nothing more than dollars? It's the best trade advantage possible. Do you want the dollar to be a reserve currency? If so, we must run trade deficits in order to satisfy the dollar saving preferences of our trading partners. Are we going to accumulate reserves of foreign exchange in order to locally purchase supplies for our 800+ military bases? After all, using dollars would drive up the deficit...

 

[Lumpenproletariat]

Why do we need to incentivize savings? There will be savings even if the budget is balanced. There was savings before WW1 prior to chronic deficits, when there were more surplus years than deficit years.

We don't have to. We can tax savings and reduce the deficit.

What you're missing is that if the private sector saves, govt can't tax all the money it spends back.

Both sides cannot be in surplus.

You seem to be saying we must have budget deficits or else there is no savings. Which is false, contradicts history. We have had both savings and balanced budgets, simultaneously.

So what's the real reason why we have to run deficits? It's not the reason you're giving.

No, savers are able to save without needing the federal deficits.

Does anyone have a serious answer to the question: Why do we have to run deficits?

What if spending is reduced and taxes are increased enough to eliminate the deficits, over 3 or 4 years. Why would that be bad? It could be done, but we choose not to. Why?

What would go wrong?

OTOH, what's so great about no deficit?

What's so great about 21 trillion debt and 300 billion annual interest on the debt?

As has been pointed out, there is a difference between a currency user and a currency issuer. There is no inherent need for currency issuer to run a surplus or a deficit.

OK, so again, why are we running constant deficits and running up this debt, beyond 20 trillion, heading to 30 trillion? Why do we keep doing this if there's no need to?

If you really want to lower the deficit, we should eliminate the trade deficit.

No, that's a phony correlation. In the late 90s we had balanced budgets -- lower deficit down to zero -- and yet the trade deficit increased at a faster rate. Which disproves the theory that trade deficits cause budget deficits.

 

[Horatio Parker]

You seem to be saying we must have budget deficits or else there is no savings. Which is false, contradicts history. We have had both savings and balanced budgets, simultaneously.

So what's the real reason why we have to run deficits? It's not the reason you're giving.

The domestic and govt sectors can both be in surplus if there is a trade surplus. We do not have a trade surplus.

What's so great about 21 trillion debt and 300 billion annual interest on the debt?

Issuing debt with deficit spending is a choice; if you don't want to manage reserves that way or provide corporate welfare, then don't issue debt. As for the $21T, it's a residual, like say the total money you've spent in your lifetime. What's the significance of that? Answer: none.

OK, so again, why are we running constant deficits and running up this debt, beyond 20 trillion, heading to 30 trillion? Why do we keep doing this if there's no need to?

In order to satisfy the savings desires of our domestic private sector and our trading partners. If you want a society without savings, then fine, tax it all back. But to date, we want people to save. And we want our trading partners saving dollars.

No, that's a phony correlation. In the late 90s we had balanced budgets -- lower deficit down to zero -- and yet the trade deficit increased at a faster rate. Which disproves the theory that trade deficits cause budget deficits.

The late 90's govt surpluses caused a recession in 2002. The private sector borrowed enormously during this time to invest in dotcom business and y2k. Much of that investing went bust, which is how the private sector deficit spends. That spending drove the govt into surplus, but without lower taxes or increased govt spending, it couldn't be sustained. And wasn't.

 

[Jason Harvestdancer]

My post "they're just moving money around" is very misunderstood.

So, we have government borrowing AND government spending that borrowed funds. We have government taxing AND government spending that taxed funds. It is taking money from Peter to give it to Paul. This has very little to do with money creation or money destruction, and it makes it rather absurd that one would use it as a defense of the absurd idea that money comes from the government. It isn't evidence against it, true, but more importantly it isn't evidence in favor of it.

It is, in other words, an irrelevancy. All you've established is that the government moves money, not that it creates or destroys money.

Neither a government deficit nor a government surplus inherently creates or destroys money. If we actually had a surplus (and we haven't had one since Eisenhower) we are taking money from one source (taxpayers) and sending it to a recipient (lenders), moving money, neither creating nor destroying inherently.

It is created or destroyed depending on the monetary system, but not based on inherently being one or the other.

The whole "money comes from the government" line of thinking neglects a central point of "what, exactly, is money" and starts with "okay, we have money, so what can we determine about it."

In Venezuela, money has stopped working

They don't understand what money is either.

 

[Horatio Parker]

My post "they're just moving money around" is very misunderstood.

So, we have government borrowing AND government spending that borrowed funds. We have government taxing AND government spending that taxed funds. It is taking money from Peter to give it to Paul. This has very little to do with money creation or money destruction, and it makes it rather absurd that one would use it as a defense of the absurd idea that money comes from the government. It isn't evidence against it, true, but more importantly it isn't evidence in favor of it.

It is, in other words, an irrelevancy. All you've established is that the government moves money, not that it creates or destroys money.

Neither a government deficit nor a government surplus inherently creates or destroys money. If we actually had a surplus (and we haven't had one since Eisenhower) we are taking money from one source (taxpayers) and sending it to a recipient (lenders), moving money, neither creating nor destroying inherently.

It is created or destroyed depending on the monetary system, but not based on inherently being one or the other.

The whole "money comes from the government" line of thinking neglects a central point of "what, exactly, is money" and starts with "okay, we have money, so what can we determine about it."

In Venezuela, money has stopped working

They don't understand what money is either.

I don't think you do either.

The govt spends first. Then debt is issued and taxes collected.

Spending is money "creation" and taxing is money "destroyed".

None of that has anything to do with the sectoral balances. They indicate the relationships between sectors.

Surely you can understand that if govt taxes more than it spends, the money must come from somewhere? If you then add that the foreign sector is in deficit, more importing than exporting, then the only place the govt surplus can come from is the domestic private sector?

You may be confused by private banks creating credit. Probably best described as credit that functions as money. That creates pressure for expanding the money supply, but does not in itself increase private net financial assets. Those only come from the govt. Only the govt can increase net financial assets.

 

[Jason Harvestdancer]

That is the way it operates in some monetary systems, not all. Surplusses and deficits don't inherently create or destroy money.

You are making an unstated premise of a particular monetary system. You are committing an is-ought fallacy without even realizing it.

Yes, if the government takes in more money than it spends, that money has to come from somewhere. And it has to go somewhere.

 

[Horatio Parker]

That is the way it operates in some monetary systems, not all. Surplusses and deficits don't inherently create or destroy money.

You are making an unstated premise of a particular monetary system. You are committing an is-ought fallacy without even realizing it.

Yes, if the government takes in more money than it spends, that money has to come from somewhere. And it has to go somewhere.

That's the way it operates in our money system. Sure, privately people can do things like write IOUs and pass them around as money. None of that has anything to do with the deficit.

You didn't answer the question of where govt surpluses come from. As for where they go, they don't go anywhere. It's money removed from the economy. You might quibble over whether or not the word destroyed applies or not, but the effect is the same.

 

[Jason Harvestdancer]

I agreed that surpluses come from collecting more in taxes than oulays. And that money has to go somewhere. They do go somewhere. Paying back a loan doesn't remove money from the economy, it goes back to the lender.