Saturday, April 2, 2016

Money For Nothing...

...and your checks for free
Both Hillary Clinton and Bernie Sanders have made various proposals for essentially increasing government services to the larger share of the American population. Although they take significantly different approaches to extant political and economic realities, they both have a single overarching feature that is nothing short of a nod to the madness and incoherence that has infected our system of governance in recent decades. What 'feature' is that? They both include detailed plans for 'paying for' their service expenditures, mostly through federal taxation policy. Why do they believe this is necessary? Sadly, because conventional wisdom and deficit fear-mongering have hardened into a sclerotic fiscal system in which it is impossible to increase revenues or deficits, even if it would be obviously economically beneficial to do so.

First, we have arrived at a point where the current rate of federal spending has been arbitrarily deemed the maximum possible. We can cut spending, but any process that increases revenues or the federal budget deficit is a political non-starter. And this is true for both parties - for the Democrats, mostly because they know that the Republicans in congress would block any net spending increase, but the fact that they don't even make the simple argument I am making here is telling. As for the Republicans, they don't actually mind large deficits - as long as they are created by revenue shortfalls rather than increased spending. All the major Republican candidates for President have released a budget document that includes massive tax cuts for the wealthy and for corporations without any revenue offsets. That these plans would blow up the deficit and force massive cuts to social welfare spending is a feature, not a bug.

The question is simple, and straightforward: Are deficits always 'bad'? If deficits are to be avoided at all times and under all circumstances, then the only mechanism available for raising government revenue is tax policy. But this is clearly and demonstrably not the case. If a nation borrows in its own currency, it can never 'go broke'. There are limits to how much new fiat money the Treasury should put into circulation, but in an economy approaching $20 Trillion annual GDP, those limits are correspondingly large. For nations like the US and other large economies, the key question is the cost of that money. Currently, the global economy is awash with funds seeking some kind of investment vehicle. While some portion of these funds are looking for higher returns, there is tremendous demand for American government bonds - so much demand, in fact, that real interest rates have been driven down to near zero. You don't have to take my word for it - here's the data from the Federal Reserve:

Short term inflation expectations and long term bond yields are hovering under 2%. But I'd especially call your attention to the green line on the chart. That is the 'breakeven' rate for the 10 year inflation-indexed bond. And, once again, it's sitting at zero. This makes sense - if the yield is 2% and inflation is 2% then the real interest rate on that instrument is zero. Now this raises the question that ALL American voters - left, right and center - should be asking. If we can invest in infrastructure, education, R&D, and other worthwhile endeavors at essentially zero cost, why does our government refuse to do so? When I repeatedly shout that it's the SYSTEM that is broken, and no amount of political jockeying can do anything about it until there is a functional system within which the political factions can work, this is exactly the kind of systemic failure I'm talking about. When they have created a system where an old guy sitting on his couch can clearly see the right way forward and not a single politician from either party has the political will to at least suggest it as a possibility, how is there any basis for hope?


  1. " The question is simple, and straightforward: Are deficits always 'bad'?"

    The market has decided, absolutely not. You go into a deficit to buy a car, to buy a house, to buy an education. Personally, I have done all of that. I have since paid off that car, that house, that education and I admit that at this point, I am hesitant to buy into the consumer debt model. Maybe I prefer to keep my house repaired, my car repaired, and not be so willing to just buy the next one...

    I completely and if there was an adjective more strong than "wholeheartedly" I would use it. It is a missive failure of our governments at every level that they haven't taken advantage of the ridiculously low levels of borrowing (because, yes, borrowing is how we build shit).

    Here is something that is kind of a sidebar, and you may ignore it at your will; but in the history of how buildings were built, there was a time that they were built with cash dollars. Which meant they were built by robber barons and people who committed some crime in order to get rich. and those assholes were embarrassed into starting colleges and libraries. But they had to pay up front, more or less...

    But when the Depression happened, banks that loaned money were created. And after that, slowly, it was discovered that buildings took a lot of money and the Banksters could steal a bit more by loaning money. And then they started to discover they could extort more fees and conditions from the applicants. Then they decided they could demand payback in mere decades.

    This was a new thing, because prior to this, people who built buildings expected them to stand for a hundred years, at least. Things were built for our ancestors.

    So now, buildings were being built for payback, and it had two be 10-20 years. So now, we don't give a shit about building well or whether it makes a difference to the city it is within.

    I know live within an environment that the banksters have made antithetical to actually improving the city I live within.

    I do not b;ame thunder for bailing on the bank side of that equation ....

  2. Jesus F. Wall Of Words, mikey.

    There's a simpler way to explain what's happened since the "Reagan revolution."

    GOPers figured out they can claim the government doesn't work, and when they get in charge, break it and prove their point.

    The Wall St. Democrats figured out they can play "slightly less evil" and get fuckin' rich by adopting GOP memes and slurping up corporate payola.

    Sanders 2016.