The Growing Isolation of Barack Obama

The last 24 hours may prove to be the most catastrophic day yet for the political fortunes of Barack Obama.

Yesterday, in a bitter move, Even Bayh (D-IN) withdrew from the Senate race, forfeiting his seat to the Republicans and giving his party only four working hours to find a replacement.

Then today, news came out that China has decided to scale back its bail-out of the US Treasury (which needs the money, because of the bailouts of Obama campaign supporters, such as the Detroit and Wall Street speculators).

Obama has known since the beginning that he is selling our country to the Chinese to pay for his expansion of the Welfare State. I wonder if the Law Instructor was smart enough to know that he was selling his own agenda, too?

38 thoughts on “The Growing Isolation of Barack Obama”

  1. Might it also be true that there is a structural cause to our selling the country to China, one that transcends Obama the President? If memory serves correct, spending money borrowed from the Chinese like a drunken sailor was a habit of the United States government during the Bush administration, and of Americans in general. Debt-fueled consumption destroyed the United States, not Obama. Don’t blame the driver when the car he just bought is a lemon.

  2. Dan, here is someone who sees the problem less with the drunken sailor spending of Bush and Obama and more with our inability to say no to baby boomers and the elderly.
    —–

    A better way to diagnose the cause of long-term deficits is to measure taxes and spending against their historical averages. This more comprehensive methodology shows that long-term deficits are overwhelmingly driven by runaway entitlement spending.

    By 2020, the CBO-based budget baseline projects that federal spending will reach 26.0 percent of the economy (5.3 percent of the economy above the 40-year spending average). Revenues will settle at 17.7 percent of the economy (just 0.6 percent of the economy below the revenue average) — and even that assumes all tax cuts are extended.

    So as deficits expand by 5.9 percent of the economy, nearly 90 percent of the growth will come from higher-than-average spending, and just over 10 percent from lower-than-average revenues.

    Virtually all of this new spending will come from surging Social Security, Medicare and Medicaid costs (driven primarily by 77 million retiring baby boomers), as well as net interest on the national debt. These four expenditures will cost $26 trillion over the next decade — surging from $1.6 trillion this year to $3.6 trillion in 2020. That is causing the massive budget deficits over the next decade — and must be the focus of any serious effort to reduce the budget deficit.

    Finally, there is some hypocrisy at work. Mr. Obama criticizes Mr. Bush for “not paying for two wars, two tax cuts, and an expensive prescription-drug program.” Yet he would extend $3.9 trillion of these policies (while repealing $700 billion in tax cuts) without paying for them, either. By his own logic, he’s almost as irresponsible as Mr. Bush.
    http://www.washingtontimes.com/news/2010/feb/16/riedl-obama-misdiagnoses-source-of-deficits/print/

  3. Stephen,

    If you can provide evidence showing Bush’s level of spending was comparable to Obama’s, I would love to see it!

    Eddie,

    We certainly have a long term problem with entitlements. Obama has turned it into an imminent problem.

  4. Ok: http://en.wikipedia.org/wiki/History_of_the_U.S._public_debt

    This is the public debt of the United States since 1977. Notice that in the years 1999-2001, the public debt stagnates, and then begins to climb in 2002 from about $6.2 trillion to $10 trillion in Sept 2009, right when the first TARP bill is passed. Thus, the national debt grows by about 2/3 during Bush’s presidency.

    Another graph showing only the budget deficit: http://www.scribd.com/doc/3015540/US-Budget-Deficit-or-Surplus-1960present

    Notice at the end of Clinton’s second term there was a budget surplus (!!!!), and during all of Bush’s two terms there is a constant budget deficit (although it does fluctuate). Notice also that the projected deficit increases after 2008, which does happen (again, combined b/c of the TARP bailout and weakening economy, which reduces tax income).

    So, does Obama’s spending surpass the worst of Bush’s spending? Let’s assume that it does, and much of that additional spending comes from continuing the TARP and the massive economic bailout. So, were these initiatives worth it in terms of economic growth (or, at least preventing economic decline?

