Cutting the deficit, post 2017 tax reform

[none]

interesting, I wonder what our current elected officials are saying about the deficit

 

[laughing dog]

Sure, whatever.

Thank you for the admission of your error.

 

[Jason Harvestdancer]

Sure, whatever.

Thank you for the admission of your error.

Oh great, another laughing dog rabbit hole of insipid lunacy based on what can only be considered deliberate misinterpretation of what anyone else in the world would understand clearly.

 

[Ford]

interesting, I wonder what our current elected officials are saying about the deficit

Haven't you heard? It is now, suddenly, a "crisis!" Paul Ryan:

"We have to fix health care if we're going to get away from this debt crisis."

https://twitter.com/FoxBusiness/status/963407238332342272/photo/1?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Fwww.dailykos.com%2F

Cut taxes and raise spending, thus creating a huge deficit, which you then declare a "crisis" and go after safety nets. Textbook GOP.

 

[laughing dog]

Sure, whatever.

Thank you for the admission of your error.

Oh great, another laughing dog rabbit hole of insipid lunacy based on what can only be considered deliberate misinterpretation of what anyone else in the world would understand clearly.

An ironic allusion to the "rabbit hole" coming from someone who misused the terms "default" and "sure, whatever".

 

[Elixir]

interesting, I wonder what our current elected officials are saying about the deficit

They're saying "Deficit? WHAT deficit?".
Or the more nuanced version: "Deficits are for Democrats. Yeah, they're not in power right now, but THEY WILL BE! And that is when we'll vilify them for creating this terrible deficit!"

 

[Jason Harvestdancer]

Oh great, another laughing dog rabbit hole of insipid lunacy based on what can only be considered deliberate misinterpretation of what anyone else in the world would understand clearly.

An ironic allusion to the "rabbit hole" coming from someone who misused the terms "default" and "sure, whatever".

Now you're misusing the words "ironic", "allusion", and "misused".

Speech is not your native tongue.

 

[Lumpenproletariat]

How are you not a RELIGIOUS PRO-DEFICIT DEVOTEE if you favor the current federal deficit increase?

What debt increase would you NOT favor, if you favor this current debt increase?

Surpluses are not always wrong. I never said so.

You've said it, without using those exact words. You're very certain that every deficit we've had since WW1 was necessary and right, to promote "jobs! jobs! jobs!" and that all the surpluses we've had were probably wrong, because they caused recession.

And you believe it was usually wrong to run surpluses in the 19th century, because deficits would have generated more "jobs! jobs! jobs!" You probably can't name one surplus year you think was good for the economy, or one deficit year that should have been a surplus year instead. You're the closest one can come to being an absolutist true believer in deficits always, forever, with no exception.

No? Then name one year when the U.S. should have run a surplus instead of a deficit.

The danger from govt spending is inflation.

That's only one danger. Another is waste -- spending too much, so the cost is greater than the benefit from it. Regardless whether it's inflationary. And even if it creates "jobs" with it. There's a danger if the spending is wasteful, or higher than the value being paid for.

It doesn't matter if the spending is deficit spending or not.

It matters if the deficit is half a trillion $$$ or more, or more than 10% of the budget and there's no dire need for such debt, as there is not today in 2018. It matters if we run up the deficit and yet no one can give a coherent reason for it, other than "jobs! jobs! jobs!" which is the only reason.

A country with a trading surplus could easily overspend if the govt also deficit spends, since both increase the financial assets in the economy. Running a surplus then decreases the amount of financial assets which is deflationary. You might then think we must always run trade surpluses.

It's nonsensical to think a trade surplus or deficit is something chosen, as a budget deficit is chosen. The trade balance/imbalance just happens, with no decision necessary to make it happen. The right decision is just to trade, with minimum barriers, regardless whether this is followed by a surplus or deficit, because it doesn't matter either way.

But the choice for a budget deficit can be a mistake if there is no need for it. There might be a need for it in some cases, but there is no such thing as a need for a trade deficit or surplus, as a choice, whereas a budget deficit might be chosen when necessary, but should not be chosen when it's not necessary, which it sometimes is not.

And there is nothing about a trade deficit or surplus which requires a country to choose a budget deficit. Despite artificial theories trying to connect them.

With our geopolitical position as world leader, trade deficits are unavoidable. With the dollar as reserve currency, other countries need dollars.

That's probably not the cause of the trade deficit. It's probably simpler: The U.S. is trying harder to leave its market open, whereas most other countries erect more barriers of one kind or another. There's no need for the U.S. to promote its currency in such a way as to cause trade deficits. Or budget deficits.

