Afternoon Update for December 27th

December 27, 2012 13:14 pm

by Nathan · 34 comments

In the same vein as Ed’s first Afternoon Reads post, here’s an afternoon update on what’s going on:

Georgia:

National/International

General Interest

Ghost of William F Buckley December 27, 2012 at 2:02 pm

Ahhhh, the great dismal science of economics explained so that even a Democrat can understand:

love it when they make it simple enough for even me to understand!

This puts things into perspective.

Lesson # 1:

* U.S. Tax revenue: $ 2,170,000,000,000
* Fed budget: $ 3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let’s now remove 8 zeros and pretend it’s a household budget:

* Annual family income: $ 21,700.
* Money the family spent: $ 38,200.
* New debt on the credit card: $ 16,500.
* Outstanding balance on the credit card: $ 142,710.
* Total budget cuts so far: $ 38.50

Got It ?

OK now,

Lesson # 2:

Here’s another way to look at the Debt Ceiling:

Let’s say, You come home from work and find there has been a sewer backup in your neighborhood…. and your home has sewage all the way up to your ceilings.

What do you think you should do ……

Raise the ceilings, or remove the crap?

Stefan December 27, 2012 at 3:17 pm

One of my peach pundit resolutions for the new year is a greater emphasis on economic theory, so I welcome this debate. And, I also look forward to your realization that a comparison to a household budget is not helpful, which I expect to occur around March.

Noway December 27, 2012 at 3:36 pm

Respectfully disagree, Stephan. I got this same info in an email about 2 months ago. I find it extremely ‘helpful’ in that it breaks down the issue in such a way that even an uninformed Georgia public school educated Democrat could understand. It’s spot on.

Mike Stucka December 27, 2012 at 5:48 pm

Agree on the problems with the household budget — and especially the “credit card.”

However, the “Fight of the Century” economics rap duel video on YouTube is very, very much worth a look in terms of basic economic education. No kidding.

David C December 27, 2012 at 6:32 pm

I find it very amusing that people think that a household budget is any way analogous to macroeconomic fiscal policy, much less that every mention of it comes with the boast that it’s “so simple even a Democrat can understand it.”

Daddy Got A Gun December 27, 2012 at 7:29 pm

Can you explain why the household analogy doesn’t work with government?

Doug Deal December 28, 2012 at 5:37 am

For one, it is convenient to his belief in large government to think that governments are immune to problems of carrying large debts.

mpierce December 27, 2012 at 8:18 pm

much less that every mention of it comes with the boast that it’s “so simple even a Democrat can understand it.”

Perhaps that is a bit of a stretch?

Noway December 27, 2012 at 9:36 pm

Since you’re so superior intellectually, Dave, explain how this example of a household example is so feeble? If you spend more than you earn you run into debt problems. People are going bust every day, Dave ,for spending like a drunken sailor on Saturday night. Just like we are. It is 10000% analogous.

David C December 27, 2012 at 11:18 pm

Because, among other things, a household doesn’t control its own currency. Ultimately, a credit card company can go after an individual home owner and sue them, forcing them to repay their debts or go into bankruptcy. As a last resort, a country can print money to repay its debts. That’s why even as most Western Countries have high deficits, the interest rate for US and UK debt is at a record low, even as countries like Italy and Spain face runs on their finances. It’s not because the Mediterranean countries were particularly more profligate in spending than either of the Anglo countries prior to or during the crash. Rather, their currency is at the mercy of the Germans and the European Central Bank, rather than in their own hands. A household doesn’t have the option to ultimately create money to repay their creditors and that’s a huge difference.

Another difference, before someone raises the specter of Weimar Germany and wheelbarrows full of printed money is that ultimately, US debt is in incredibly high demand right now: It’s why interest rates on the debt are so low. It’s considered a safe investment in an uncertain market. If you wanted to go to your household analogy, it’d be that credit card companies are so worried about their money they wanted to give it to you to spend it.

But the difference in the debt is not the only reason the analogy is flawed. GDP matters. Credit card spending is spending that you would consider as external spending. Government spending goes into the economy and stimulates it. Every dollar spent by the government, whether it’s employing a person or paying for a good or service, ultimately that dollar moves out into the economy and helps employ other people. The public school teacher takes his paycheck and spends it on Christmas Presents, the building contractor building the road pays his employees and purchases concrete, etc. All of those payments affect GDP, the ultimate productivity of the economy. All of those who are impacted by the multiplier effect of government spending ultimately pay taxes as well. Cutting that spending, laying off those employees shrinks the economy.