    We can use unemployment as a proxy. This graph illustrates.
    http://www.businessinsider.com/chart-of-the-day-jobs-lost-in-the-bush-and-obama-administration-2010-2?utm_source=twitterfeed&utm_medium=twitter

    Notice how unemployment is increasing until the very end of Bush’s term, and then begins to decline up to the present at about an even level. To me, this indicates that Obama did something right to stem job losses. WRT to his major spending initiatives (TARP and stimulus), I would argue that both programs contributed significantly to the tentative recovery in employment. Without TARP, the banks would have failed and we would have experienced a Great Depression-like scenario in which credit markets would stay frozen because banks had no faith in anyone’s ability to repay loans. As for the stimulus, its function was to stimulate demand in the economy and create some expectation that future investments would be profitable. Absent the stimulus and the artificial spike in demand it produced, investors would have had more incentive to save their money and take it out of the economy, leading to more job losses.

    So, I would say Obama’s spending has been much more responsible than Bush’s spending. The economy collapsed under Bush, not Obama. This is a fact that shouldn’t be ignored, or dismissed, or spun some other way.

    I agree with Eddie to an extent, but how you curtail entitlement spending in a Congress that wants to destroy itself is beyond me. We can’t even change policy in this country to make social services (like healthcare) less expensive. How we actually reduce the amount spent by the government for those social services seems even more difficult, unless we make each dollar spent on those services go farther by making them more affordable, and less driven by profit.

  5. Eddie: Social Security is a joke. There is no social security “fund”. The Revenue is taken in and spent on other USGOV activities. Sometime real soon now, the differences between the inbound SS revenue and outbound promised SS payments is going to get real small. Then it is going to go negative (more SS going out – revenue needed from other sources – then SS coming in).

    Some combination of the following is going to happen:

    1) People who lived beneath their means and saved wisely will be punished through “means testing” in favor of those who spent every dime they made, lived lavishly, or speculated big-time unsuccessfully.

    2) SS Payments will be reduced

    3) The SS “Retirement age” – aka the age you get full benefits – will be increased. Don’t believe the hype. Few people will have the same physical and mental energy/stamina/concentration they have at age 60 when they hit age 70. I expect there are few 60 year IT people. There are no 70 year old IT people.

    4) Expect USGOV engineered inflation. This will reduce the debt obligation in real term but will have all sorts of unexpected|unforeseeable secondary effects. Once again, those who have save and lived beneath their means will be punished by have their wealth reduced in real term through inflation (do-gooders punished, bad-doers rewarded).

    5) Reduced USGOV freedom of action.

    6) Reduced Entrepreneurial activity.

    The above are bad effects.

    Here are a few good things that should be done. I expect none of them to happen.

    1) Switch to price inflation indexing, not income inflation indexing for SS payments.

    2) Recognize that Social Security is demographically not feasible. Drop the SS tax and fund SS from general revenue (e.g. income taxes, tariffs, fees)

    2.1) People already retired will continue to get SS payments that are price indexed.

    2.2) Set a certain age (40? 45?) as a cutoff. People above that age will get benefits at the retirement age…but only at a pro-rated level already “earned”. The rest of their retirement will be handled…starting with section 2.4.

    2.3) People under the cutoff age will not get Social Security paymants. Not ever.

    2.4) Create a new legal financial instrument called a Personal Retirement Account (PRA). A person get an instance of it when they get a social security number (now called a PRA ID). This is your account. It is employer-independent aka portable. Oh yeah, YOU choose your retirement age.

    2.5) Automatically 10% of post-tax earnings (or unemployment benefits) go into the PRA, but you can put optionally up to 25%.

    2.6) Your employer can also earmark a retirement benefit directly into your PRA (no more employee pensions).

    2.7) The PRA are invested into low-cost indexed funds something like while accumulating retirement wealth:

    35% Broad US Equity Fund
    15% Broad non-US Equity Fund
    15% Short-term Bonds
    15% Inflation-Hedged Bonds
    10% Broad US Domestic Bonds
    5% Broad Real Estate (commercial and residential) REIT Fund
    5% Broad non-US Bonds

    2.8) The PRA are invested something like when nearing 5 years from expected retirement and while retired:

    15% Broad US Equity Fund
    5% Broad non-US Equity Fund
    25% Short-term Bonds
    30% Inflation-Hedged Bonds
    15% Broad US Domestic Bonds
    5% Broad Real Estate (commercial and residential) REIT Fund
    5% Broad non-US Bonds

    2.9) When “retired”, money can be withdrawn from the PRA for the purpose of purchasing dual-survivor annuities to create streams of income (tax-free). If married or civil union’d at time purchase, the annuity continues until both of you are dead.

