No need to worry. The US government can just confiscate more and more income and wealth to service the debt, and if that doesn’t work then there can just be a lot of inflation. Problem solved. Why should we worry? 🤔
Strong critique of the default-centric framing. The observation that recent inflation already is the fiscal event people said wasnt happening is pretty underappreciated. Markets staying calm while inflation ran up 7% doesnt mean the debt was sustainable, it means the adjstment mechanism wasn't a dramatic selloff but a repricing through the price level instead. Treating low real rates as evidence of fiscal health when they're achieved through inflation is basically validating the problem as its own solution.
It is possible, I believe, to have zero inflation. But not as long as the government is issuing trillions of dollars in new debt and paying a trillion dollars annually in interest payments.
Part two of The MAFIA paradigm describes a method and system for self-financing the national debt, which will lead to a permanent level of zero inflation:
Well, The government (as a whole, including the FED) can always fund its liabilities, because it can print dollars (Which what the FED buying bonds really means).
The issue is, of course, that real resources are finite, so too many dollars in the economy will mean inflation, unless the economy grows in the same rate.
Selling Bonds really means selling claims for future dollars for dollars now. When yields rise, it means the gov can suck less dollars now for more dollars later. So later, the Gov would have to push more dollars into the economy, which will raise inflation unless it sucks even more dollars.
Eventually, the Gov would have to raise Taxes, reduce expenditures or suffer inflation.
Everything went wrong in 2000 with the election of Bush/Cheney. Even Greenspan in his 2007 book pinned a lot of blame on the 2001/03 tax cuts which iirc for the first time in history yielded lower revenue than preceding years in a time of strong economic growth. Oh, and the Bush recovery was jobless because we were hemorrhaging manufacturing jobs to China! Just such a wasted opportunity when the first boomers were turning 65 in 2011 and si we needed a surplus in those years.
Hmmm - no taxes are not fines, taxes are fees (revenue) for services rendered: police and military protection; roads and jails and schools and hospitals etc
Well, that's an expenditure issue, not a revenue issue.
Taxes are not voluntary exchanges. They are impositions, fines and penalties, placed upon varied economic activity. There is no method of charging one directly for services rendered by Govt. to that person, as Walmart does to its customers for goods selected.
And taxes fund a lot of worthless public expenditures. About 80 to 85% of such expenditures go to waste. So what do we call the taxes forced out of taxpayers' hands to pay for such gargantuan squander?
So on the one hand, I’m with your general concerns.
But IMO you are at least partly mischaracterizing Tyler’s arguments.
[And to be clear, it is Tyler with whom you are disagreeing; Alex is clearly on your side.]
Tyler’s point isn’t that there’s no problem at all with the current deficits and debt, it’s that they are unlikely to be catastrophically bad, and that they are very unlikely to cause a major fall in bond or stock prices any time soon.
He didn’t suggest there is nothing at all wrong with them, and at least once acknowledged your point that they will likely lead to lower growth and other suboptimal economic results than if we didn’t have them. He just said that catastrophists are likely wrong, and imminent catastrophists are almost surely wrong.
And you pretty much agree with him re: the short term.
“But the deeper fallacy is conceptual: private wealth is not federal fiscal capacity. The government cannot and will not confiscate private assets to fund its promises.”
Here you grossly mischaracterize his argument. His point is that there will very likely be sufficient wealth to support higher future taxes. Economic growth will deliver that, and AI is likely to increase economic growth at least a bit for the foreseeable future.
Another of his points is that the resultant inflation we are very likely to get will be a higher tax on capital (since capital gains taxes are not indexed for inflation).
My point in this comment is that your views are not as far apart from Tyler’s as you are claiming.
And your *normative* views imo are barely different at all.
You are objecting to his *positive* views re: what is, and what is likely to be.
And I confess on that point I am probably somewhere between him and yourselves.
As someone worried about his retirement portfolio and what to do with it, Tyler’s positive arguments do indeed provide me some comfort. (Although everyone’s points argue against holding nominal long term bonds; I hold none of those.) His assertion is that the most likely result by far is “muddle through”, with some small possibility that you will be correct about a crisis.
As someone who would like the best for our nation and our children and grandchildren over the long haul, yes, I would far prefer that your normative views triumph.
No need to worry. The US government can just confiscate more and more income and wealth to service the debt, and if that doesn’t work then there can just be a lot of inflation. Problem solved. Why should we worry? 🤔
Strong critique of the default-centric framing. The observation that recent inflation already is the fiscal event people said wasnt happening is pretty underappreciated. Markets staying calm while inflation ran up 7% doesnt mean the debt was sustainable, it means the adjstment mechanism wasn't a dramatic selloff but a repricing through the price level instead. Treating low real rates as evidence of fiscal health when they're achieved through inflation is basically validating the problem as its own solution.
