Paul Krugman: The Deficit is Too Small

[Pointedstick]

In general, this quotation perfectly expresses my reaction to the very well-made arguments of Gumby and Moda and others in the "better macro" camp:

Because man has not mastered the problem of achieving prosperity, he has turned to government for its solution. Thus he has complicated his problem, for government offers no solution to the problem of prosperity, while its intervention in this primary problem brings the additional problem of how to govern government. When government undertakes to solve man's problem for him it undertakes the mastery of society and it cannot be both master and servant. Thus it has failed in both spheres. By intertwining the prosperity problem with the political problem man has snarled the threads and no solution of either is possible without separation.

http://www.newapproachtofreedom.info/pem/index.html

It seems like the elephant in the room we're dancing around here is that people are losing faith in the ability of our institutions (government, health care, safety net, economy, employers, etc) to provide prosperity, and the prosperity we retain seems at risk or out of reach for more and more people. So we're turning to government to try to solve these problems through clever use of macroeconomics by applying targeted spending increases or tax cuts here or there.

But nobody agrees on what the money should be spent on or who should get the tax cuts, and half the people don't even think it should be spent at all and the others don't want any tax cuts. And these nasty polarized national debates and all the accompanying gridlock and graft-laced compromises completely wreck the possibility of those hypothetical macro solutions ever working the way economists think they could, if only they were implemented in just the right way at just the right time.

This is really important, because we don't have a benevolent dictatorial macroeconomics professor; we have Congress. Congress is never going to do what you wish it would. Never. Not ever. It will always disappoint you! It's like that ex you can't stay away from even though you know he'll cheat again!

Our whole government was designed to be ponderous and inefficient. It's the antithesis of a governing body that could apply macro in the manner required, even if it had a perfect plan that was guaranteed to work. A world where the American government is capable of using macro in the manner suggested is just as fantastical as one without the government at all.

In other words, not only have we failed to solve the prosperity problem we all acknowledge exists, but we've added on top of it the problem of governing government. If we keep waiting for government to solve our problems with competent macro policies, I worry that we may be waiting for a long time, since no party with any power seems to "get it" from a MR perspective. One says we need a balanced budget with low spending while still preserving medicare and social security , while the other says we need to rev up the spending, hike everyone's taxes, and hyper-regulate whole industries into oblivion to save the environment. How could a democratic government possibly apply these macro fixes when the people it represents don't want them?

This is a totally awesome and fascinating thread, by the way. I love where it's been going.

[MachineGhost]

However I believe it is Craig R (who is practical and best I can tell does not have any axe to grind) has posted at least a coupla times in different threads something to the effect that spending cannot continue without limit forever.  My impression (correct me if you feel I am wrong) is that this may very well end with a SHTF scenario (somewhere down the line).  Perhaps I've read on here something to the effect that this  is an inherent flaw in debt based money.

Keep in mind what I posted about productive resource allocation.  The government should not be in the business of allocating and providing resources (i.e. postal mail and education), but should just be providing fair rules/regulatory enforcement and a medium of exchange so that the private sector can allocate resources productively.  Although I haven't read much about it because everyone likes to be politically polarized, there is a subtle difference between government spending (i.e. bridges to nowhere) and transfer payments.  But extreme conservative ideologues are opposed to both in contradiction to the reality of our debt-based fiat monetary system.  The latter would be immensely preferable to pork and cronyism.

[MachineGhost]

I don't sit around waiting for people to "give" me a job. And I say this as someone that was on free lunches for a while as a kid. I get it that sometimes people need a hand up, but at what point does it become a debilitating condition for them that builds a lifelong dependency?

Extreme conservatives think that it is all a free lunch with no costs to be on a lifelong dependency.  Hah!  Have you ever known anyone who became dirty, rotten, filthy stinkin' rich that was on a lifelong dependency?  There are negative costs to being dependent and it is not all honey and roses, so why is it any of your business?  Unless lifelong dependency directly effects you negatively, you're just posturing for ideological purposes and intentionally blurring the line between a hand up and dependency.  Government is structured to be a hand up, not a lifelong dependency and people's dignity don't like dependency, whether they be American or illegal Mexicans.  But there will always be those stupid, gaming maroons just as an barrel of fresh apples has at least one bad.  Don't blow it up out of proportion.  This is why I no longer identify with conservatives, they are the single biggest hypocrites on the planet.