    2.10) I suggest that to make marriage|union and divorce simpler from a financial PoV, your retirement savings should be directed 50% into your PRA, and 50% into your legal partners PRA. If divorce happens, the PRA is untouchable by the former partner. In the case of death of a partner, the deceased PRA is added to the survivors PRA (you know unless they are the killer!).

    3) The US GOV primary domestic policy must become support of economic growth oriented policies and be entrepreneurial super-friendly. Growth is wealth creation. Wealth creation will reduce the impact of the debt. Growth has the opposite effect from Inflation and the right actions get rewarded.

    4) USGOV must be reduced in size and scope and CO$T!! Throw the bums out and keep them out.

    I guess I am just about ready to start blogging again.

  6. It is sooner then I thought:

    http://money.cnn.com/2010/02/02/news/economy/social_security_bailout.fortune/index.htm

    No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.

    The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

    This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.

    Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.

  7. I’m just concerned Obama won’t be reelected? If it looks doubtful, hopefully people in high places will encourage a Tea Party 3rd party candidate to run like they did with Perot.

  8. Here is a post [1] saying raising the retirement age to 70 is a good idea.

    Of course, the author is a college professor w/ tenure. Can’t be fired. Doesn’t have to publish really. Doesn’t really have to teach. His life as a public university professor will be different then the life of most people at age 65. There are no 60+ year old professional programmers/sysadmins. There are few working engineers of that age.

    [1] http://econlog.econlib.org/archives/2010/02/raise_the_age.html

  9. As far as SS, I don’t see an alternative except mandatory individual retirement accounts combined with some program of welfare for the poor. For all the hue and cry over this when Bush proposed it, Clinton’s plan was basically identical, as will be Obama’s (if he has the political capital left to fix problems).

    Stephen,

    sorry for the delay in approving your comment — I promise it wasn’t intentional!

    I appreciate its length — its substance seems to boil down to two points

    1. Eight years of Bush spending exceeed one year of Obama spending
    2. There was a correlation between economic growth and spending

    In your post you abandon the first argument, and the second cannot establish causality.

    Likewise, the “perfect mirror image” chart of employment is interesting, as both administration’s had fiscal policies determined by Goldman Sachs and its accolytes (through the process of regulatory capture). This, while we can say that the Oligarchical fiscal policies were in place throughout what appears to be the beginning and middle of a severe economic cycle, the role such policies played in causing, aggrevating, prolonging, etc., cannot be so easily determined.

  10. tdaxp,

    The US government does not “need” more money, from China or anyone else. It is the sovereign currency issuer. US government debt is basically corporate welfare. Holders of US government debt get to swap a risk free asset that generates no income (a reserve balance) for one that does (a T-bill). The bond market is just the blood sucking vampire squid of popular folklore. It wants to extract more income from these risk free assets. That’s its nature. If you man up and take the punishment it is suggesting, it will carry on sucking blood regardless, for no gain to the economy or the people. The fact that the government is sovereign currency issuer and provider of global reserves does have real implications, but these relate to capacity underutilisation for the precise reason of the production elasticity of government liabilities (i.e., no labour is mobilised in this process).

  11. The issue of unfunded liabilities is thus a red herring. Government can supply a many tokens (dollars) as it wants. At issue is whether there will be real goods and services to exchange these tokens for.

    Purpleslog,

    I concede that all of your ideas are possibilities, but none of them are necessities.

  12. Vimothy,

    Certainly a sovereign currency issue can issue currency to erase its debt. Indeed, this has been done in the past [1,2].

    I don’t think that this is an argument that the government does not benefit from access to open currency markets, though. Indeed, some have argued that credit worthiness has been a central part of national greatness for centuries [3].

