Paul Krugman: The Deficit is Too Small

[Kshartle]

Since the slavery seal has been broken, listening to people talk about how much governments should tax and what they should spend their stolen goods on is like listening to a debate about how often master should beat the slaves or how nice he should fix up the barn they sleep in.

Ohhh and pretending it's all voluntary because you can vote....that's the stockholm syndrome / invisible fence. You can only vote for your master you can't vote to be free.

Put down the guns and stop advocating murder and kindnapping to organize society the way you think it should be run. And please don't think the creatures running around calling themselves the government are ever good, benevolent angels. They are murderers. Obama signs the drone strikes while he eats his his cheerios.

[Pointedstick]

Lost in these discussions about the role of government is often the very important question of whether the government is succeeding at what it attempts to do in the furtherance of the roles it takes on. There are many things government attempts to do that it fails utterly at, destroying much human life and prosperity in the process.

Like the Iraq war or the endless global war on terrorism. Or the drug war. Or, yes, enforcing slavery. Or having to end slavery with a war that resulted in more than half a million dead when so many other countries did it peacefully.

Dramatically reducing the poverty of the elderly is wonderful, but was only made possibly by instituting new taxes on the productive and creating a vast medical bureaucracy that has had all but destroyed the medical system, perverting it into a regulatory nightmare that is able to shift and hide costs, to the detriment of all.

[moda0306]

Lost in these discussions about the role of government is often the very important question of whether the government is succeeding at what it attempts to do in the furtherance of the roles it takes on. There are many things government attempts to do that it fails utterly at, destroying much human life and prosperity in the process.

Like the Iraq war or the endless global war on terrorism. Or the drug war. Or, yes, enforcing slavery. Or having to end slavery with a war that resulted in more than half a million dead when so many other countries did it peacefully.

Dramatically reducing the poverty of the elderly is wonderful, but was only made possibly by instituting new taxes on the productive and creating a vast medical bureaucracy that has had all but destroyed the medical system, perverting it into a regulatory nightmare that is able to shift and hide costs, to the detriment of all.

I tend to think a purely for profit and non-government-intervened healthcare system has some disasterous traits.  I just really don't have the energy here to go into the debate. 

However, what you're talking about is the ultimate debate... is what we gain in security (financial or military or health) worth what we lose in liberty, and can we even fairly ask the question because the healthy productive person is going to have a very different answer than a sick, elderly person.  In the end, we can either say that the only right answer is liberty, or that the only right answer is whatever democracy supports... neither is very perfect in my opinion.

[moda0306]

Since the slavery seal has been broken, listening to people talk about how much governments should tax and what they should spend their stolen goods on is like listening to a debate about how often master should beat the slaves or how nice he should fix up the barn they sleep in.

Ohhh and pretending it's all voluntary because you can vote....that's the stockholm syndrome / invisible fence. You can only vote for your master you can't vote to be free.

Put down the guns and stop advocating murder and kindnapping to organize society the way you think it should be run. And please don't think the creatures running around calling themselves the government are ever good, benevolent angels. They are murderers. Obama signs the drone strikes while he eats his his cheerios.

This is a bit ridiculous.  People bought and sold, separated from their families, whipped or murdered if they don't work hard enough without any option to do anything different with their lives, vs people who have those options... if you know the tax code, and your marginal tax rate, you have the choice to either work more or less given how much you know the government is going to take from you.  If someone makes $100,000, and doesn't want to pay the additional taxes associated with increasing his income to $130,000, he has every right to just make the $100,000 and live the lifestyle associated with that income, or make anoter $30,000, about 40% of which he KNOWS he'll lose to the government.  Is that really "slavery?"

The point is, he has options... the slave didn't.  Part of me can see the whole relativism to all this and see that "government coercion is government coercion, no matter what," but we're really talking about putting taxation up there with slavery and the holocaust, here.  In which case any government at al, no matter how small, is essentially as bad as Nazi Germany.  Ok.  I guess I'll admit that I can actually follow the sick logic... but then we're talking about pure anarchy as the only morally sound solution.

So, since managing our road and freeway system, as well as assigning and defending private property is "organizing society the way you think it should be run," as is any other form of government, can I assume you're advocating anarchy?