What appears to be difficult for you to understand is that the ability to run a trade deficit is a situation which countries aspire to. It takes much more effort to produce and sell goods than to simply buy them with your currency. Exporters must practice domestic austerity, in order to maintain their competitive advantage. A simple way of stating it is the purpose of exports is to obtain imports.

Debt, surpluses, deficits, none of them are wholly good or bad.

Then why do you insist that every budget surplus was wrong and that every deficit has been good. You don't? Name a surplus you think was right, and a deficit which was wrong. You obviously applaud fanatically every deficit from FDR to the present, without exception.

And why do you defend the current high deficit, even though you cannot give a reason why it's necessary? Your dedication to deficits is about as absolute and dogmatic as we could expect from the most fanatic deficit devotee. If this deficit is not too high, then when is a deficit ever too high? What limit to deficits do you recognize? Apparently none.

All can work for the public interest, or against it depending on the context.

And yet in the current context you want the debt to go even higher. In what context would you finally admit that the deficit is too high? How can you say it depends on the context, when you can't name a context ever when the deficit was too high? and yet you're sure that virtually every surplus was too high? No? Then what's an example of a budget surplus you thought should have been that high?

Your rigidity of thinking makes you poorly equipped for economics.

Why is it rigid to think the current deficit, almost the highest ever and extended for the longest period, is too high?

Whereas you are not being rigid to enthusiastically promote virtually every deficit we ever had, and oppose every surplus, and insist on having the debt keep going up higher and higher? Why is that not rigid thinking? Why is that not dogmatically and rigidly pro-deficit?

Why is it that any sentiment to reduce deficits is automatically rigid? Do you define "rigid" to mean anything that questions the dogma for ever higher and higher debt?

Growth doesn't occur unless someone spends more than their income.

Is this platitude part of your pro-debt ideology which everyone must agree with? Is "Growth" as you define it a fundamental plank in your debt catechism?

Why do you condemn the more moderate rule that debt is only sometimes necessary to produce progress and sometimes not necessary? and that unnecessary debt is sometimes more harm than good? and that life can sometimes be improved without debt? Why instead do you insist that debt must be programmed into us as a ritual we must practice even in cases where it might not be necessary? as the current increased U.S. debt is not? and yet which must continue upward, according to you? even though you can't give a reason why?

 

[laughing dog]

You've said it, without using those exact words....

You are confusing your straw man with reality. Whether a deficit or a surplus is "good" or "bad" or "meh" from a macroeconomic point of view depends on a variety of circumstances - something you seem incapable of acknowledging.

 

[Horatio Parker]

What debt increase would you NOT favor, if you favor this current debt increase?

I don't favor it. I don't think it'll do much harm, but that's not the same thing. At least to most people.

No? Then name one year when the U.S. should have run a surplus instead of a deficit.

Depends on policy, the type of society you want. Do you want to be the foremost world power? Then prepare to spend on wars in Asia. Prepare to spend on bases to protect your allies. If you expect the world to accept your currency and to save it, then you will run trade deficits and therefore domestic deficits.

There is no universe, except maybe yours, where a surplus is always good and a deficit always bad. I've said many times it depends on the context.

It's nonsensical to think a trade surplus or deficit is something chosen, as a budget deficit is chosen. The trade balance/imbalance just happens, with no decision necessary to make it happen. The right decision is just to trade, with minimum barriers, regardless whether this is followed by a surplus or deficit, because it doesn't matter either way.

Bullshit. You don't think the export economies of the Asian tigers and Germany aren't by design? Well, they are.

But the choice for a budget deficit can be a mistake if there is no need for it. There might be a need for it in some cases, but there is no such thing as a need for a trade deficit or surplus, as a choice, whereas a budget deficit might be chosen when necessary, but should not be chosen when it's not necessary, which it sometimes is not.

Again, bullshit. Economics is the distribution of resources. That's highly political, IOW choice.

With our geopolitical position as world leader, trade deficits are unavoidable. With the dollar as reserve currency, other countries need dollars.

That's probably not the cause of the trade deficit. It's probably simpler: The U.S. is trying harder to leave its market open, whereas most other countries erect more barriers of one kind or another. There's no need for the U.S. to promote its currency in such a way as to cause trade deficits. Or budget deficits.

Both points are true. But you miss the point of the dollar as reserve currency. The world saves dollars, it therefore must acquire more dollars than spent. Which means a trade deficit in the US. Unavoidable at this time.

Then why do you insist that every budget surplus was wrong and that every deficit has been good. You don't? Name a surplus you think was right, and a deficit which was wrong. You obviously applaud fanatically every deficit from FDR to the present, without exception.