It is possible, I believe, to have zero inflation. But not as long as the government is issuing trillions of dollars in new debt and paying a trillion dollars annually in interest payments.
Part two of The MAFIA paradigm describes a method and system for self-financing the national debt, which will lead to a permanent level of zero inflation:
https://www.amazon.com/dp/B0FSZ2QMKV
Well, The government (as a whole, including the FED) can always fund its liabilities, because it can print dollars (Which what the FED buying bonds really means).
The issue is, of course, that real resources are finite, so too many dollars in the economy will mean inflation, unless the economy grows in the same rate.
Selling Bonds really means selling claims for future dollars for dollars now. When yields rise, it means the gov can suck less dollars now for more dollars later. So later, the Gov would have to push more dollars into the economy, which will raise inflation unless it sucks even more dollars.
Eventually, the Gov would have to raise Taxes, reduce expenditures or suffer inflation.
Everything went wrong in 2000 with the election of Bush/Cheney. Even Greenspan in his 2007 book pinned a lot of blame on the 2001/03 tax cuts which iirc for the first time in history yielded lower revenue than preceding years in a time of strong economic growth. Oh, and the Bush recovery was jobless because we were hemorrhaging manufacturing jobs to China! Just such a wasted opportunity when the first boomers were turning 65 in 2011 and si we needed a surplus in those years.
Hello Veronique and Jack,
You both continue to work on a bad premise in Public Finance to support this erroneous reasoning.
Government has no 'revenues'. Taxes are fines and penalties levied against worthy economic activity. To construe taxes as revenues is absurd.
The Deficit is not the borrowed portion of Public expenditures, but the whole of it.
As government has no money or rather resources, is it better that tax or borrow from those that do: that is from the combined assets of those that do?
The answer is borrow and always. Get your heads out of the medieval morass that so impedes your thinking.
I am more than happy to debate any person that continues to cleave to these obsolete ideas on Taxation and Public Debt.
Get out of Plato's cave and see the light!
Hmmm - no taxes are not fines, taxes are fees (revenue) for services rendered: police and military protection; roads and jails and schools and hospitals etc
And taxpayers still fund all of govt. Now is it better to tax the assets, property and incomes of resident citizens, or borrow from them?
The answer is borrow and always!!!
Well, that's an expenditure issue, not a revenue issue.
Taxes are not voluntary exchanges. They are impositions, fines and penalties, placed upon varied economic activity. There is no method of charging one directly for services rendered by Govt. to that person, as Walmart does to its customers for goods selected.
And taxes fund a lot of worthless public expenditures. About 80 to 85% of such expenditures go to waste. So what do we call the taxes forced out of taxpayers' hands to pay for such gargantuan squander?
So on the one hand, I’m with your general concerns.
But IMO you are at least partly mischaracterizing Tyler’s arguments.
[And to be clear, it is Tyler with whom you are disagreeing; Alex is clearly on your side.]
Tyler’s point isn’t that there’s no problem at all with the current deficits and debt, it’s that they are unlikely to be catastrophically bad, and that they are very unlikely to cause a major fall in bond or stock prices any time soon.
He didn’t suggest there is nothing at all wrong with them, and at least once acknowledged your point that they will likely lead to lower growth and other suboptimal economic results than if we didn’t have them. He just said that catastrophists are likely wrong, and imminent catastrophists are almost surely wrong.
And you pretty much agree with him re: the short term.
“But the deeper fallacy is conceptual: private wealth is not federal fiscal capacity. The government cannot and will not confiscate private assets to fund its promises.”
Here you grossly mischaracterize his argument. His point is that there will very likely be sufficient wealth to support higher future taxes. Economic growth will deliver that, and AI is likely to increase economic growth at least a bit for the foreseeable future.
Another of his points is that the resultant inflation we are very likely to get will be a higher tax on capital (since capital gains taxes are not indexed for inflation).
My point in this comment is that your views are not as far apart from Tyler’s as you are claiming.
And your *normative* views imo are barely different at all.
You are objecting to his *positive* views re: what is, and what is likely to be.
And I confess on that point I am probably somewhere between him and yourselves.
As someone worried about his retirement portfolio and what to do with it, Tyler’s positive arguments do indeed provide me some comfort. (Although everyone’s points argue against holding nominal long term bonds; I hold none of those.) His assertion is that the most likely result by far is “muddle through”, with some small possibility that you will be correct about a crisis.
As someone who would like the best for our nation and our children and grandchildren over the long haul, yes, I would far prefer that your normative views triumph.
Though I fear that they will not.