[MachineGhost]

How about Japan today at 210% debt/GDP or Britain in 1945 w/ 270%?

Or US immediately post-WWII.  What's interesting about these scenarios is that while inflation doubled in the US within ten years and skyrocketed in Britain (marginal tax rates were also kept at 90%), it has not manifested in Japan.  Why not?

[MachineGhost]

I can hear some of you guys in 1861 arguing that if the slaves are freed who will pick the cotton? Or better yet, "Do you like wearing clothes? You know we'll be naked without the cotton-pickin slaves. How could free people (the free market) ever figure out something so complex as picking cotton"?

Those of us with an eye to getting dirty, rotten...  you get the point, would have had a quiet agenda behind a smarmy smile of utilizing the cotton pickin' gin and let the fools hash the slavery issue to death while secretly getting positioned to profit.

[MachineGhost]

Mao nailed it when he said all political power comes from the barrel of a gun.

It's all stolen at gunpoint. If it was voluntary it would be charity, not taxes/theft.

I think we need some Political Realism to go along with Monetary Realism.  Political realism dictates that 99% of the power of the state is written words -- FEAR -- and only 1% is ever at gunpoint.  (The percentages may be changing with the Orwellian tech infrastructure being implemented, though!).

[Kshartle]

-- FEAR --

Fear of what? Just because the bank robber doesn't take the gun out of his pocket to prove he has it, what is the teller afraid of?

[Pointedstick]

I've noticed that those who are most enthusiastic about well-targeted macro policies solving economic problems are a lot less enthusiastic about explaining how congress is going to make it all work whenever I express skepticism about the possibility.

I think that's the big point Craig has been making as well. This stuff all sounds great in theory, but it doesn't just blip into existence, it has to go through the political process, which isn't all that rational and rarely returns the result you want even when all the ducks appear to be in the row before they enter the legislative sausage factory. If any of this stuff were going to work, I think it would really require that Warren Mosler or Cullen Roche were an absolute dictator in charge.

[cnh]

"Smart fiscal policy"...that's funny. Like military intelligence, no?

[MachineGhost]

I think that's the big point Craig has been making as well. This stuff all sounds great in theory, but it doesn't just blip into existence, it has to go through the political process, which isn't all that rational and rarely returns the result you want even when all the ducks appear to be in the row before they enter the legislative sausage factory. If any of this stuff were going to work, I think it would really require that Warren Mosler or Cullen Roche were an the absolute dictator in charge.

It's not that hard.  They just need to become lobbyists.

[Gumby]

This stuff all sounds great in theory, but it doesn't just blip into existence, it has to go through the political process, which isn't all that rational and rarely returns the result you want even when all the ducks appear to be in the row before they enter the legislative sausage factory.

This is the case with any sort of group activity.

So... libertarians want a non-group (un)organized population? I'm picturing lots of jungle law/vigilante/frontier justice.

[Pointedstick]

This stuff all sounds great in theory, but it doesn't just blip into existence, it has to go through the political process, which isn't all that rational and rarely returns the result you want even when all the ducks appear to be in the row before they enter the legislative sausage factory.

This is the case with any sort of group activity.

For what it's worth, I wouldn't want KFC, Halliburton, or Google trying to apply macro to the whole country, either.

So... libertarians want a non-group (un)organized population? I'm picturing lots of jungle law/vigilante/frontier justice.

Not really. We just want society to be made up of voluntary groups that self-organize--i.e. every kind of group other than government. We believe in complex systems emerging on their own rather than being centrally planned. I guess you could say that for societies, we believe in evolution rather than creationism or intelligent design.