Probably some US surpluses were justified. Offhand, I couldn't say.

And why do you defend the current high deficit, even though you cannot give a reason why it's necessary? Your dedication to deficits is about as absolute and dogmatic as we could expect from the most fanatic deficit devotee. If this deficit is not too high, then when is a deficit ever too high? What limit to deficits do you recognize? Apparently none.

I have a reason for defending deficits, which is that the private sector wishes to save, and it's pretty much in agreement across the spectrum that that is a good thing.

All can work for the public interest, or against it depending on the context.

And yet in the current context you want the debt to go even higher. In what context would you finally admit that the deficit is too high? How can you say it depends on the context, when you can't name a context ever when the deficit was too high? and yet you're sure that virtually every surplus was too high? No? Then what's an example of a budget surplus you thought should have been that high?

When inflation rises too high, there is too much spending. Then less spending or higher taxes are indicated.

Why is it that any sentiment to reduce deficits is automatically rigid? Do you define "rigid" to mean anything that questions the dogma for ever higher and higher debt?

"In psychology, rigidity refers to an obstinate inability to yield or a refusal to appreciate another person's viewpoint or emotions characterized by a lack of empathy. ... A specific example of rigidity is functional fixedness, which is a difficulty conceiving new uses for familiar objects."

Growth doesn't occur unless someone spends more than their income.

Is this platitude part of your pro-debt ideology which everyone must agree with? Is "Growth" as you define it a fundamental plank in your debt catechism?

Since we have a growing society, it seems sensible to me to have the economy grow as well. Also it seems possible we are capable of improving the lot of society.

Why do you condemn the more moderate rule that debt is only sometimes necessary to produce progress and sometimes not necessary? and that unnecessary debt is sometimes more harm than good? and that life can sometimes be improved without debt? Why instead do you insist that debt must be programmed into us as a ritual we must practice even in cases where it might not be necessary? as the current increased U.S. debt is not? and yet which must continue upward, according to you? even though you can't give a reason why?

Because I understand the implications of a fiat currency better than most.

You OTOH seem stuck in the past world of commodity currency.

 

[Lumpenproletariat]

Still searching for excuses why high deficits are necessary.

What is the reason we began running high deficits in the 1930s? and basically have kept doing so up to the present?

No one has given any good reason why we need to do this, or why it was good to start doing this at the beginning of the Depression. No one has shown that it has produced a good economic outcome. It's obviously driven by the belief that it produces "jobs! jobs! job!" and thus counteracts recession, and there is no reason other than this that everyone agrees on, despite various theories to explain it.

The "jobs! jobs! jobs!" reason breaks down in the long run. It is undeniable that there is a short-term "jobs! jobs! jobs!" benefit from the deficits, which are an "economic stimulus" to give the economy a short-term kick in the butt and cause some new jobs to be created. And this benefit might last for a few years, if more deficits are added in order to keep the "stimulus" going.

But it has to break down finally and result in no net "jobs! jobs! jobs!" or in a very small number only which cost far more than their value, or even in a net loss of jobs in the end.

A stimulus (deficit) at point A is offset by an antistimulus at point B, when debt is repaid:

A █ (deficit/stimulus) → ------------ B █ (debt payback) → ---------- C →

The debt theory says that those who pay the loan at point A would have spent the money slowly, so taking it from them and having the government spend it speeds it up and increases the money flow, causing the economy to charge faster and create jobs.

But this breaks down at point B where the money is repaid to the lender, because this payback has the opposite effect of the stimulus at point A. Whatever stimulus might occur at point A when the extra money is injected is reversed at point B, where that same amount is withdrawn from the government and paid back to the lenders, who spend it slower.

All the debt is repaid, in varying amounts, in the subsequent years -- whether it's 5 years later, or 7 or 10 or 15, or 3. Playing with the numbers, or shifting the years when it's repaid, is all guesswork. There's no way to determine that somehow the stimulus at point A will have a greater impact on the economy than the payback at point B.

The only way to prevent the point B payback from reversing the point A stimulus is to do still another stimulus at point B (or point C or D, etc.). So ongoing deficits might keep the original "jobs! jobs! jobs!" stimulus going, i.e., keep the original jobs created, but not create any new jobs unless the amount of the deficit is increased. So, continually increasing the size of the deficits is the only way to cause further new job creation. Otherwise, if the deficits remain at about the same level, this only keeps the earlier jobs going a little longer. If the deficits decrease, then jobs created earlier are eliminated by the antistimulus at point B, because any reduction of the deficits later is an antistimulus undoing the stimulus at point A, because the paybacks there take more away from the government than it receives in new debt.