When you shrink the economy with austerity you shrink the tax base and so the actual deficit doesn’t shrink: It grows. It’s what Keynes described as the ‘Paradox of Thrift': If everyone cuts back on their spending, including the government, everyone is worse off. It’s one reason why even as the Conservative Government in Britain, even as it has preached austerity, raised taxes and launched massive cuts in public spending, has failed to meet its targets in deficit and debt reduction. It’s why even as Germany and the EU have demanded massive cuts in public spending in the Mediterranean countries, those countries are still facing massive deficits. It’s why everyone worries that the ‘fiscal cliff’ will send the economy back into recession: It’s a massive austerity bomb of higher taxes and steep cuts to public spending. If you wanted to use your credit card analogy, it’s like saying “My credit card bill is too big. I’m going to sell my car, which is the only way I get to work.” Ultimately if you can’t go to work you’ll get fired. Even if you aren’t now paying a monthly car payment and for car insurance, your financial position is ultimately worse off.

Of course, there are other macroeconomic differences between a credit card payment. Namely, there are other ways to pay off a deficit. Ultimately the ways to pay off a deficit are through inflation and through economic growth: It’s why the important ratio is debt to real GDP. During World War II the US ran absurdly high deficits compared to GDP, rising high above 100% of GDP. But that deficit was necessary for the time at hand; No one thought beating Hitler required a balanced budget amendment. But the way the debt was paid off was important. The US did not run high budget surpluses to pay it off. Instead, while with the end of the war and return to economic growth saw the deficit reduced, it wasn’t eliminated. Only a few budgets in the 1950s had even a miniscule public surplus. Nevertheless, the amount of US public debt in relation to GDP fell strongly to 24% of GDP by 1974. At no point was there a run on US debt. The US was considered a trusted creditor, as it is today. As the economy grew and the value of a dollar slowly shrunk (as it naturally does), the actual value of the debt relative to the debtor decreased. How would this fit into the credit card analogy? It doesn’t. That’s one of many reasons why the analogy doesn’t work. Governments and countries are big, complex things.

Doug Deal December 28, 2012 at 5:45 am

Printing money is your reason? That is ridiculously laughable. You might as well say the household could rob liquor stores, so carrying debt is not so bad. Printing money destroys the value of the money already in existance. Inflation does not exist, it is the deflation in the value of the currency that makes everything appear to be more expensive. All that printing money to get out of debt that surpasses our GDP will do is render us the second Weimar Republic.

Even your mostly discredited hero Keynes had this to say about your idea:

“The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.

Ideas are big and complex things.

Ghost of William F Buckley December 28, 2012 at 8:08 am

David C. eloquently tries to defend the precarious US financial position by pointing out several flaws in the simplistic perspective above, but fails to realize the power behind the example is not in it’s correlation between household and government budgets, rather a simple perspective of large numbers.

What people need to understand is that ANY government can ONLY provide an environment for stable economic growth through fiscal and monetary policy. The Federal Reserve Bank, which controls US monetary policy is about tapped out on what it can do. We lack fiscal policy from cohesive, strong leadership in the Senate, House and Executive offices.

Industry will react to sound fiscal policy by investing it’s massive, cash reserves in plant equipment, jobs, and create true growth. That is, if you believe in Capitalism, and not Keynes.

Economies have four modes: Growth, Greed, Equilibrium, Recovery. We saw the end of a thirty years greed mode, we are now passing back and forth between equilibrium/modest recovery modes.

True growth may takes years to find, as we seek to reduce adverse macro-economic pressures such as government debt, prudent spending allocations, reigning in long term societal cost of medical care, etc. Sound fiscal policy will address each of these monumental issues.

Respectfully, here are several examples of fallacious thinking in David’s reply:

1. As stated, the example is not a comparison of Federal government to household budgeting, rather it is a perspective of how miniscule current budget cut discussions are to total debt and spending.

2. Invoking Keynesian Theory reinvigorates many arguments put forth by Mr. Buckley and other notable, fiscal conservatives. When the US Federal government buys something, or pays someone, there is immediate competition with the private sector, the true bedrock of a Capitalist society.

3. “’… what Keynes described as the ‘Paradox of Thrift’: If everyone cuts back on their spending, including the government, everyone is worse off…” Not so, when government cuts back on it’s spending, the private sector will have access to labor and goods formerly utilized by government.

Should the free market decide how to utilize labor and goods, or is the US Federal government a better manager or resources?

The ‘fiscal cliff’ increases revenue and decreases Federal debt, albeit, only about $40 bucks on roughly a $143,000 tab, in my example above. That should be a good thing, right?

