Just caught this on Instapundit:
WHO OWNS THE DEBT-CEILING ISSUE AGAIN? “Of the $14.3 trillion debt ceiling we have now, $4.5 trillion got added by Democrat-controlled Congresses since taking control in 2007. That corresponds exactly with the expansion in spending by Democratic Congresses over the same period.”
The debt-ceiling drama is rife with tragic ironies. I noted one the other day: as overspending and “stimulus” have been a drag on the economy these last three years (starting with Bush 2008) and prevented recovery, so spending cuts / the end of “stimulus” may restore the confidence of the nation’s job creators and help the economy. In other words, the Democrats are dead-set against the very thing that may save Obama’s presidency.
Here is another. The debt-ceiling drama means, or reveals, that U.S. government debt has become nothing but a Ponzi scheme. It is also a phony crisis.
Think of the debt ceiling as a credit card limit. The right thing would be for the limit not to be raised – at all. It would force you to live within your means. Living within your means would restore your solvency and hence, it would restore real confidence in your prospects. (Note that the U.S. budget does not require agencies to spend X amount, it only authorizes them to. The Executive branch can simply not spend, if it wants – thus living within its means, its tax revenues. If salaries or other contracts are a problem, it could go back to Congress for legal authority to change those.)
“Oh but what if they decide to not spend on debt service payments? That would mean we are in default!” – Well, yeah. First of all, note that defaulting – i.e., choosing your debt service payments as the particular thing that you are going to not spend on – is a choice. The government has plenty of tax revenue coming in, far more than what is needed to service the debt and so avoid default. Even if the debt ceiling isn’t raised, default is still an optional choice on the part of the Executive branch.
The Democrats, in other words, have *entirely chosen* to gin up a default crisis; presumably to pressure the Republicans into betraying the Tea Party and passing the tax increases that the Democrats secretly lust after, like a fever in their loins.
But let’s accept the argument. Let’s just assume that, no, the government can’t afford to drop a penny of its other spending and so, without a debt ceiling increase – that is, without MORE BORROWING – the government MUST drop its debt-service spending, thus going into default. Fine. At this point, we have increased borrowing, just to avoid default. Borrowing from creditor A, just to pay creditor B.
In other words: *taking investor A’s money because it is needed for payment to investor B, for purposes of deceiving B and the world into thinking that the investment is somehow still good*. That is a Ponzi scheme.
If the Democrats’ argument is correct – if it is true that failure to raise the debt ceiling, i.e., failure to let the government BORROW MORE – is going to push the U.S. into default, then no one should want to lend us money ever again. Because it would mean that we are truly insolvent; truly incapable of paying back our debt, except in newly-printed (i.e. rapidly becoming worthless) funny-money.
Hi ILC,
Some questions for you:
So, is the choice then to choose to “default” on other obligations, right, like wages, contract payments, subsidies, social security cheques, etc?
Using your implicit model of the US economy being a household, would it also be true that if an household went insolvent, people would never lend money to a bankrupt? But, people come out of bankruptcy, and they get credit again. So, why do you think the US is “truly insolvent” and what would that mean in a country that has the productive capacity that this one does? You appear to think that the US would never leave bankruptcy. Why? I note that other countries have been in default in the past, and they have rebounded from the experience, so why not the US?
Hi Dan,
As I remember, at the time, the President was a Republican; and large numbers of Republicans voted for the TARP bailouts and stimulus spending in large numbers. And let us not forget the large on-going costs of two wars…
Are you saying, Dan, that if there had been a Republican dominated Congress that they would not have voted for this increase in spending and that everything would have been hunky-dory? After all, that would be the same mob that voted for Medicare D, right, and rapidly increased debt themselves? Maybe they would have offered a majority of tax cuts in the emergency? Given such an approach would lead to large deficits as well (since B = T – G), how would this be supporting your implicit critique?
Cas, do you ever read what I actually write? Question was anticipated and answered in the parenthetical to the second paragraph of #1.
Did I suggest that? I believe that I may have predicated it on the Dramacrat premise (which is debatable, for reasons I gave in point of my comment) that failure to raise the debt ceiling necessarily means a debt default. Why, yes I did:
With that in mind, quoting a couple definitions may be appropriate here. Meditating on those definitions, plus what I actually wrote, should provide answers to your above type of question about what I wrote. First, the definition of “if”:
And next, that of “insolvent”:
I did make a mistake in my topic sentence, which I considered correcting in a follow-up comment. I may as well take this opportunity to correct it, for the record. I intended this:
“Either, that, or…” instead of “It is also…” You could logically argue that it can’t be both at one and the same time, and I misspoke, in suggesting that it could. Either the crisis is a sham, gussied up by the Democrats… OR, if their premises are correct, then the crisis is far worse than they’ve begun to admit, because U.S. debt financing has become a de facto Ponzi scheme.