[Gumby]

So... libertarians want a non-group (un)organized population? I'm picturing lots of jungle law/vigilante/frontier justice.

Not really. We just want society to be made up of voluntary groups that self-organize--i.e. every kind of group other than government. We believe in complex systems emerging on their own rather than being centrally planned. It's you could say that for societies, we believe in evolution rather than creationism or intelligent design.

So, would you say the Founding Fathers had the wrong formula? After all, their formula actually led to whatever it is we have today (i.e. you might say, their ideas on paper didn't work as well in reality).

[Pointedstick]

So... libertarians want a non-group (un)organized population? I'm picturing lots of jungle law/vigilante/frontier justice.

Not really. We just want society to be made up of voluntary groups that self-organize--i.e. every kind of group other than government. We believe in complex systems emerging on their own rather than being centrally planned. It's you could say that for societies, we believe in evolution rather than creationism or intelligent design.

So, would you say the Founding Fathers had the wrong formula? After all, their formula actually led to whatever it is we have today (i.e. you might say, their ideas on paper didn't work as well in reality).

Yes. I'm not a constitutionalist. I would absolutely say that their ideas didn't work so well in reality. They were a bunch of idealists trying something new and bold, and while they got a lot right, IMHO their basic mistake was to assume that some kind of "limited government" is possible. No matter how many checks and balances you throw at that problem (and they threw many), I haven't seen any government that ever failed to grow.

Their ultimate solution was that government would be challenged by the people's culture of Republican Virtue, but you can't ensure that a culture will be static. Designing a society that depends on a certain culture is designing a society that will fail… or at least change from the original design. Constitutionally-bound limited government requires a culture we don't have anymore in the USA. That's why Republicans are such sad sacks all the time. They know it. It depresses them terribly.

[Gumby]

ah.. I see where you're coming from now.

From my perspective, I just tend to look at how the nutty system is engineered to work (with all its flaws).

[Pointedstick]

ah.. I see where you're coming from now.

From my perspective, I just tend to look at how the nutty system is engineered to work (with all its flaws).

Most of the time, I do as well, since talking about awesome hypothetical societies is usually irrelevant to the discussion at hand. My only point was that congress accurately and effectively using targeted macro fixes while avoiding corruption, graft, cronyism, favoritism and waste to the extent that it actually works is just as fantastical and hypothetical as an America without government at all. That's why I'm skeptical about the possibility of these macro fixes actually being implemented properly in the real world.

[moda0306]

Not really. We just want society to be made up of voluntary groups that self-organize--i.e. every kind of group other than government. We believe in complex systems emerging on their own rather than being centrally planned. It's you could say that for societies, we believe in evolution rather than creationism or intelligent design.

So, would you say the Founding Fathers had the wrong formula? After all, their formula actually led to whatever it is we have today (i.e. you might say, their ideas on paper didn't work as well in reality).

Yes. I'm not a constitutionalist. I would absolutely say that their ideas didn't work so well in reality. They were a bunch of idealists trying something new and bold, and while they got a lot right, IMHO their basic mistake was to assume that some kind of "limited government" is possible. No matter how many checks and balances you throw at that problem (and they threw many), I haven't seen any government that ever failed to grow.

Their ultimate solution was that government would be challenged by the people's culture of Republican Virtue, but you can't ensure that a culture will be static. Designing a society that depends on a certain culture is designing a society that will fail… or at least change from the original design. Constitutionally-bound limited government requires a culture we don't have anymore in the USA. That's why Republicans are such sad sacks all the time. They know it. It depresses them terribly.

Government is simply a tool to help ensure security (what forms of security are up for debate (military? financial?)) and to facilitate the creation of wealth beyond what the private sector could do all by itself.  It's probably natural that both the federal state and local governments grow with the private sectors they are attempting to serve.

However, that of course doesn't necessarily entail the government doing broad, new things that it never did before, or at levels it never did before (federal instead of state).

I'm curious when we had a culture of limited government... I look back and just see a culture of different forms of government intrusion, with your aforementioned good ideas around where and how to build firewalls between different sectors and functions of government to keep each other in check. 