Yes, but our economy is in the recovery mode, and consumption means increasing jobs and leads to the growth mode. Taking $2,000 of income from a household, vis-a-vis not renewing the Alternative Minimum Tax ‘free-pass’ may mean less consumer spending.

The huge multiplier, corporate spending, hinges upon certainty of stable, economic growth policies, which we do not have.

4.) Who owns the most US debt? China? Nope, the US Federal government owns most of our debt. Will they be calling in their notes? What force will the US Federal government use to collect?

Some worry 401K plans, representing some $15Trillion, may be in jeopardy. Who knows how the Feds will handle matters? Nobody.

That’s uncertainty, and that is what will hold true growth back.

Doug Deal December 28, 2012 at 8:27 am

He also neglects to mention that his hero Keynes blamed the hyperinflation of the Weimar Republic on the printing of money to pay for expenditures.

“John Maynard Keynes described the situation in The Economic Consequences of the Peace: “The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.”

Noway December 28, 2012 at 8:36 am

All of those words and here is the true bottom line: The ‘printing more money’ Vallhalla you have repeatedly and continue to espouse on this site results in each dollar that is simply printed being worth less than the dollars already in circulation. Eventually, the dollars will be worth less than the Weimar Germany wheel barrow that carries them. That is pure fact.

Noway December 28, 2012 at 9:59 am

And, do you remember seeing the discussions of the US’s yearly outlays, say for defense, SS, Medicare, those kinds of things? There’s another one: interest on the national debt! Nary a peep out of paying on the principal! Sounds kind of like paying the ‘minimum payment’ on the old Visa card to me, making Buckley’s original posting even more ‘helpful’!

saltycracker December 27, 2012 at 2:41 pm

From a public perspective:
#1 -A. Sell Piedmont Park to a low income housing developer
B. Raise the credit card limit
#2 – Call the City to come clean out the crap
#3 – Send more individual support stuff

Sent “Airborne” to you from the Cyrano

mountainpass December 27, 2012 at 3:01 pm

Feinstein is going for everything: http://www.feinstein.senate.gov/public/index.cfm/assault-weapons

I thought she swore an oath to the Constitution…..

Nathan December 27, 2012 at 3:06 pm

She had her fingers crossed behind her back.

David C December 27, 2012 at 6:33 pm

No amendment is absolute, or would you like to go shout “Fire!” in a crowded theater?

Noway December 27, 2012 at 9:45 pm

Which other provisions of the other nine of the Bill of Rights would you like to eliminate, weaken or modify, David, or is just the pesky Second one that you have a problem with?

David C December 27, 2012 at 11:55 pm

What part of “well regulated” don’t you understand? It’s right there in the amendment itself: “A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.”

Nowhere in the centuries of common law judicial understanding and the interpretation of the Bill of Rights have they ever been described as absolute. Most notably, the 1st amendment does not guarantee your ability to endanger public safety, nor does it allow you to commit libel or slander, or, for that matter, treason. The details of what constitutes the judicial rights enshrined in the 4th, 6th, 7th, and 8th are debated and their understanding subject to continual interpretation by the Supreme Court. How, precisely, is regulating the types of firearms available to the public not something generally understood as allowable under the constitution? Machine Guns and high explosives have been heavily regulated, with no judicial challenge, have been highly regulated and their availability greatly restricted for three quarters of a century with nary a judicial objection. To pretend that any restriction on the amount of weapon available is counter to the constitution is to live in a fantasy world of absolutes rather than the world of compromises and shades of grey the founders occupied.

Doug Deal December 28, 2012 at 6:10 am

Well regulated does not mean what you think it means. Today, the words have come to denote something limited by government decry, but in the 18th century, it meant well running. One might say a Swiss watch is well regulated.

Militia is another term that has strayed from the meaning at the time of the writing of the Constitution. It is the armed civilian population that would rise up in arms when needed. For a practical demonstration, reference the defence of Ft. William Henry which was depicted in the book and movie “Last of the Mohicans”.

The extra defenders called up were civilians, who brought their own weapons for the common defence. They were not members of the regular army and once the emergency had passed, they would return home to tend their farms and families. Just because we have decided to use the terms differently does not mean it retro-actively changes the meaning of the Constitution because you feel all icky about big bad guns.

Ghost of William F Buckley December 28, 2012 at 8:19 am

First, does anyone honestly believe that they will be able to stop ANY government takeover with small arms?