[moda0306]

But please don't try to act like we're entering unseen new coercive, confiscatory territory because our elderly get Social Security income and there are pesky regulations of industry, or uninsured poor people get help to get coverage. It's an assinine assertion, and is so common amongst far too many libertarians and/or nationalistic conservatives that it needs to be pointed out for how utterly ridiculous it is. Far, far worse things have been done by governments of the past, including the U.S. government and states. I'll easily leave slavery all but untouched as long as we can focus on the role of government without getting all teary-eyed about how great and pure we were in 1820.

its hard not to view us as being in the era of the perpetual government creep, (kinda like the viral cat video where ever time the camera looks away the cat has moved closer) i would be hard pressed to name any reductions in the following list during all the years i have been following politics and government,

1. deficit-spending to wage aggressive wars
2. deficit-spending to oppress its own people
3. the micro-management the minutiae of people's affairs

sure there are some small victory's like defeating SOPA but like a bad case of herpes the viral sore of government intrusion keeps coming back, is humanity better off and freer than it has been through out history... sure .. but the bigger government gets the more it seems we have become destined to see it continually advancing against us in small movements on every front, and no victory for liberty is ever permanent, for every intrusive regulation that gets pushed back two more identical ones pop up under new names....

am i being overly dramatic? maybe a bit but it is important for those who support government expansion to realize the primary job of any new or enlarged government operation is i identical to the job of the government we have.... increase government expansion...

Simon,

I guess it all kind of depends on what you consider the definition of "big government" to be.  Of course, the size of government will naturally rise with the size of the private sector to serve its traditional military and infrastructural roles, and of course, there's room for it to enter new areas and annoy us in ways it hasn't before, but is a "govt spending to GDP ratio" really the best way to measure the intrusion of government in our lives?  Because that means that a government dollar spent to force a boy to war is equal to a government dollar spent to build a road.  I think we actually have to look at what qualitatively the government is doing, and decide ourselves whether we think its "annoyance factor" has gone up or down.  And maybe even that has to be qualified for the fact that the private sector has opened up vast new freedoms we never realized we'd have, and government takes a small step to limit them.

The main point I will concede is that there are certain areas that it seems once government goes, it stays.  Especially when these areas can be handled well by the private sector and gov't just screws it up, there's definitely potential for annoyance.

And with wars, they seem, to me, to have gotten less and less aggressive as time goes on.  It seems like the casualties of war are far, far lower than they used to be, and at the risk of sounding extremely insensitive, at least the men who fight are doing so within a WIDE array of available personal choices.

The thing we kind of forget, is that for everything that from one direction looks like government intrusion, if looked at differently, usually wouldn't even be talked about but for a huge expansion in REALIZABLE personal liberty.  For instance, the freedom and power the internet gives m is unfathomable in some ways if leveraged correctly.  If the government comes in with some flawed internet regulation, how should I view in totality what has happened here?  I don't know.  I think there's risks of going too easy and too hard on our government (for our own sake, too).  I should probably spend a lot more time enjoying these vast new abilities the internet gives me, then lamenting about how the government is expanding with SOPA.  More importantly, we should ask ourselves that if these new government annoyances come usually with vast new fun abilities that the private sector has given us, should we spend that much time fussing about them at all?!

I'm just glad I can have a beer to help me cope against arguing with all you damn libertarians .

[Gumby]

Just curious, but does anyone here think that the free market, alone, has the ability to fix this...

[align=center][/align]

[Pointedstick]

Just curious, but does anyone here think that the free market, alone, has the ability to fix this...

If one believed that the government was a large part of the problem, why wouldn't one?

[Gumby]

Just curious, but does anyone here think that the free market, alone, has the ability to fix this...

If one believed that the government was a large part of the problem, why wouldn't one?

Do you advocate the absence of government? What would an economy and the monetary system look like in such a world?

And more importantly, how do you propose the free market gets unemployment back down on its own?

[MachineGhost]

Now, I’m aware that the facts about our dwindling deficit are unwelcome in many quarters. Fiscal fearmongering is a major industry inside the Beltway, especially among those looking for excuses to do what they really want, namely dismantle Medicare, Medicaid and Social Security. People whose careers are heavily invested in the deficit-scold industry don’t want to let evidence undermine their scare tactics; as the deficit dwindles, we’re sure to encounter a blizzard of bogus numbers purporting to show that we’re still in some kind of fiscal crisis.