[Pointedstick]

Indeed.  However, I don't think that this disappearance of the virtue described in the wiki link is limited to people in government.

Absolutely. The founders were really interesting fellows… brutally realistic in some ways, but very idealistic in others. The idea that the body of the population would ever subscribe en masse to this very lofty ideal of selfless stoicism was always doomed to failure, methinks. I wouldn't say it really disappeared so much as it never really spread as far as it needed to in the first place. And to the extent that it may have in the past, it's certainly gone today. Even Republicans who lament its passing are far too enamored of profit and capitalism to qualify. It's an interesting philosophy, but wholly gone from our society.

[moda0306]

ah.. I see where you're coming from now.

From my perspective, I just tend to look at how the nutty system is engineered to work (with all its flaws).

Most of the time, I do as well, since talking about awesome hypothetical societies is usually irrelevant to the discussion at hand. My only point was that congress accurately and effectively using targeted macro fixes while avoiding corruption, graft, cronyism, favoritism and waste to the extent that it actually works is just as fantastical and hypothetical as an America without government at all. That's why I'm skeptical about the possibility of these macro fixes actually being implemented properly in the real world.

It would be one thing if our "ideal stimulous" was things that government had simply never tried doing before (but more as a result of it being new... not necessarily due to the "government sucks at everything"... Think of the space program...), but we're talking about roads, freeways, bridges, rail, government buildings possibly in need of updating, parks, sidewalks, sewers, rail (light or heavy), fiber optics.

This isn't stuff governments have to sit and scratch their heads as to how to accomplish.  They simply do their job, just a bit harder and faster than they did before. 

[Pointedstick]

Government is simply a tool to help ensure security (what forms of security are up for debate (military? financial?)) and to facilitate the creation of wealth beyond what the private sector could do all by itself.  It's probably natural that both the federal state and local governments grow with the private sectors they are attempting to serve.

However, that of course doesn't necessarily entail the government doing broad, new things that it never did before, or at levels it never did before (federal instead of state).

I'm curious when we had a culture of limited government... I look back and just see a culture of different forms of government intrusion, with your aforementioned good ideas around where and how to build firewalls between different sectors and functions of government to keep each other in check.

You know that I mostly agree with you, but there's something I think you sometimes miss, which is that size matters. A small society of 5 million people that is mostly governed by city councils, county supervisers, and state officials is much more responsive to the peoples' desires if only because the separation is so much smaller. People probably know some of their elected officials.

To a certain extent, I think that large societies are just inherently ungovernable, or at least not well-governable, and especially not large diverse societies where there's disagreement on basics like the role of government (Protecting society from external threats? Optimizing society itself? Helping individuals within society?). The efficiency of democracy begins to break down when any given issue has a minority of 49%, and it turns into a divisive, polarizing tool of the majority to impose its will on everyone else during the brief times when it controls the levers of power.

Scandanavian countries so enamored by liberals really do work better… but they're also orders of magnitude smaller and more culturally homogenous. They also have a much lighter regulatory touch.

[Pointedstick]

ah.. I see where you're coming from now.

From my perspective, I just tend to look at how the nutty system is engineered to work (with all its flaws).

Most of the time, I do as well, since talking about awesome hypothetical societies is usually irrelevant to the discussion at hand. My only point was that congress accurately and effectively using targeted macro fixes while avoiding corruption, graft, cronyism, favoritism and waste to the extent that it actually works is just as fantastical and hypothetical as an America without government at all. That's why I'm skeptical about the possibility of these macro fixes actually being implemented properly in the real world.

It would be one thing if our "ideal stimulous" was things that government had simply never tried doing before (but more as a result of it being new... not necessarily due to the "government sucks at everything"... Think of the space program...), but we're talking about roads, freeways, bridges, rail, government buildings possibly in need of updating, parks, sidewalks, sewers, rail (light or heavy), fiber optics.

This isn't stuff governments have to sit and scratch their heads as to how to accomplish.  They simply do their job, just a bit harder and faster than they did before.