    Most of the recent of your comment is either hyperbole, or repetitive of the points above.

    [1] http://en.wikipedia.org/wiki/Weimar_Republic
    [2] http://en.wikipedia.org/wiki/Hyperinflation
    [3] http://www.amazon.com/Empire-Demise-British-Lessons-Global/dp/0465023290

  13. Again, we seem to be talking past one another.

    As a general rule, all governments issue currency to “erase” (i.e. pay back) debt. Obviously, this is complicated by divergent monetary systems. But for soveriegn currency issuers floating bonds in their own fiat currency, and operating in a floating FX system, the basic proccess is no more complicated than debiting a treasury account and crediting a reserve account. Always achievable.

    Not sure why you cite Weimar Germany, since this is an apples to oranges comparison with the US at present (i.e. gold standard vs. fiat currency). Or why you think hyperinflation is relevant (since no one is advocating spending more money).

    I do agree that credit worthiness is fundamental to national greatness, though. (Have you read “A Free Nation Deep in Debt: the financial roots of democracy”?) But as this is the system we live in, if the (consolidated) private sector wants to net acquire financial assets, only the government can provide them. If the government wants to swap its interest free liabilties (reserve balances) for liabilities that pay interest (bonds), then it should do so. But it doesn’t have to. It’s just corporate welfare at the end of the day.

  14. Vimothy,

    I fear we are talking past each other.

    Or why you think hyperinflation is relevant (since no one is advocating spending more money).

    Spending more money is central to the three pillars of Obama’s policies thus far: bailouts, stimulus, and national healthcare!

  15. I thought that we were talking about *future* social security payments?

    In general (and specifically WRT Obama’s spending for current fiscal year), you will get inflation when aggregate demand outstrips aggregate supply, i.e. when there is no spare capacity in the economy. Seasonally adjusted U-6 was at 16.5% last month, according to the BLS. So we are nowehere near capacity. Hyperinflation would require a huge aggregate supply shock alongside a massive aggregate demand shock, but this has nothing to do with current or planned BHO admin expenditure. We’re talking a world war-esque tail event.

  16. Vimothy,

    you will get inflation when aggregate demand outstrips aggregate supply

    You are referring to an increase in real prices, which is not monetary inflation at all. Indeed, such an increase is a useful price signal about the relative scarcity of some product.

    Monetary inflation occurs when the increase in money supply outstrips economic growth.

    If you counter that after criticizing you for using economic tautologies, I’m presenting one of my own — you may be write. Economics appears to be a pseudoscience — a collection of mantras by learned individuals who are no less parasitic than astrologers or the readers of entrails.

  17. tdaxp,

    Inflation is a rise in the general price level, not in individual prices per se, though these may be representative of inflation. Increasing the money supply (careful here because the money supply is endogenous—it is not determined by the central bank, which targets a base rate of interest; AD for credit determines the money supply). Inflation does not occur by magic. There has to be bids for output. When there is too much money chasing too few goods; there is inflation. That is, when we are at potential output (“too few goods”) and the money supply increases (“too much money”), leading to a rise in aggregate demand (“chasing”), we get inflation.

    There are disagreements over what constitutes potential output (e.g. NAIRU vs. full-employment), but I think that all the schools of economic thought agree that it is a question of aggregate demand outstripping aggregate supply. To the extent that money supply growth causes aggregate demand to increase over aggregate supply (potential output), it “causes” inflation. If there is spare productive capacity in the economy, increased aggregate demand should lead producers to utilise this spare capacity. I mean, if you think about it, this is the only thing that makes sense–otherwise, there’s no way out of this recession!

    Agree with what you say about econ, in some sense. Mainstream macro has some problems, but there is still a lot of interesting work being done, even there…

  18. Vimothy,

    You’re accurately reflecting Keynesian and post-Keynesian economics, which is certainly the most popular of the pseudosciences taught in economic departments.

  19. On the contrary, Keynesianism is hardly taught at all! There is one strain of macro called “New Keynesianism”: Keynes was cross-bred with classical to derive the neo-classical synthesis, which was cross bred with classical again (hardcore New Classical, this time) to derive “New Keynesianism”. But by that time, Keynes was mostly gone. This is one of the problems with modern macro. It’s basically just added up micro (i.e. classical), which is why people have delusional ideas about the impossibility of business cycles, etc, etc.