Solid gold.  All the politicians have to sell is FEAR.

[MachineGhost]

What is so damaging about giving people jobs if the jobs are actually needed by society? We don't need teachers? We don't need people building highways? I don't understand why you think it's productive for people to be unemployed when work needs to be done and people are willing and able to do that work.

Its not the jobs per se, its that politicians and most economists don't consider the dynamics of output over time when considering government spending, i.e. the productivity of resource allocation.  PK is the big cheese example of an economist that has his head up his ass in regards to that.  Heck, I'm not even sure there is any incentive to productively deploy resources in a coercive-driven system....  there is no lost income repercussions due to unpleased customers.  Involving coercion is always a win-lose value proposition to some party, not a win-win for all.

[MachineGhost]

You should write a spiritual successor to Browne's How I found Freedom In An Unfree World. Maybe something like How I Came To Realize That Macro Stacked The Deck Against Me And Found Peace Waiting For The Prevailing Conditions To Change.

+1111111111111111!!!!!!!!!!!!!!!! 

[Pointedstick]

Just curious, but does anyone here think that the free market, alone, has the ability to fix this...

If one believed that the government was a large part of the problem, why wouldn't one?

Do you advocate the absence of government? What would an economy and the monetary system look like in such a world?

I do. 

And more importantly, how do you propose the free market gets unemployment back down on its own?

Well, I believe that a lot of the cyclical nature of modern unemployment is due to the way government has set up the monetary system with itself as a central player. If we're going to talk about a totally 100% free market, then everything changes because the highly monetized, financialized, debt-backed nature of the modern economy was set up by governments. Discussing how to reduce unemployment within this paradigm is something I'm not as comfortable doing simply because there are too many moving pieces and frankly I don't think I'm capable of holding it all in my mind properly. I'm just not a central planner at heart.

How do you deal with the fact that a debt-backed monetary system requires increasing indebtedness to grow, yet too much or too great a concentration by certain borrowers causes it to panic and enter a recession? It almost seems designed to fail with regularity. How can we possibly patch up such a terrible monetary system? Within this paradigm, yes, government is necessary--because they set it up that way. That's why I want to change it. Both to reduce government's role, and also to get society on a sane system that doesn't have these kinds of debt-fueled monetary Mexican standoffs, as moda describes them.

It's an institutional problem I see in my line of work all the time when business-critical systems are running on 30-year-old code and can't help but fail regularly. Sometimes patching it up has its limits and you just need to start over.

[MachineGhost]

- Rail and infrastructure projects galore

Real world result:

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.

“It is not enough just to hire workers to dig holes and then fill them in again,”? said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”?

In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office. The spending peaked in 1995 and remained high until the early 2000s, when it was cut amid growing concerns about ballooning budget deficits. More recently, the governing Liberal Democratic Party has increased spending again to revive the economy and the party’s own flagging popularity.

In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.

[Gumby]

If one believed that the government was a large part of the problem, why wouldn't one?

Do you advocate the absence of government? What would an economy and the monetary system look like in such a world?

I do. 

Well, it's a pipe dream, IMO. We don't live in that world. I do however respect the ideas in those pipe dreams . But, I don't think they are realistic.

And more importantly, how do you propose the free market gets unemployment back down on its own?

Well, I believe that a lot of the cyclical nature of modern unemployment is due to the way government has set up the monetary system with itself as a central player. If we're going to talk about a totally 100% free market, then everything changes because the highly monetized, financialized, debt-backed nature of the modern economy was set up by governments. Discussing how to reduce unemployment within this paradigm is something I'm not as comfortable doing simply because there are too many moving pieces and frankly I don't think I'm capable of holding it all in my mind properly. I'm just not a central planner at heart.

Sounds like you're saying you don't get macro. And that's ok. But, I think you'll need to have a macro outlook if you really want to change the system.

How do you deal with the fact that a debt-backed monetary system requires increasing indebtedness to grow, yet too much or too great a concentration by certain borrowers causes it to panic and enter a recession?

I'm pretty sure I'm the one who pointed that out to you a few months ago, when we had the following discussion...

What makes you so sure that the dollars I used were bank-created money that became debts for the private sector rather than fed-created money that became debts (that don't really matter) for the public sector?