So the jobs created are real, but temporary unless continually subsidized by new stimulus deficits to keep them going. So this debt practice is always an instant-gratification benefit only, not causing long-term job creation, but only short-term.

But meanwhile it costs the taxpayers $200-$400 billion annually in interest payments, as a cost for running this debt. This interest cost is also an ANTIstimulus, because it is paid to lenders who spend it at a slower pace than the government would spend it.

So there are 2 forms of antistimulus happening, to offset the stimulus deficits at point A.Together, these cause a greater impact than the original stimulus, which is a smaller dollar amount than the debt payback + the interest cost.

The debt theory might claim the ever-increasing deficits + other factors somehow give a greater kick or greater BUMP to the economy than the negative impact of the payback and interest cost. But that's only conjecture and not based on any real math or empirical measurement of the results, or even sound theory. There is no way to prove that the point A stimulus is greater than the point B antistimulus and the interest cost. The most reasonable guess is that the ANTIstimulus is greater because it's a higher amount in dollars paid back (antistimulus) than the amount received in stimulus from the deficits.

But continuing the deficits in perpetuity is done for the instant-gratification of the new jobs, which are always "a sure thing" at the time, so that the near future will get this extra kick to the economy, meaning more jobs for the next year or 2 or 3 than would be the case without the new stimulus.

So there's always this immediate instant-gratification benefit from each new deficit. But at the same time there is also the damage from the ANTIstimulus as well, originating from earlier deficits (5 or 10 years earlier), but which can't be eliminated, because the debt obligations are paid no matter what.

So the ultimate result from the long series of deficits is a long-term ANTIstimulus effect which offsets the many stimulus deficits, and yet the only current choice each time is to have the new stimulus or not to have it, while the earlier antistimulus is mandatory. And the overall long-term result is a net cost of trillions in interest cost and probably a net ANTIstimulus over all the years of the deficits, though it's impossible to calculate the exact impact of each stimulus and antistimulus.

Some economists pretend to know when is the right time for a new stimulus, thinking they can make these happen in a way as to create an overall net stimulus, long-term, but these economists are quacks, and there is no scientific agreement among them as to the proper timing of the deficits, and also there is no indication that the fiscal policies of Congress are determined by any scientific calculations by economists knowing what is the proper timing of the stimulus deficits.

Only a fool imagines the stimulus deficits are done according to some scientific plan which circumvents the inevitable ANTIstimulus effects from the debt paybacks at point B and the interest payments.

So the only rationale for the deficits is the instant gratification (which is the one absolute certainty) from them, and just putting off until later the long-term damage to be done.

But other phony reasons are offered for why the deficits are necessary.

Why did the US start running repeated high deficits in the 1930s? And why is it that the only deficits before 1930 were for war only, but from that point onward they've been almost always for "stimulating the economy"? or to "create jobs"? Why did this change take place beginning with Hoover-FDR, and ever since we've had to run chronic deficits, virtually every year?

We deficit spent in the '30s to combat the Depression, . . .

But why didn't we need to do this in 1921, and in 1893 and 1873, when there were Depressions also, arguably just as bad at the same early point of the economic downturns?

Each time the economy worked its way out of the depressions/recessions without the need for high government deficits. What evidence is there that the new deficit policy of the 1930s brought about any improvement over the policy of the earlier depressions/recessions? The 1930s depression/recession turned out to be the worst and longest, even though it had these deficits. How do we know the deficits didn't help cause it to turn out worse?

A proper analysis of the effect of such deficits shows that their long-term effect is negative and not positive. I.e., that its only benefit is a short-term instant-gratification result.

. . . then entered WWII when a great deal of public money was spent.

Same as earlier wars, like the Civil War which spent a great deal of public money. But then we gradually paid down that debt in the following years, including through the depression of the 1870s, instead of running up new debt like we did in the 1930s. Why was it necessary to add these new deficits, way beyond anything earlier, for non-war purposes, from the 1950s to the present, instead of keeping down the debt and just paying down the war debt in those years, as we had done prior to the 1930s?

Since then, the dollar has become the global reserve currency. So a lot of them are required.

No they're not. This is no excuse for running up these high deficits. The reason always given why we can't "balance the budget" is that it would cause a recession.

Just admit that the reason is the "jobs! jobs! jobs!" babble, and go from there. It's for short-term instant-gratification job creation, and nothing to do with the "global reserve currency" jargon.

The circulation of dollars is not the point. Those money and banking practices can still be debated as to whether they produced net benefit or net harm. Bad debt per se made people worse off, not better. Even if the Federal Reserve brought some improvements, how did the chronic deficits beginning in the 1930s improve anything?