Further to this:
You appear to believe that if the U.S. is insolvent, it can simply tax its way out. Such a belief would fit with something I’ve noticed from your comments before: in your world, the economy is – which means, the People are – a thing to be milked, a wonderful super-bush owned by the State, and upon which tax revenues grow for the State to pick at any time. The view is common among leftists. It ignores both the immorality of taxation (since the People in fact are the owners of the State, and not a thing to be milked), and the dynamic effect of taxation in undermining or even destroying the thing taxed.
(i.e., if the U.S. is unable to pay its debt on the revenues we have today)
I must say, ILC, I am simply awed by your entire post. Good work, sir. Good work, indeed.
You have managed to lay out, factually, and absent any partisan bullshit, the present debt crisis.
If you ever find yourself in Chicago, sir, look me up. I owe you a few martinis and a steak.
Eric, don’t know when I will collect on that, but I want to! Likewise if you get to the Bay Area!
In that case, we’re going to the Crab House! 🙂
Hi ILC,
If life were so simple… In your world, ILC, every thing appears pretty much black and white. Given where we are now, you believe: Our debt problems cannot be helped by tax rises because they will kill incentives for business, etc. So insolvency can not be solved in that manner. The only way is expenditure cuts. Might it be possible that one could include an excluded middle–that some tax raises might actually help the economy? In your world, this is not possible–as your post makes clear. But, I do not see it that way. For all the arguments and counter-factuals, it is clear that this country had higher tax rates in the past and did not fall into ruin–in fact it actually had a budget surplus and strong positive growth–well fancy that! As such, it was an application of Keynesian theory. But your view is pretty common on the right.
As for whether it is a phony crisis–I agree–it is. If Repubs had decided to have this fight as part of the normal budget process, then, I would be more sanguine. They could have horse-traded this thing over the usual process–and gotten a pretty good deal–after all, they control the power of the purse. It is not at all clear to me why Repubs had to threaten this manoevure. It is clear that Obama is partial to their approach anyway. Instead, they decide to do something that has never been done before, and create this crisis. And now, it has come back to bite them in the butt.
Not exactly, but seeing as it comes from a leftist like yourself Cas, I will take it as a compliment, or badge of honor.
For small business owners in particular. And not just the incentives, but the actual capital. You literally can’t found a business or create jobs, if the government took your money for it. Finally, individual incentives to work are also affected negatively by higher taxes; picture some people figuring they may as well drop out of the work force. No more tax revenue to be had there.
If you believe that, name them.
Apparently you are unfamiliar with the Great Depression, which was created / dragged out so long, in part because Hoover jacked up the top tax rate from 25% to 63%. Then Roosevelt jacked it up to 79%.
And apparently you are unfamiliar with multivariate causality and as well, the concept of equilibrium. It is not that jacking up tax rates instantly forces economic activity to zero (one reasonable definition of your word, “ruin”). But it shifts the equilibrium point; it makes economic activity less than it would be, holding other things equal.
And you must be exceedingly careful when you compare periods where other economic factors are *not* equal. Yes, maybe we had a higher top income tax rate in the 1990s. But other things were not equal. *GOVERNMENT SPENDING WAS FAR LOWER*, less than half as much in nominal terms and less than 2/3 as much in CPI-adjusted terms. That, alone, accounts for the fact that the government budget was in balance.
Furthermore, employers back then were not burdened with ObamaCare and the many other job-destroying regulations and uncertainties (threats of possible regulation) with which Obama has burdened today’s job creators. I have said before, Cas, that higher tax rates might have no net-negative economic effect… *IF* they would be combined with a repeal of Obama’s other job-destroying policies. Heck, I even said it to you. And in a fairly recent discussion. Apparently, you are too careless to recall. Or perhaps you were too busy smelling your own left-wing farts at the time, to have noticed it.
Then perhaps, Cas, the following quotation will ring a bell with you – maybe even have an impact:
Senator Obama said it, when He voted against the debt ceiling increase of 2006.
From Tuesday – Obama drives a coal miner owner to give up, destroying at least 100 jobs in the process: http://lonelyconservative.com/2011/07/coal-mine-owner-declares-im-just-quitting-at-environmental-justice-meeting/
WTF is wrong with Obama? It’s not like we don’t need the product (coal). If only to sell it to China or someone.