    But anyway, as I said, I think all schools agree that increasing the money supply will not cause inflation unless people spend that money at the very least. And if spending this money only causes inflation rather than increased real output, there can be no escape from the bust. I think that’s implict in what you’re saying. It’s not psuedoscience; it’s just carrying the thought through to its logical conclusion.

  20. But anyway, as I said, I think all schools agree that increasing the money supply will not cause inflation unless people spend that money at the very least.

    Yes,

    Indeed, this is trivially true. If you have a machine which prints money on one end, and buries it deep in the earth in another, it would not impact prices.

    It’s not psuedoscience; it’s just carrying the thought through to its logical conclusion.

    Economics has no system of experiments, no method other than model fitting to determine mediation or moderation. It’s math heavy and unfalsifiable, like some of the crazier branches of astrology.

  21. Arnold Kling at Econlog describes Keynesian this way:

    http://econlog.econlib.org/archives/2010/02/how_i_think_abo.html

    It helps to think of economic activity as outsourcing. That is, if you iron your own shirt, that is not economic activity. If you outsource ironing by paying someone else to do it, that is economic activity. If you eliminate ironing by buying permanent press shirts, that is also economic activity (Nick and I call the cost-saving innovation Economics 2.0).

    A recession is a decline in economic activity. People are not outsourcing as much as they did when the economy was booming. Economists have noticed during this recession that global trade figures have plummeted. Indeed. That illustrates a decline in outsourcing, a decline in economic activity. In Adam Smith’s terms, the extent of the market has declined. Not because of explicit trade barriers, but because….well, I would say it is because the market needs to recalculate, but that is not a very Keynesian notion. Keynes would have said it is because consumers are attempting to hoard, and businesses do not have the “animal spirits” needed to convert this hoarding into investment.

    The thinking behind Keynesian economics is that when you are in a recession, if the government runs a bigger deficit, recipients of the money will want to increase their economic activity. This will draw people out of non-market activity (unemployment) and into the market. The newly-employed will want to outsource more of the satisfaction of their needs, and this will create a virtuous cycle (the multiplier).

    Imagine that all of us were chefs, each with a different specialty. In good times, I patronize others’ restaurants and other people patronize mine. That is economic activity. In a recession, for some reason we stop going out to eat. I don’t enjoy eating my own cooking every meal, but I don’t think I can afford to go out. Since I am not patronizing your restaurant, you think you have to cut back on eating out, also. Economic activity declines.

    Thinking about the economy in these terms, the idea of using government deficits to boost economic activity makes perfect sense to me. The reason that I am doubtful about Keynesian policies today is that I think that recalculation is important. Nobody, least of all the government, knows the best way to align the work force to satisfy needs. The recalculation problem has to be solved gradually, by trial and error. It is as if we had a bubble in Mexican restaurants, and now it is not clear whether they need to be replaced by more Indian food, more French-Asian fusion cooking, or whatever. I do not think that central planners in Washington know the answer any better than the market. So I am not confident that a Keynesian approach is going to get us very far this time.

  22. “If you have a machine which prints money on one end, and buries it deep in the earth in another, it would not impact prices.”

    Yes, precisely so. AKA the liquidity trap. This is a big problem at present, just as it has been a big problem in Japan during its “Great Recession”. To be even more precise, since monetary policy sets a price, not a quantity supplied, if there is no demand for credit at a given interest rate, the money supply will not expand, and there can be no impact on prices.

    ”Economics has no system of experiments, no method other than model fitting to determine mediation or moderation.”

    I agree. But so what? Neither does strategic studies, history, Middle East studies, anthropology, sociology, English lit, social studies of finance, education research, etc, etc…

    In any case, in our conversation we have mostly discussed the operational facts of the monetary system—not neoclassical angels-on-the-head-of-a-pin theories. So although I agree with your broad point about economics in general (though I still feel that it has value nonetheless), it seems like something of a non sequitur. And I certainly have given you testable propositions (such as the effect of budget surpluses), which you have ignored.