By getting money into the hands of the public.

You're talking about massive deflation. It is only theoretical that there was a need to get more money into people's hands. But if there was such a need, it is not true that the high federal deficits were the only way to do this.

We have no reason to believe that this method didn't itself cause even worse damage later, thus undoing any benefit from getting new money into circulation. There was also deflation in the 19th century, and no high deficits were necessary to put money into circulation.

Even if some special measures to increase money were needed, new budget deficits were not necessary to accomplish it. And such need to increase money does not explain why we have continued to run high deficits ever since the 1930s, even when deflation has not been a problem.



Is it to PROMOTE PRIVATE SAVINGS that government needs to run high deficits?

Do you have figures showing that there were no private savings in the late 1990s when the gov't "taxed back" all of its spending [balanced the budget]?

I never said there were no private savings. I said that in the aggregate private financial assets diminished.

Everything goes up and down. Why should it be the government's role to choose what goes up and what goes down?

It's only a theory that deficits cause more savings, not an established economic fact. But even if there's some validity to it, it does not follow that government should artificially prop up savings above whatever level it's at. No one has proved that the private savings rate is lower than it should be, or that artificial schemes are necessary to prop it up higher, to make some theorists happy.

It's not true that citizens are clamoring for high public deficits in order that they can save more.

So in theory private savings might be pressured downward if the budget is balanced or in surplus (not a proven fact, but maybe in theory). Or rather, a deficit might induce artificially-higher savings. Even if this is granted, why is it the government's job to promote artificial savings? Obviously there's a limit to savings or to anything else, depending on conditions. Why is it necessary for government to artificially induce savings beyond the natural level dictated by the circumstances?

In your fevered mind, why does the govt exist? I think most would say it exists to serve the public interest. By and large, the public thinks saving is a good idea. So we have a system that incentivizes it.

No, the public has never demanded high deficits to incentivize savings. Or other crackpot notions. This is a theory from one or two economists whose main crusade is to promote deficits and thus find excuses why deficits might be good. Economists generally do not promote the theory that we need high public deficits in order to promote more savings.

Even if there's a slight merit to the theory, this obviously is not the reason for the high deficits, because we began the high deficits in the 1930s when this theory did not exist. We're doing these deficits today for basically the same reason as 80 years ago, and that reason is the "jobs! jobs! jobs! jobs! jobs!" impulse, and you should stop pretending it's because of some widespread clamor for more savings.

So then we agree that there is no demonstrable need for the government to manipulate something to boost the savings rate up above its natural level, and thus no need for these high deficits. There is still some savings during a time of a balanced budget or even a surplus, and there are market forces to attract lenders if the need for them is high, without the need for govt to run up deficits to artificially boost the savings rate, even if it is lower during a balanced budget period (which has not been proved, but theoretically might be the case).

There is no natural level.

The level it would be if government leaves it alone without pretending there is some level of saving which has been proved scientifically as the optimum level, or the absolute ideal level of savings which God has ordained as proper for human society.

It's a political choice - do you want citizens to save or not.

They do save, whether the government runs deficits or not. No one has proved what the perfect level of savings is supposed to be.

No citizens have held a march on Washington or City Hall to demand higher deficits in order that they can save more. What they have marched for, again and again, is "jobs! jobs! jobs!" and the politicians give them this, as a short-term quick-fix, by running up deficits, and so impress voters and make speeches claiming they saved someone's job. And they lose no votes when those jobs are eliminated 10 years later because of the ANTIstimulus caused by having to pay back the earlier debt, or when new debt is needed to keep the "jobs! jobs! jobs!" frenzy going a few years longer.

It's Wacko Economics to say it's about whether we want citizens to save or not.

It's not true that the gov't must run up chronic deficits in order for there to be private savings. There have been private savings in years when the gov't ran surpluses. If perhaps those savings were somewhat less than in the deficit years -- then so what? Who says how much exactly the private sector must save? Who are the overlord barons who presume to dictate this?

Congress.

But who are the experts/quacks/witchdoctors pretending to give Congress the scientific data proving how much the private sector must save?

It's not true that Economists or other experts are giving such scientific findings to Congress to make such decisions. This is not why Congress keeps running these deficits.

Can you find one Senator or Representative who has given a speech announcing the need for higher deficits in order to incentivize more private savings, or citing economists with scientific data proving the need for higher deficits to produce higher savings?

If you search hard enough, you can probably find a Quack saying such a thing. There are theories relating budget deficits to private savings, but it's theory only, and empirical data does not show a regular predictable pattern of it. http://philschatz.com/economics-book/contents/m48808.html (There might be a detectable irregular and unpredictable pattern of this.) And this is probably because the real effect of this, if there's merit to the theory, is too small to measure and so is irrelevant in practice.