Because the overwhelming majority of our money supply comes from private credit. (Roughly ~$55 Trillion to date). Coins and public debt are actually quite small in relation to private credit — not to mention that the middle class are encouraged to pay taxes in order to "lower the national debt".

...

Again, I think you're conflating the aggregate with the individual here. It's not like I had to to convince my neighbors to go take out car loans or buy furniture and groceries on credit so I could get the cash necessary to pay off my debts.

You only believe that because you keep looking at the situation from a micro level. You need to look at the macro level to see what I'm talking about.

You already know that I don't like the system, but it is the system we have. So, I try to understand how we fix a balance sheet recession within the system we already have.

That's why I want to change it. Both to reduce government's role, and also to get society on a sane system that doesn't have these kinds of debt-fueled monetary Mexican standoffs, as moda describes them.

"Reducing the government's role" doesn't exactly change the debt-based/credit-based problem and society has been brainwashed to believe that debt-free money is insane. So, what exactly is the new plan you are proposing?

Sometimes patching it up has its limits and you just need to start over.

Agreed. But, saying we need to reduce government spending is sort of like saying we need to slow our car down a little bit because you don't like driving — never mind that slowing down will make it difficult for the car to over the next hill. And if you don't like driving then I'm confused because you still haven't come up with another mode of transportation that gets us to our destination! (Our destination is full employment, no?)

If you're trying to change "the system" you gotta focus on macro.

I think all these ideas to "change the system" are great, but during a balance sheet recession, I try to support wise government spending (schools, bridges, tunnels, fresh water, crossing guards, etc) as well as tax cuts, so that balance sheets can be mended.

[Gumby]

You should write a spiritual successor to Browne's How I found Freedom In An Unfree World. Maybe something like How I Came To Realize That Macro Stacked The Deck Against Me And Found Peace Waiting For The Prevailing Conditions To Change.

+1111111111111111!!!!!!!!!!!!!!!! 

Heh. I enjoy the friendly banter, but I think the difference is that I do fully support people pulling themselves up by their bootstraps and finding freedom on a micro level. Self-help books are great for that sort of thing. But, at the same time, there are limitations since most self-help books don't make 4 million new jobs appear. It takes a macro solution to make that happen — particularly if millions of people can't create demand because they are choosing between food and paying for their own education.

[Kshartle]

If someone would let their sick parents slip into complete poverty and despair I'd really have to question the up-bringing. Clearly they didn't do a very good job with their kids. Being charitable to help these people so you feel better about yourself is great. I fully support that. Forcing people at gunpoint to fork over a dollar so 30-40 cents can go to the elderly isn't a solution, and it itsn't charity. It's an industry. the FEDs are poverty-pimps. The social programs are public relations stunts. It's also immoral. No one has a claim on my life or my property. Taxation is the theft of someone’s life because it steals the property they justly acquired through their time and talent. It is slavery. To say that you can choose to avoid taxes by not working is like saying the bully at school isn't a problem because you can just skip. It's the kind of rationalizing a slave mentality would make. The immorality of socialism and fascism is it's undoing though and hopefully we see the end of it in our lifetime.

By the way the most disgusting spectacle of the election was that worm Paul Ryan holding his mom up and saying how proud he was that she relies on medicare. Guy makes 500k a year and expects me to foot the bill for his mother. Pay for your own mother you socialist/facsist/authoritarian dirt bag.

[Gumby]

Further, if the floor of human dignity is lowered when you do things for people that they can do for themselves, why do so many people who hold that opinion fight tooth and nail to give their kids a better life than they had.

I also find it ironic that these individuals don't want to acknowledge that all the money they earned came from either other people going into debt or the government providing a handout within the private sector. Whether they know it or not, it's basically their way of saying, "I earned my own savings by gaming working the system so let them eat cake."

[Gumby]

Forcing people at gunpoint to fork over a dollar so 30-40 cents can go to the elderly isn't a solution, and it itsn't charity. It's an industry. the FEDs are poverty-pimps.