(correction – I should have written “Obanomics”; I meant Obama’s ideas or Obama’s kind of world; not to suggest that Obama was personally connected with that mine owner)
Hat tip to Hugh Hewitt, in last week’s WSJ we have economist John Taylor saying it well (Cas, not for your eyes – this won’t matter to you):
RTWT.
Nicely done, ILC.
And I will simply add this; since Cas wants to invoke history, let him and his Obama Party call for the 70% tax rates that they insist will create prosperity.
And if Cas refuses to call for them, let him explain the reasons — at which point, he will choke and go running away, because said reasons contradict everything that he has been stating about the “value” of tax increases.
Hi ILC,
If you quote Obama, I can quote Reagan arguing against Congress using such a tactic when he was President. It ain’t pretty.
As for multivariate causality–I agree that care is needed. I did not know that the word “ruin” equaled zero economic activity. I would have accepted a good old-fashion “recession.” I’ll keepp it in mind.
Sure; but notice that real GDP is higher as well. I am not sure when you take your figures from (I used http://www.ers.usda.gov/data/macroeconomics/Data/HistoricalRealGDPValues.xls, though linking it didn’t get me to the page, found through Google), but if 2001-2010 compared, real GDP is 16% higher. If 1993-2010, then real GDP is 54% higher. So, in the middle…? So, I guess we would expect government spending to be higher in absolute terms as well, right? But notice–hmm, Repubs want to lower expenditures (and so does Obama) just like the 90s. But Obama wants higher taxation, just like the 1990s. Its a game, I agree–they are different times. However, there is no prima facie reason to argue that because it is a different time, higher taxation would be a cause of recession to the economy. On your reading, one could counter-argue that since the times are different from the 90s–we need to increase expenditures and lower taxes (parts of Reagan); or perhaps, raise expenditures and raise taxes (WWII). What is important is the analysis we bring to bear on the question–and as you and I both agree, we do not see things the same way.
As for good taxrevenues: Raise marginal levels (Clinton levels; even late Reagan levels…). Get rid of subsidies (oil, home mortgage interest–at the very least on 2nd+ homes, ethanol, etc). Use some of these revenues to increase expenditures in human and physical capital. Use some to retire some debt.
As for that term “job creator”–its an interesting term; I have heard used as part of the framing for the “plight” of the wealthy. An entrepreneur makes a profit, and hires more people. But the entrepreneur does not do this alone. There are workers. And their industry helps create the product that gets the profit. In a way, they are job-creators as well–since without them, the owner doesn’t make a profit–or much of anything at all. Why not use the term “product-creators”? You need capital and labour, entrepreneurship and resources. An economy needs all of those things and needs to treat them all with respect. Its a mighty unstable table if one of those legs is 9+% missing…
I just realized something.
To the trolls, President Bush had everything to do with the deficit on Obama’s watch, while he had nothing to do with bagging bin Laden.
So what? “Anything but to the purpose.” Again, the concept of multivariate causality seems to escape you: other things are not remotely equal, Reagan’s spending not approaching Obama’s insanity but by a fraction.
LOL 🙂 Lamer and lamer. Is it two-thirds higher? And is it headed in the right direction? Answers: No and no. In fact, the government released a downward revision of GDP of first-quarter GDP, from 1.9% to 0.4%: http://hotair.com/archives/2011/07/29/q2-gdp-falls-to-1-3/
And anyway, there you go again, treating the People as a wonderful super-bush upon which grow revenues for the State (the People’s owner) to pick as it pleases. Let me guess: you’re not American, right? Maybe British? In the American Revolution, it was established that the People are the State’s owner, and the State is to interfere with them as little as humanly possible. Even if it were true that real GDP were 2/3 higher than in 2000, Obama’s expansion of the State would still be morally wrong.
Yes there is. I already gave the reasons, but you don’t want to believe it. Yet a further reason (or piece of evidence) is that Bush’s tax cuts *did raise revenues* in just a few years, which is prima facie evidence of which part of the Laffer Curve we were/are on (i.e., the wrong part). But you don’t want to hear that, either.
I see the game, the national-socialist tax-raising game. First, pass a tax increase on the grounds that it does not matter because we have so many breaks/exemptions written into it. Then, eliminate those same breaks/exemptions on the grounds that they distort the economy, and the economic would be less inefficient with a simpler tax structure. But never, never lower the rates.
Evil.
You go ahead and do that. The economy is, after all, production and trade. Whether you call them job creators or product creators, you are rightly highlighting their importance to the economy.
