Also for the record, there are a bunch of problems in the Graeber piece that I don't have the energy to disentangle right now, though it was nice to see a contrary voice in the wilderness of debt hysterics.
On Tue, Apr 26, 2011 at 3:06 PM, Jim Devine <[email protected]> wrote: > David B. Shemano suggests that "public debt" approaching 100% of GDP > is a problem. > > It really shouldn't be called the "public debt," since it's a matter > of the government ("the public sector") owing money to the "public" > (i.e., people outside the government). > > In those terms, we can turn the statement around: is it a "problem" > that the people outside of the government hold so many of what might > be the safest assets on earth (US Treasury bills, notes, and bonds) > that it approximates 100% of current production? After all, one thing > that kept the US economy from plummeting back into Depression after > World War II was that the broadly-defined middle class had wealth for > the time in US history. This was before the rise of middle-class home > ownership. Instead, it was a matter of people holding a bunch of War > Bonds, so that they didn't cut spending much as the economy sank. > > By the way, after World War II, the government's debt exceeded 100% of > GDP but many people now point to the 1950s and 1960s as the "Golden > Age" of economic growth. Somehow the economy wasn't pulled down by all > that debt. Maybe people should study economics to find out why. > > Of course, it's the _distribution_ of the ownership of the > government's debt that is a problem. Most of the government's debt is > owed to rich people. As some congresscritter once said, we used to tax > the rich, but now we borrow from them -- and pay them interest. The > rise of those interest payments mean that either taxes have to be > raised or programs cut in order to allow some sort of budget balance > (or to keep government debt from rising relative to GDP). Of course, > the rise of the government debt to rich folks reinforces the general > trend toward greater inequality of incomes and wealth since the 1970s. > > And maybe half of the US government's debt is owed to people outside > of the country. Just as with private debt to the rest of the world, > this means that the US has to produce extra GDP in order to pay the > interest on the external debt. This doesn't seem to be a big problem, > however, since the US GDP is so large. > > David also responds to David Graeber > Graeber: >> "1. The U.S. government can charge its employer (the > taxpayer) pretty much anything it wants to."<< > > > Other than democracy, human nature and public choice theory tell us that > the people are willing to borrow and spend but not tax themselves, so no, > the US government cannot collect whatever taxes it wants.< > > One thing I've found out over the years is that appeals to "human > nature" are usually a form of obfuscation, since the concept is seldom > defined. But here, in contrast, that concept _is_ defined, since David > invokes so-called Public Choice theory. (This is the the ML > politically-motivated version of the use of economics to describe > politics introduced by James Buchanan, Gordon Tullock, _et al_, not > the more sophisticated theories of Arrow and others.) In the PC > theory, people are assumed to be narrow-minded, short-sighted, and > greedy, so that democratic politics _always_ produces bad results. > (Somehow, according to PC theory, this kind of mentality doesn't > produce bad results in markets, but ignore that inconsistency here.) > > Usually, invocations of "human nature" involve elitism and > paternalism, the negative image of "human nature" only applies to > those of us who are part of the unwashed masses. Here, in contrast, > this unflattering picture of humanity applies best to the GOPsters and > Teabaggers that David sympathizes with (if I understand his position > correctly). It is those folks who are totally dogmatic about not > raising taxes -- because that involves taxing themselves. It's those > folks who have formed the political base for Bush #2's reintroduction > of government deficits into US economic life, by pushing for tax cuts > for the rich and increased military spending. Since Reagan took office > back in 1981, it's been the GOP that's been the party of borrow and > spend (including tax expenditures). (Bush #1 was a minor exception, > leading to his being punished by his Party for reneging on his "no new > taxes" pledge.) It's the GOPsters and Teabaggers who have also blocked > increases in taxes which would solve California's fiscal crisis. > > On the other hand, the DP has been pretty good at avoiding fitting > Public Choice theory's ugly image of human nature. The Clinton > administration raised taxes and eventually ran government surpluses > (events that are impossible according to Buchanan's theory, as i > understand it). Alan Greenspan, who also seems to fit with the PC > image of humanity, was alarmed and wanted to stop the decline of the > government's debt. > > Obama's deficits, on the other hand, make sense. Some of them (maybe > half) are like the rising deficits at the end of #2's administration, > i.e., due to the collapse of the private sector into the Great > Recession (which automatically lowered tax revenues and boosted > transfer payments). The other deficits were part of an effort to save > private business's bacon via Keynesian stimulus. This was partly > successful, in that it prevented the Great Recession from becoming > much more serious. It wasn't enough, of course. But it made sense, > unlike the "help my rich friends" and "let's get revenge on Saddam" > policies of #2, which had no positive economic effect that I can see. > ... > > >> "3. When households owe money to other people, they can't just print it. > The government can. . . . The only real limit is the danger of inflation: If > we flood the economy with too many dollars, the dollar itself might begin to > lose its value. This is the scare story the deficit hawks always trundle > out. The irony is that at the moment we have exactly the opposite problem: > Not enough money is circulating, so the Fed right now is printing dollars > with reckless abandon."<< > > > How does Graeber, or the Federal Reserve, "know" not enough money is > circulating? [the prices of] Commodities from gold to oil to food have > skyrocketed.< > > Of course, that's not inflation in the meaning that economists attach > to the word. But no matter. The Fed has a lot of good measures of the > money supply and knows a lot about the limits on their rates of > increase to avoid true inflation. One of their better practices is to > look at the true inflation rate, especially the "core" rate, which > leaves out volatile prices to get some idea of the long-run > inflationary tendency. Though the core rate is up since the 2010, its > long-term trend has been downward since the 1970s. (It's no surprise, > of course, since the Fed and finance capital in general has been in > the policy-making saddle -- and they typically care much more about > inflation than about unemployment.) > > > The Fed seems fixed on (1) housing prices and (2) job growth, because > apparently the Fed is reliant on the position papers prepared by the > National Association of Realtors and Homebuilders that the economy will > collapse if we don't do everything to reignite the housing bubble, build > homes people can't afford and ensure that people use their homes as ATMs. > ... < > > I don't think that the Fed is that concerned with those issues. It's > mostly a matter of the fact that the financial sector got itself into > Deepest Yoghurt by (1) successfully begging the Fed and other > regulators to let them do what they wanted to do and (2) pushing to > make sure that they were bailed out when things went wrong. > Unfortunately, the rest of us suffer when those financiers and > bankstas go broke in droves (cf. the Great Recession). So (along with > the TARP) the Fed has given a lot of loans to them (and has taken over > a lot of their toxic assets). They also are quite concerned about the > current refusal of banks to lend (cf. the ratio of excess reserves to > checkable deposits, which used to be one-tenth of 1% and is now 100% > or so). > > There has some effort -- along with those of the elected politicians > -- to keep housing prices from falling too quickly (which was backed > not only by realtors and home-builders but also homeowners -- perhaps > even by a majority of the population). It makes some sense. With 401k > accounts in bad shape and home prices falling, a second recession is > encouraged (via the famous wealth effect). That kind of event seems > unduly unpleasant when official unemployment is about 9%. The concern > with job growth is valid. After all, giving into the screeching of the > inflation hawks in a period when inflation is minimal would make > people's lives much worse. > > Usually the Fed subordinates its concern with full employment to that > of avoiding inflation. Today, with the job situation so dire and the > financial system still very wobbly, it makes sense even to the bankers > and bank-friendly economists -- those powerful non-elected politicians > -- at the Fed to care more about employment growth. (But I can't see > how anyone can see the Fed as "soft on inflation.") > -- > Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own > way and let people talk.) -- Karl, paraphrasing Dante. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l >
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