Wednesday, May 29, 2013

More cowbell


The first take of the session begins soon after. The recording seems to be going well but the band stops playing after a few moments because the cowbell part is rather loud and distracting. Dickinson, to the surprise of most of the band, asks for "a little more cowbell" ...

Government debt is like cowbell: loud and distracting.

Yesterday I said

If your plan is to fix the economy by expanding government spending, well, your plan has already been tried. It didn't work.

Yesterday's post reminded me of an old one I did. I'm repeating part of it here. To get the effect, be sure to move your mouse on and off the graph a few times.

We tried stimulus, big-time. We have been trying it since Reagan. Since before Reagan, even. All the while, we've been badmouthing government debt, sure. But all the while, we have been expanding government debt, too. To stimulate growth.

Graph #1

Graph #1 shows the gross Federal debt, in billions of dollars. After World War II, the trend-line is basically flat until, oh, 1970 or so. After that, the Federal debt just goes up and up. And up.

That big pink triangle cowbell there on the hover graph? All of it was stimulus.

Loud and distracting, not the problem, and not the solution.

4 comments:

paul said...

Art, I disagree somewhat…

It isn't the spending that hasn't worked…it's that the funds leaking to profits has been too high…wages are not getting a proportionate share of the expansion in productivity.

The profit leak is so big no amount of spending can keep up with it. Imagine trying to fill a container with a big hole in the bottom. A firehose couldn't keep up.

In the end every dollar spent either by government or by borrowers ends up being saved or accumulated, predominantly (in relative terms) at the top.

Profit (retained earnings and distributions) is the form of saving that is the cause of inequality.

We need policies that maintain a proportionate distribution. More progressive taxation to keep the top from accumulating too much, and more power for workers to share in gains.

We've been implementing policies over the last 30 years doing exacty the opposite.

Private debt is nothing more than spending income one hasn't earned yet…it's a self-limiting feedback loop.

Private debt depends on incomes which are a direct function of public spending. The level of private debt is thus a function of public spending.

Cut public spending or fail to grow it and your private debt problem disappears…sort of…it can't be expanded, it can only hover at the existing level or contract (unless we do something stupid and expand by lending money to people that can't pay it back).

In simple terms it's bubble economics when we do it that way.

The Arthurian said...

"We need policies that maintain a proportionate distribution... We've been implementing policies over the last 30 years doing exactly the opposite."

If you're only looking at the last 30 years, then you're only looking at results (the consequences of trying to fix a pre-existing problem).

RE Profits, I find it necessary to distinguish between financial-sector profits and productive-sector profits. See "One for You, Three for Me".

paul said...

"If you're only looking at the last 30 years, then you're only looking at results (the consequences of trying to fix a pre-existing problem)."

Right, by implementing the wrong solutions.

"RE Profits, I find it necessary to distinguish between financial-sector profits and productive-sector profits. See "One for You, Three for Me"."

Both extract spending from the economy, and non-financial corporate profits are still too big.

I agree that the non-productive financial services industry is a problem…

THE problem is profits are being extracted faster than spending can keep up.

There are only a couple of solutions for that.

Jerry said...

1. You mean THE Bruce Dickinson?

2. Paul, can you explain this part to me?

> Private debt depends on incomes which are a direct
> function of public spending. The level of private
> debt is thus a function of public spending.

I'd kind of think there is a connection, but it's in the other direction - e.g. if the government is buying you (or, getting you the wholesale rate on) roads and military protection, then you don't have to buy that stuff yourself (at the higher retail rate), so your income is effectively higher. But probably I am missing the point.

3. "More progressive taxation ..."

This is a total irrelevant tangent, but this has always bothered me. I think that the taxation doesn't need to be progressive; it can be a flat percentage but it needs to tax the right thing. i.e. the benefits that people gain from society and government are basically: the protection of their wealth against threats foreign and domestic. So I think that in order to pay for that in a fair way, it should be a flat (5%? who knows) tax on net worth. (maybe with a standard deduction that is the median cost of a house, or something like that.)