P.S. To be clear: Another way you could get rid of tax breaks (make the code and the economy more efficient) is, in fact, by lowering rates. Or by abolishing the tax. A mortgage interest deduction makes far less difference when you are facing an income tax rate of 0% or 10%, than when you are facing one of 40%. But in the national-socialist way of doing things, lowering rates is the option one must never validate nor even discuss.
Hi ILC,
This isn’t even aimed at the point I was making–oh well.
Let me amend my point, ILC: You look at the range 1993-2008–before the worst recession since the Great Depression, then you see Government spending at around 20% of GDP. That happens to be what it was in 1996 (in 93, it was 21.4%. It was higher in GHBush’s term). So, in combating this recession, in 2010 est sits at 25% and change. In 1996 receipts were 18.8% (in ’93 they were 17.5%. In 2010, they were est. to 14.8%. OK. You complain about short term spending–that is what it is; but you say nothing about that huge sucking sound of declining revenues below historical norms.So, as much as you deride the Fed Gov’t higher spending beyond historical norms, you have nothing to say about the revenue slide. I understand why–you think that receipts are bad news beyond some minimum point. Yet, the debt issue you decry is made up of two aspects–spending AND receipts, not just one side.
Out of curiosity, what level of fed gov’t receipts–as a % of GDP do you think is appropriate, given the historical level of somewhere between 18-20% of GDP? I mean, what is the appropriate level given we are at around 15% right now?
Actually, you don’t. Raise rates AND get rid of the subsidies at the same time. No two stage.
Then you would have to accept that the lower taxes led to the rampant speculation that tanked the economy a few years later then, since that also happened a few years later as well… I think that is a crappy argument I just made, ILC, because it keeps with the same one-track (uni-variate) approach you have on the efficacy of tax cuts. However, let me say this–you want to look at 2006. Good–revenues went up. However, these tax cuts were touted to have immediate impact–right? But they didn’t. We lost revenue. If you want to own the glory of 2005-7 for example, you will have to own the not so glorious years prior to this when tax rates were cut, and receipts went down. According to your version of the Laffer Curve, that shouldn’t have happened–since we would be on the right side of it (by your assumption)–and revenues should have gone up as taxes went down. But they didn’t. Of course, feel free to chuck in some ad-hoc assumption(s) to make it all come out all right. So, please excuse me if I do not share your obvious enthusiasm for Bush’s tax-cuts. I am also even less enthusiastic, when I see that the make-up of those tax receipts were weighted more and more heavily towards employment taxes as the years have gone by, but that is another issue.
Are you suggesting that I follow the ideology or playbook of the NSDAP, ILC, or is this some pun you are enjoying? Could you please clarify?
It was: you simply chose, as usual, not to comprehend me.
And, in such dire circumstances, you think that job- and capital-destroying tax increases are just the thing to get us past that?
None. I don’t mean zero; I mean no fixed level. The question implies that there is, or should be, some percentage of the People’s income to which government is morally and functionally entitled. As such, it betrays your persistent underlying premise that the People are the government’s property, a wonderful super-bush upon which grow revenues for the government to harvest. I reject that premise. You wish I didn’t. You wish I would concede it in some form, at which point I would be reduced to dickering with you over the percentage number. But I don’t.
The only legitimate functions of government – the only purposes which morally justify its existence as a territorial monopoly on the use of physical force, able to levy taxes by force for its own maintenance – are: police, courts and military dedicated to the impartial protection of individual rights to life, liberty and property. I don’t know if that means 1%, 3%, 5% or 10% of GDP because it has been so long since America had such a properly limited government. I do know that *any* percentage of GDP that the may government take for *other* purposes is morally illegitimate.
No, because they didn’t: artificially low interest rates did that, from the central planning agency known as the Federal Reserve. Interest rates, more than taxes, are the strongest influence on the *quality* of capital allocation/use. As I already stated, the greatest injury from high taxes is that they destroy capital as such, or prevent capital formation.
The housing bubble was caused by many things: the CRA and other regulations under which the government basically ordered the banking system to make sub-prime loans; Fannie and Freddie which created an artifical market for securitized sub-prime loans; the incomplete repeal of Glass-Steagall which left bank insurance in place, artificially socializing the banks’ risks, while allowing them to speculate and over-leverage; etc. But more than anything else, the housing bubble was driven by the Federal Reserve’s 1% interest rates. Take this as a prediction: its current 0% interest rates are going to end no better, in fact, they are going to end in an even more devastating crash of an even stupider bubble.
Really? By whom? When? Citation, please. Not by me, I’ll tell you that.