That's not really what happens. When you pay taxes, your money is just shredded for all practical purposes and entered into a ledger. Yes, it's stealing, but let's not pretend that you are "paying" for anything with your Federal taxes. If the Federal government wants to help the elderly, or build an air-craft carrier, it just spends its own debt-based money. The theft has nothing to do with the government's ability to spend. Here we are talking about lowering taxes and increasing spending and you can't help but focus on obsolete myths. Sounds like you never read Mosler.

[craigr]

And, respectfully, don't try to say "they earned that money and have the right to do with it as they please," because I agree.  This isn't an argument about rights, but about what kind of support of human dignity we find appropriate even though that person hasn't earned it on their own.  Having someone too sick to work and/or get health insurance slide into utter poverty and despair isn't dignity, and if helping them is lowering the floor of human dignity, I'd challenge you to visualize your mother or father sliding into that scenario and you struggling to hold the attitude that they made their own bed and should sleep in it.  My apologes for getting over-dramatic, but I think this is a valid way of looking at how we see government's role in maintaining human dignity: If it would disgust us to our core to let one of our family members fall into the scenario and do nothing, maybe it's not "lowering the floor of human dignity" for the government to try to provide a modest safety net in that arena... just maybe.

This is a straw man argument really. Nobody is discussing eliminating the elderly.

The expansion of government spending at this point in areas around healthcare in particular has had huge negative impacts. Near me there are many doctors that won't accept Medicaid/Medicare patients any longer. The payments from those patients come nowhere near close to offsetting the actual costs. Government mandates flowing into the system has driven costs up in other unexpected ways. So the idea that government is going to improve things is unlikely.

[Benko]

Gumby,

I've read about the debt based money theory on this forum multiple times.  It is not intuitive and best I can tell basically says that the US can spend an unlimited amount.

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.

[craigr]

I've read about the debt based money theory on this forum multiple times.  It is not intuitive and best I can tell basically says that the US can spend an unlimited amount.

There is not a single example in history where a government could spend money forever and rack up massive debts without serious repercussions. Saying otherwise is like arguing against gravity.

That's why I don't get too worked up over these big government spending debates. Because inside I know it's going to end whether the proponents want it to or not. It is inevitable. My perspective simply is to slow the process down by not enabling a big government to implode. But the course of human history shows it's just not possible. Best you can do as an individual is have your own act together and protect yourself in case it happens in your lifetime.

[Gumby]

Gumby,

I've read about the debt based money theory on this forum multiple times.  It is not intuitive and best I can tell basically says that the US can spend an unlimited amount.

That's not what it says. All modern money theories suggests that debt does matter — just not in the way that you think it does. Modern money suggests that employment levels play a role in determining when debt matters of not (i.e. cut govt spending when unemployment is low).

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.

We all agree that spending has limits — as I've already explained numerous times. However, with unemployment so high — and balance sheets still needing repair — now is not the time to worry about debt IMO.

[Gumby]

I've read about the debt based money theory on this forum multiple times.  It is not intuitive and best I can tell basically says that the US can spend an unlimited amount.

There is not a single example in history where a government could spend money forever and rack up massive debts without serious repercussions. It's like arguing against gravity.

This is a straw man, because nobody here is arguing for infinite spending. Furthermore, nobody expects any country or government to last "forever".

When we talk about "debt" we are simply talking about the system we have, and all its flaws. I'd much rather have some level of "debt-free" money if it were up to me (i.e. citizens dividend or some debt-free money for tuition or roads, etc.).

[Gumby]

My perspective simply is to slow the process down by not enabling a big government to implode. But the course of human history shows it's just not possible. Best you can do as an individual is have your own act together and protect yourself in case it happens in your lifetime.

Right. But, I'm still left wondering... Does it bother you that your own profits were driven by either government handouts into the private sector or other people/corporations going into debt? I'm not trying to be rude, but it seems odd that future generations should not be able to have the same benefits you enjoyed — particularly if so many people are out of work and barely have the money to pay for food or education.

This is not meant as an insult. I know you worked your ass off to get where you are. I'm just having difficulty reconciling how someone can be against govt spending, when so much of their success was obviously tied to govt spending and beneficial private credit environments.

[Benko]

We all agree that spending has limits

Are you sure Krugman does?  And the gang in the whitehouse?
Hell are you sure everone on this board  does?

I am not asking about cutting spending now.  But if you look at the amount spent over the last 4 years, it is increasing significantly.  When does it become too much?