But you can probably find one wacko congressmember who says such nonsense to try to justify higher deficits. Maybe even citing your guru Wynne Godley and his offbeat "sectoral balances" theory, which is not a part of mainstream economics.

When did Congress generally adopt this savings theory as the reason why higher deficits are necessary?

 

[Horatio Parker]

A better explanation of why deficits are necessary than I could come up with.

The trade deficit is a long-standing problem that is not easily solved: It principally arises from the world's demand for dollars. The U.S. dollar is the world's reserve currency mainly because much of the world's trade is settled in dollars, and all commodities and currencies are priced in relation to dollars. Since the world demand for dollars far exceeds the ability of the U.S. to produce enough goods and services to meet that demand, the U.S. imports far more than it exports.

[...]

We want corporations to have profits. We want households to provide for their futures. We bewail the lack of saving by U.S. households, and we call for more investment by corporations. None of these are compatible with the goal of running fiscal surpluses when there is a trade deficit — and the trade deficit cannot be eliminated without serious damage to the world financial system. Like it or not, the U.S. is stuck with its deficits.

The enormous trade deficit makes the U.S. a massive net importer of capital. And the world loves this. The U.S. government is the market leader in the provision of safe assets to the global financial system. And it is the number one provider of quality investment products for the world's savers.

I think this is a demonstration of terms of trade. Our "brand" is so valued that out most valued export is - money.

What investment fund would try to discourage people from investing in it? And what investment fund would set out to destroy its own credibility by undermining the quality of its investments? Yet the U.S. does both of these things. Deficit reduction discourages people from investing. And flirting with debt default undermines its quality.

[...]

America, you should spend the money you borrow on things that create real value. Invest in both physical and human capital. Build bridges and roads. Create the best education system in the world. Create the best healthcare system in the world. Develop new ways of capturing and storing the free abundant energy that is available to us from the sun, the wind, and the sea. Invest in technologies that will bring people long life, health, and prosperity.

http://theweek.com/articles/455261/americas-greatest-export-debt

 

[Lumpenproletariat]

No one can name a benefit gained from the national debt, which has cost trillions in interest.

Except maybe "jobs! jobs! jobs!" (in the short term). But the cost per job is vastly greater than any value.

A better explanation of why deficits are necessary than I could come up with.
http://theweek.com/articles/455261/americas-greatest-export-debt

We want corporations to have profits.

Only those that are productive. The ones which perform poorly should not have profits but should fail. So, what we want corporations to do is perform well, to be productive and serve consumers. The better they perform, the more profits they should have. It's not the profits per se which are good, but only the good performance, which in turn is rewarded with profit, to incentivize them to continue performing well.

If a corporation makes profit but does not perform well, there is something wrong with the system, and it should be corrected. Profit not caused by good performance is bad for the economy, not good. So the simplistic rule that "we want corporations to have profits" is not correct, or it states incorrectly what we want.

Stated correctly, the rule is: We want corporations to perform well, and when they achieve this, we want the market system to reward them with profits.

We want households to provide for their futures.

Perhaps, but this does not mean the government needs to run deficits. Even if there is a relation between higher public debt and higher savings by households, it does not follow from this that we need higher public debt in order to encourage higher savings by households.

And it is not an empirical fact, agreed by economists and shown by data, that higher public debt causes higher savings by households. Rather, this is a dubious theory, supported by scanty data, not very conclusive, and nothing upon which to build a policy of pumping up public debt in order to prop up savings by households.

The doctrine of "sectoral balances" promoting this theory is not generally accepted as a mainstream economics principle, but as one of many oddball theories possibly having some validity, but not totally accurate and not a basis for a policy of running deficits which otherwise are not necessary. It's only a fringe group of economists promoting this theory and demanding high deficits for such a reason.

The reason for deficits is to pay for needed government programs but not increase taxes to pay for it, and the reason to not increase taxes enough to pay for it, or to not cut the spending down enough so it could be paid for with taxes, is that this would cause a recession. It's not in order to get households to save more, which is ludicrous to offer as a reason why Congress runs high deficits.

We bewail the lack of saving by U.S. households, . . .

It's silly to say this is the reason to run high deficits. The high deficits do not necessarily inspire higher savings, unless you mean they also inspire higher spending by consumers. But the bewailing the lack of savings refers to disproportionate spending by consumers who should put more of their incomes into savings instead. I.e., "We bewail" that consumers spend so much of their income rather than saving a greater percentage of it.