Who would ever claim that lower rates result in **immediate** higher receipts? For starters, you’d have to define “immediate” (a minute? A day? A week? A month? A quarter? A year? Three years?) because all human activity, including economic growth, takes some amount of time.
Wait a minute – you’re just blazing your own straw man. I get it now.
Well then: all the more, to my point. I was trying to give you at least a fig leaf of credit, but you don’t want it. No problem.
Socialism in the broad sense is any system where the means of production are State-controlled or State-directed. Socialism in the strict sense is a system where the means of production are literally State-owned. Socialism in the strict sense contrasts (as but a different species of the larger genus, “socialism in the broad sense”) with national socialism or fascism, in which the means of production are nominally private-owned, but are nonetheless expropriated by the State at will, and are otherwise (i.e., when not expropriated) controlled or directed by State pressure. Most Democrats and American so-called “liberals” or “progressives” are fascists in that sense. The NSDAP was a different expression of the fascist impulse, a uniquely racist expression. Whether your views correspond more strictly to the NSDAP or to American “liberal” fascism, is for you to decide. I only point out the overlap between them: the core similarity in treatment of property rights and other economic matters; the underlying key attitude that individuals exist to benefit the State.
(“Most Democrats and American so-called ‘liberals’ or ‘progressives’ are fascists in that sense” – i.e., advocates of the economic and socio-political model of fascism, whether or not they are able to admit it or even recognize it)
Hi ILC,
Golly,
It is amazing to me to be considered (by various commentators on this site) both a member of the left (socialism) and extreme right (fascism). Thank you. You made my day! I love that movement , especially the “forced appropriation.” Sends shivers down my spine, you anarcho-capitalist, you….
You will of course pardon me for thinking that your intellectually pure position is very convenient. After all, how intellectually convenient is it for one to always be able to rail against the level of government expenditures and taxation in this country, whilst always being able to stand on the “non-stand” you take. You have an example of an hermeneutically closed system of thought. Another example of this was this claim:
How coy, once again. Well, Repub politicians, the Heritage Foundation, etc, claimed that receipts would go up–very quickly. As for “immediate” let us take a one year hiatus, shall we? Even so, for example: the Heritage Foundation makes it quite clear that 2002 was to be the start of higher revenues. But it didn’t happen. For three years. For you, the fact that it did eventually happen, is cause for you to say: “See. it DID work!’ That is a pretty clear cut case of univariate causation, if ever there was one. Perhaps there were other reasons for why revenues went up? Perhaps that overheating economy and near zero effective interest rates, and all the other stuff that was helping to fuel a speculative bubble of spectacular proportions may have had something to do with all that increased revenue…no?
So, ILC, let me ask you this: What time frame do you think is appropriate for thinking about the beneficial effects of tax cuts to kick in, since you do believe that we are on the right side of the Laffer Curve? Because, if you wave your arms and say–“all human activity, including economic growth, takes some amount of time” that can only be more evidence that you don’t have a testable proposition, mate. If it takes five years–well, that is the amount of time. If a year and a bit, well, that was the required amount of time… So, what is your time horizon?
Another example–hyperinflation. When we started down this path back in 2008 and on, with QE1, QE2, etc, many predicted hyperinflationary doom. 2010 was supposed to be the year. It wasn’t. I accept that you never predicted a year when it would happen–only that it would happen. So, when is this event supposed to happen, ILC? We have had our conversation about this earlier this year, concerning what you see as the inevitable hyperinflationary spiral that higher resource prices was pointing us towards. So, when? Give me a testable proposition. When will we see it? The last prediction that some financial gurus made was 2010. What about you? Or will you just suggest that it will happen–just at some indeterminate point in the future? Again, a univariate sense of causation…
In essence, ILC, you have an apparently religious economic position that can not be ever falsified.
I would not be so quick to give me that, ILC. Just to complexify the picture with regards to “product-creators” and “job creators.” If you include workers in the mix, then it makes a big difference. After all, the majority of people fit in that category. And it might surprise the successful entrepreneurs or “wealthy job creators” that the workers or “not so wealthy job creators” actually think it is OK to have those “wealthy job creators” pay more in taxes, in a progressive structure. And maybe many of the “wealthy job creators” think so to. Why? Because entitlements might actually make “the not so wealthy job creators” work better, faster, smarter–after all, building human capital improves the productivity of labour, and increases profitability in the long run; and might actually make society a nicer place–golly gosh. But that is a lot harder to support as an idea, if one only thinks that entrepreneurs are “job creators” (active) whilst workers are “job-holders” (passive). It is harder to make essentially moral arguments about who is entitled to what, if everyone is considered an active “job-creator.” Anyway, just a thought.