  23. Purpleslog,

    I’m not sure that Kling is the best person to go to for an explanation of Keynesian macroeconomics. Is he even a macro guy? Hard to tell from the quote above. But it does provide a way in to think about this stuff.

    The outsourcing analogy itself is quite good, because it helps to highlight the fact that in general, fluctuations in aggregate demand are coordination problems introduced by money qua money.

    However, there are two problems with Kling’s story: 1, the cause of the recession was a simple change in preferences. And 2, there is no actual macro problem, just a brief period of adjustment where output is less than potential, and the assumption that after the readjustment potential will probably be higher since we’ve reallocated capital more efficiently. There’s a slight disconnect between the two in the story as well.

    If you assume that there is no problem to address, then I agree that there’s no need to address it. But let’s have a look at the story. So, the society of chefs who stop eating out, just decide that and enter a recession. According to Kling, Keynes says if the government deficit spends here everything returns to normal. However, Kling responds to Keynes by saying that there is no need to do this because, you know, people want to want to eat Chinese instead of Indian, or Thai instead of French and that’s how it goes. If the government interferes with this process it will be second guessing the spending preferences of the public and no doubt get it wrong.

    For what it’s worth, I agree with Kling that if the government is second guessing the spending preferences of the public it will probably do a worse job than the public itself. But, this in no way responds to even the straw man/fairy tale Keynesian problem Kling has just outlined. It’s a separate issue. If we’re talking about a change in spending patterns, but not a change in the aggregate spending rate, there is no macro dilemma to solve. People want to eat Indonesian and not Iberian: big deal! Aggregate demand is unchanged.

    But what if people just want to spend less of the money the earn full stop? Not spend it in a different shop, what if they don’t want to spend it at all? Furthermore, what if it’s not a simple change in preferences that just happened for no real reason (“animal spirits” or whatever), but something driven by, say, being massively overleveraged on aggregate, so that now the economy is contracting, income is falling, nominal debts are fixed and we are therefore in a debt-deflation spiral. Does Kling have any suggestions here?

  24. I definitely feel like I’m observing a debate between adherents of Western and Chinese astrology, in which both camps (accurately) criticize the other as simply a collection of wishful thinking and mundane observations.

    All scientific fields are falsifiable. That means, there is some experiment that could be conducted to refute the conjectures put forward in that field. Macroeconomics cannot be falsified. Therefore, it is not scientific.

    It is a humanity, similar to History, that can give us insight and understanding. But it is not science.

  25. I believe that I’ve already agreed that economics is not a science.

    I don’t think your analogy is very good. This isn’t about metaphysics, but accounting and consistency with the actual operation of the monetary system. In any case, I note that, regardless of your feelings about the value of economic knowledge, you do draw on astrology just the same. For example, in your story about inflation. This is (monetarist) theory. My criticism is not rooted in theory, but operational fact: the Fed does not control the money supply; it controls the price of money (adjusted for the liquidity preference of the financial sector).

    Furthermore, the fact that economics is not a science should not be used as a licence for wishful thinking or fuzzy logic. Even if it were astrology, one should still aim for more than reading chicken entrails or praying for rain.

  26. Vimothy,

    Thank you for your comment.

    I am glad we recognize that macroeconomic knowledge is not scientific.

    The conclusion of this is that macroeconomics is not a reliable tool for predicting, controlling, or improving economic outcomes. It provides ‘understanding,’ it may be an ‘art,’ but it cannot guide decision making in the way that, say, knowledge of microeconomic knowledge guides the decisions of individual businesses.

    Even if it were astrology, one should still aim for more than reading chicken entrails or praying for rain.

    I am not sure, but this may be our central disagreement. If we are left with two vague and non-predictive belief systems, a more complicated one is not better because it is more complicated. Indeed, the reverse is true: its complexity better hides wishful and fuzzy thinking in the cloak of circular arguments and tautologies.

  27. tdaxp,

    Sure, sure—but I’m not presenting a belief system. I haven’t said anything theoretical. In fact it is you who are the astrologer here:

    ME: Humans are mortal; tdaxp is a human; therefore tdaxp is a mortal.