What "We" want households to do is devote a greater percent of their incomes to savings rather than spending. But higher deficits cause both higher spending and saving (in theory) and do not really correct the too-little-savings problem, which is a problem of spending too much and saving too little of one's income, not a problem of needing more total money sloshing around to be spent and saved.

So "We" do not need to incentivize households to save more by running deficits, and there are no economists or legislators crusading for high deficits in order to incentivize more savings. Though you might find 1 or 2 wackos who say something like this to supplement the real reason for high deficits, which is to counteract recessions.

. . . and we call for more investment by corporations.

Only good investment. Bad investment makes the economy worse, not better. Sometimes they overinvest. So "investment" per se is not necessarily good. What we want them to do is perform better, invest better, serve consumers better, produce more efficiently, get the cost down, improve the service, improve the quality, etc. It's not more more more that we want, but better better better. Sometimes "better" actually means less of this or that, not always more.

None of these are compatible with the goal of running fiscal surpluses when there is a trade deficit —

It's only Wacko Economics which claims we can't have savings/investment during fiscal surpluses and a trade deficit. These are goofy doctrines, tying savings and budget deficit and trade deficit together, as though we have to sacrifice one in order to have another, or that one cancels out another. This is all theory only, with very little corroboration from empirical data.

Again, the trade deficit increased in the late 90s to record levels, even though there was a balanced budget and even some budget surplus during those years.

Theories about what causes reduced saving are no reason to start running unnecessary deficits, even if there is a small causal relation. Other factors also affect savings, but it's goofy to try to manipulate these up or down in order to manipulate people to save more. If more savings is needed in order to promote investment, then the interest rates to savers will increase accordingly, to attract the savings. If banks don't want to offer good interest to savers, then they must not need much from them for investing.


Why should government artificially manipulate the savings rate?

There's no reason for the Fed or Congress or other part of the government to try to manipulate individuals to save more. There is no divinely-decreed rate of savings which must be religiously maintained by the government. There is no scientifically proven rate of savings which is essential and must be propped up with artificial measures.

Rather, the government needs to pay down its war debt, and keep the debt-to-GDP ratio down to less than 50%, or near balance, in order to avoid unnecessarily high interest costs. Over the last 30 years this interest cost has totaled above 6 trillion dollars, and there is nothing worth that much which we have gained from this high cost.

Running fiscal surpluses was appropriate following the war years when debt had increased and it was necessary to pay down the war debt, which the U.S. did following every major war. No one has shown any flaw in doing this.

These were modest surpluses, not major shocks which would disrupt the economy. The recessions gradually subsided, such as in the 1870s and 1890s, and no "stimulus" deficits were needed in order to correct the bad times. Everything worked fine, with the war debt being paid down gradually over those years.

It's irrelevant how much households were saving or how much corporations were investing. It was proper to pay down that high war debt, and it would have been proper to continue paying it down in the 1930s rather than running the high deficits, and also to continue paying down the WW2 debt in the 50s and later. No one has shown otherwise.

Why was it necessary to instead run up the deficits and the national debt to the current high level? What has been gained by it? It is goofy wacko nutball nonsense to say this was necessary in order to stimulate higher savings by households. There are a thousand goofy theories what the government should do in order to manipulate us to spend our money differently or live our lives differently or find more happiness or reach higher levels of personal fulfillment or be more upright or more patriotic.

There are no experts with the competence to determine how we should live our lives or spend our money or save it or invest it. What the government needs experts for is to tell it how to get its work done more efficiently, such as the infrastructure, the national defense, etc., how to prevent sudden disaster or collapse of the economy or the banking system. Not esoteric theories about what is the best level of personal savings.

. . . and the trade deficit cannot be eliminated without serious damage to the world financial system.

There's no need to eliminate the trade deficit, other than for the U.S. to improve its production, so it can compete better in the global economy.

Like it or not, the U.S. is stuck with its deficits.

This is a religion, not economics based on anything scientific or any empirical data.

The enormous trade deficit makes the U.S. a massive net importer of capital. And the world loves this. The U.S. government is the market leader in the provision of safe assets to the global financial system. And it is the number one provider of quality investment products for the world's savers.

It's OK for the U.S. to lead in the financial industry. But this doesn't mean high public debt is good for the U.S. or the world. This high debt comes at a cost to taxpayers, and no one has named any benefit produced by this cost.

I think this is a demonstration of terms of trade. Our "brand" is so valued that our most valued export is - money.

If that means the high national debt, and the trillions in interest cost, then it's a sacrifice made by U.S. taxpayers for which there is no benefit gained in return. Why is it so difficult to identify the benefit? Why has no one here identified any benefit from it, other than Wacko Economics babble?