Yet, I remain stoically disappointed that bad actors, in virtually any setting, hinder our freedoms.

Be it speed bumps (Bad actors speed through a neighborhood, so we build speed bumps to slow them down, which every good actor hates, instead of enforcing the LAW). To limiting my right own an Armalite .223, with flash suppressor, with a 30 round magazine, taped to another 30 round magazine.

I’m spinning down here. . .

Doug Deal December 28, 2012 at 8:23 am

Apparently you’ve never heard of Afghanistan. Or read any quotes by Admiral Yamamoto about invading the US. (Gun behind every blade of grass.)

Ignorance of history and current events is no excuse to make bad arguments.

Harry December 28, 2012 at 8:48 am

Apparently he’s also not aware of the history of Switzerland in WWII. The Germans were informed through diplomatic channels that an attempt to invade would be met by a “Geistige Landesverteidigung” (spiritual national defense)…the legend (true?) of the German asking a Swiss soldier what they would do, if Germany attacked the 500’000 Swiss with twice as many soldiers – “we would have to shoot twice”.

Doug Deal December 28, 2012 at 8:56 am

Indeed.

John Walraven December 28, 2012 at 9:10 am

“Power comes from the barrel of a gun”.
Mao Zedong, Communist dictator of China 1949-1976.
First said by him in 1935,and later included in his ‘Little Red Book’ of 1967.

Harry December 28, 2012 at 9:15 am

And now some of Mao’s descendents are living in the US and voting for Democrats.

Noway December 28, 2012 at 8:39 am

And, David, what part of “shall not be infringed” do you not quite understand?

Noway December 28, 2012 at 8:45 am

The NRA will purposely go after any politician, state, local, federal and dog catcher who proposes to lessen the public’s right to firearms. I can’t wait to see the bludgeoning of any politician stupid enough to do it. I joined the NRA the day after Colombine. Been there ever since. Before those crazy kids had even been buried, I knew the ninnies and anti gun weenies would be coming after the guns. Now, mine was just the action of one guy, granted, but it’s interesting to take notice of the literal Biblical Flood of firearm purchases since Connecticut.

jbgotcha December 28, 2012 at 3:51 pm

It just sounds like people are scared by the media coverage and have become sheep being led to a false sense of security by the NRA and it’s cronies. Have fun with that.

xdog December 28, 2012 at 10:14 am

Some of you hairy-chested guys act as if you’ve been in the egg nog too long. Yamamoto steaming up the Mississippi? Germany deterred by cuckoo clocks and chocolate? Mao’s people voting for donks? Literal Biblical floods? At this rate you’ll be singing ‘Bring on the Enola Gay’ soon.

You’re all missing the point. Right now a majority of citizens are interested in taking legislative and societal steps to increase the chances that 7 yo kids get to be 8 yo kids, and that includes some form of limiting access to firearms. If you’re not down with that you’re (once again) on the wrong side of history.

Let me try to forestall some of your expected responses. I support the Bill of Rights, and I don’t want to see Congress or the courts gut the 2nd amendment the way they have recently effectively repealed the 4th. But you heroes should know that changes are coming and if you truly care about keeping your guns you should get real in your defense. Quick cue–Wayne Pierre’s public performance last week isn’t the model to follow.

Doug Deal December 28, 2012 at 10:33 am

I own no guns and have no intention on every owning one unless circumstances change where I feel I need one. Yet, I am glad that a large number of my fellow citizens have taken it upon themselves to exercise that right.

This has absolutely nothing to do with “saving children”. If that were the reason, we would be banning children riding in cars as it is by far the leading killer of children. Further, you are 10 times more likely to be killed by your government than by a fellow citizen, so perhaps step 1 should be banning the government.

The truth is that gun owners save lives and make those lives have a higher standard of living. Throughout history, people have been subject of their government, pawns to be done with as the government sees fit. In most of the world, that condition persists. Guns in the hands of civilians are the last line of defense of the rights you supposedly charish. In case you were not aware, even our own government has murdered its own citizens in the name of more efficient governance. Some rules written on a piece of paper kept in a museum somewhere have no value without the will and capability to defend them.

If these proposed rules were in place (or even enforceable) in 1775, there would have been no 1776 declaration.

seekingtounderstand December 28, 2012 at 3:07 pm

You might want to ban hospitals, cars and second hand smoke if you really wanted to save children.
To those hell bent on saving children, your fierce fight for millions of abortions is in direct conflict with your zeal to control guns. Is it just me or anytime I hear the politics of gun control to save children from the same people who fight for millions of abortions I want to throw up.

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