    YOU: That argument is tautological, and so it adds nothing—Nothing! I cannot die! Sell your snake oil somewhere else, soothsayer!

    Etc, etc.

    You’ve made a variety of nonsensical statements. I’ve explained why they are nonsensical. Rather than argue with the accounting and operational reality, or adapt your critique, you’ve engaged in strategic equivocation, producing what seems like one long non sequitur in response. Macroeconomics is not science. Arguments that are logically consistent are tautological. Yadda, yadda, yadda.

    This is far from high theory. A child could understand why every sector in the economy cannot be in surplus at the same time. So if you want the government sector to reduce its deficit, you must want the non-government sector to increase its deficit. That is to say, if you want to reduce the fiscal deficit and pay down the national debt, unless the foreign sector plays ball and starts running a trade deficit with you (er…), the only way that you can do that is by increasing private sector expenditure relative to income—this means driving the private sector back into the debt-deflation spiral from which it was recently rescued by the fiscal deficit.

    Government liabilities must be (after netting) non-government wealth. Not hard to grasp, and nothing to do with Keynesian macroeconomics. The government cannot run out of money, because the government’s liabilities *are* money. When your treasury matures, you just get given another IOU from the government: non-interest bearing, non-convertible currency. Again, not theory—it’s what actually happens. So there is no funding problem for social security. The only issue is whether there are real goods and services for people to swap their government liabilities for in the future.

    Similarly, it is a matter of institutional fact that the Fed cannot ‘monetize’ anything; especially the national debt (even if we forget that govt debt is already money). Nor does it control the money supply. Again, this is not theoretical, just the bald facts. The Fed controls a base rate of interest for overnight funds. Any act of spending (increase in reserves) must therefore be accompanied by an offsetting debt issuance (decrease in reserves) to maintain the target rate.

    Regards,

    v

  28. Vimothy,

    Sure, sure—but I’m not presenting a belief system. I haven’t said anything theoretical.

    Well — you’re describing a closed systems of definitions that is insulated from any evidence. So the fact that you can manipulate the logically closed systems implies nothing about the actual state of the world — it merely shows your cleverness with your logically closed system.

    This is on contrast to, say, science in which assertions can be rigorously tested, or even history where assertions can be contextualized and problematized. In a closed system of definitions, statements are meaningful only with respect to themselves, and thus meaningless with respect to anything else.

    The question is not “logical consistency,” which both scientific and non-scientific fields can reach to, but tautology, which is meaninglessness. Tautologies are logically consistent but meaningless. If you wish to get any point across that matters in any other context, I would suggest you try for meaningful statements.

    Purpleslog,

    I enjoyed the humor — and meaning — both characters presented in that video! :-)

  29. 1, the “closed system of definitions”, whose manipulation “implies nothing about the world”, and to which you refer disparagingly above is called accounting and double entry bookkeeping–an 800 year old practice and the basis for the record of all monetary transactions in the economy. It is operational reality for the monetary system.

    2, I have given you numerous testable propositions (and even data!), all of which you have chosen to ignore whilst decrying the impossibility of producing testable propositions using an analytical framework consistent with accounting rigour.

    3, “meaning” refers to signification (noun) or to significance (adjective). A tautology has meaning in the first sense, and here, in the second sense, because you have obviously not understood the meaning (signification) of the terms you were using in the first place–as the conclusions you draw flatly contradict the actual relationships the terms describe (what you call “tautologies”–e.g. that a liability is also an asset).

    Good day, sir–a troll’s life is too busy, and my bridge calls out for attention.

  30. Vimothy,

    Thank you for your comment.

    1. Yes. We are discussing the closed system of definitions that is double entry bookkeeping. It is a useful technology, in the same way Excel is, but simply coming up with this or that figure implies nothing about the world, any more than arbitrarily entering a number in Excel and declaring it to be your wealth.

    2. Which were?

    3. As you noted in your first paragraph, the question is meaning in the outside world, not meaning as such. You’ve clearly established your ability to manipulate a closed system of definitions, which (of course) leads to meaning withing that closed system.

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