What investment fund would try to discourage people from investing in it?

If this means the national debt and the trillions in interest cost, what is the benefit gained from it? An investment fund produces profit for the company. What is the profit produced for the U.S. from this debt?

It's all paid back, to the bondholders, with no net profit left over for U.S. taxpayers. The only gain is the instant gratification of new borrowing, for the next few years following each new borrowing, all to be paid back later at a net loss to the "investment fund" company -- the U.S. That's the kind of "investment fund" which would go out of business, as its cost keeps outpacing its revenue.

And what investment fund would set out to destroy its own credibility by undermining the quality of its investments? Yet the U.S. does both of these things. Deficit reduction discourages people from investing.

If this makes any sense, it means the U.S. should increase its annual deficit to $4 trillion, to cover the entire federal budget. The only way to avoid this in the future would be "reduction" of its borrowing. If "reduction" is wrong now, it would also be wrong when the deficit reaches over 1 trillion, and when it reaches over 2 trillion, and over any future increased figure. If "reduction" is automatically wrong because it undermines the quality of the investments, then ANY reduction must always be wrong, no matter how high the annual deficit goes and no matter how high the annual interest payments go up. This is a blank check mandate for ever-increasing debt with no limit, repudiating any reduction of it ever.

And flirting with debt default undermines its quality.

Ultimately a default is required if this debt addiction program continues. As the obligations increase higher and higher with no limit, there has to come a point where the ones paying the cost finally demand default to put an end to it. Because they will be paying huge interest costs and getting no benefit in return for it.

America, you should spend the money you borrow on things that create real value.

It's mostly spent on paying the obligations from the earlier borrowing. All this principle is paid back, in the following years, plus interest payments, so the total payback is greater than the original principle borrowed. Ultimately, America spends LESS than it would have if it had not borrowed so much. Because the total cost down the line is higher than the original amount borrowed. This ultimate higher cost has to be subtracted from what it otherwise could have spent on real value.

Invest in both physical and human capital. Build bridges and roads. Create the best education system in the world. Create the best healthcare system in the world.

We spend LESS on all these than we would if we had not borrowed the money in the first place. It's all paid back, plus interest. All we're getting for it is instant gratification, for the few years following each new borrowing, which all has to be paid back later = net loss in the long run, net gain only as instant gratification during the years immediately after each new borrowing.

Develop new ways of capturing and storing the free abundant energy that is available to us from the sun, the wind, and the sea.

Some such innovations might appropriately be paid by borrowing, if it's new technology, or something unexpected and requiring a large immediate investment -- there can be reason in some cases to invest now and gain the benefit back in future profit, which then pays back the lenders.

But there's no sense to the borrowing unless there's to be a payback from the profits generated without needing future additional debt to repay it -- i.e., if there's no reliance on still more future debt in order to repay the initial debt. So the debt today is paid back from the proceeds generated later by the investment, thus paying for itself without further debt being necessary. And thus making it legitimate debt, ultimately paying for itself with the future benefits.

Invest in technologies that will bring people long life, health, and prosperity.

But not with unnecessary debt. And most of the national debt has not been necessary. The total resources available for the new technologies would have been greater without all this debt. The cost of the debt, the annual interest cost, has subtracted from the total wealth available for investing in the technologies and long life and health and prosperity. Just like the bridge to nowhere subtracted from the total real wealth.

Debt for the sake of debt per se, and spending just for the sake of spending per se, does not automatically produce the good new technologies, but produces waste and a net loss rather than benefit to society.

 

[ZiprHead]

 

[none]

oops, took a while.
headlines to come

 

[bilby]

No one can name a benefit gained from the national debt, which has cost trillions in interest.

Your country has a load of stuff it hasn't yet paid for.

That's always the benefit of borrowing. You get stuff now, but you don't pay for it until later on.

Seriously, if people didn't think that was a good thing, then nobody would ever go into debt.

You really haven't thought this through at all, have you?

 

[RVonse]

"Jobs! Jobs! Jobs! Jobs!"

That is the reason, isn't it?

Yes. The jobs. You are correct it is the politicians who are worried about their own jobs,.....a deficit doesnt matter to them compared to their own re-election.

 

[Cheerful Charlie]

well, here we go, we need to balance the budget
the deficit has to be cut
but how?

https://www.cbpp.org/research/feder...ts-for-the-wealthy-proposes-deep-program-cuts

By slashing spending. Social Security, Medicare, Medicaid, defunding ACA. Slashing education spending and everything else the GOP can think of that involves programs that don't serve the ultra wealthy and big corporations.