The government doesn't even have to do it; they just pay the private sector to do it. But the planning is the real problem. Where should these things be built? Fiber optic cable from Topeka, Kansas to Detroit? Chicago to Dallas? Fiber optic cable, or universal wireless? What should be the balance of rail vs more highways? What about places with no existing rail infrastructure? And who's going to pay for the upkeep once it's built? There are poor states that won't have the money or political willingness to maintain new rail lines; what to do about that? How do you build when the proposed route crosses private property in a zillion places?

This stuff isn't easy, or it would have gotten done. These are legitimately hard problems to solve. Infrastructure isn't just a matter of "building more of it." It has to be built intelligently and navigate a very large and challenging array of difficulties and roadblocks.

[moda0306]

Yes. Infrastructure is a hard decision and process. But it's a hard decision no matter when you do it. In some ways, it's quite a bit easier to do well before you have awful congestion and the economy is at full capacity... Of course, then you run into questions as to what to prioritize when the public isn't screaming at you about gridlock here or shitty sewer there.

So this is always a question... We always have to weigh possibly making the wrong infrastructure decision.  That doesn't mean it shouldn't be done, or we need to wait until we've maxed out our current infrastructure to make smart decisions.

[Pointedstick]

I agree with you that it should be done. All I'm saying is that in a large, polarized country with a huge overarching federal government that rules over 310 million diverse people and is beholden to thousands of interest groups, corporations, and unions, I'm not optimistic about the possibility of it actually happening 1) at all 2) rationally 3) within a year or two and 4) in a manner that will stimulate the economy.

Even when they tried with the stimulus bill, most of the infrastructure projects they tried to kick off didn't get off the ground for years and most aren't even close to done yet. The waste and inefficiency was staggering. In California, I drive by signs advertising the ARRA (stimulus bill) that were planted years ago by projects that have sat idle for months. It's an embarrassing boondoggle.

And that was with a 60-vote Democratic supermajority in the senate, a majority in the house, and a friendly president. If the two most powerful branches of government work together on a common agenda during the best possible economic environment for it and can't get it right, that doesn't bode well for its success at any time.

We're discussing a political agenda that requires government competence. Without it, the agenda can't succeed. That's all I'm really saying.

[Gumby]

This makes me wonder if Hitler is really to blame for triggering the rise of big government.

[align=center][/align]

[align=center]Source: http://research.stlouisfed.org/publicat ... tRhine.pdf[/align]

[moda0306]

This makes me wonder if Hitler is really to blame for triggering the rise of big government.

[align=center][/align]

[align=center]Source: http://research.stlouisfed.org/publicat ... tRhine.pdf[/align]

I think simply that when you have more and more people in the same amount of space you need a system of interaction that lends itself more to infrastructure being a higher percentage of GDP.  Along with that, as well, people tend to feel more compassionate with a homeless old person on the street of a busy city than if they don't have to see them every day, so people's appetite for social safety nets goes up.  People also have a tendency to depend on common areas being protected by police.  Externalities become much more common and bothersome as a negative GDP component, which are a naturally addressed via government regulation.

I guess another way to say it would be that the more we organize ourselves like Manhattan and the less we organize ourselves like rural Mississippi, the more we'll need government to facilitate a given level of GDP... yet somehow free people of the country continue to stay in these super high-density "big-government" areas.

That isn't to say that the growth of government in new areas shouldn't be analyzed very thoroughly... I just would peg a decent chunk of the increase to some sort of "Metropolis Effect."  Somehow, cities like NYC are able to attract a ton of smart people, tons of money for their productive output, and a lot of tourists.  These are places where if we were to take our "slash government" approach I don't think there's much of a debate... the entire economy would collapse.  These are societies built on "coercion" and "theft at gunpoint" at every turn if we look at them through our standard libertarian lense (yes, I have one of those I use from time to time), and still somehow get millions of good, moral, freedom-loving people to move to them and live in relative peace and harmony, and amazing productivity.

I'll stop my pontificating... vent: complete.