"Congress, Mr. Trump, and Mr. Biden have left a huge burden for future taxpayers" -- Japan's 3 decades of increasing debt without big increases in taxes falsify this claim.
Don't they?
There were two big decades to be hugely studied - the 1930s with the Great Depression, and the 70s with Stagflation - increasing inflation and higher unemployment/ lower growth.
Trump's tax cuts, which increased the deficit, also increased the investment and production in America. Not all deficits are equally bad.
I suspect there will be far more talk about austerity type programs then are actually enacted. Then there will be some inflation leveling out before much actual reduced gov't spending (= austerity?), but the reduction in inflation, even if it is mostly just reduced energy prices, will be used to stop any more (or any?) austerity,
--
Note that while the word austerity also applies to normal people, with a strong budget constraint, it is used almost exclusively for "government austerity", meaning less gov't expenditures ... than planned? than expected? than desired by the Deep State? Seldom compared with actuals from the previous year. (If the desire was a 5% increase, a 3% increase can be called "austerity" - and almost always is.)
What's the best way to understand the time scale on which austerity becomes unavoidable in your model? How do we tell if it will be a matter of years, decades or centuries?
There is no model in Arnold's post or in the paper he refers. Indeed, there is no way to develop a model that could predict how politicians will behave and governments will control their spending and much less how they will finance it. That is why you should learn from the history of Argentina and I bet you there is no alternative experience since WWII.
But clearly Arnold thinks he has some rough idea of when austerity will become necessary in the United States. He isn't saying "for all I know it'll be a thousand years before we have to cut entitlements."
This Q is almost a re-phrasing of a Q for Modern Monetary Theory - How long can deficits be increased? Japan has had 3 decades, since its '89 crash, of low inflation, low growth, and increasing deficits. I had read their Nat. debt is at 250% of annual GDP, but read today they're at 190%.
As real cost of energy increases, due to Biden plus other gov't restriction & reduction of supply (in whole world), both Japan and the USA will get energy based price rises which look a lot like inflation - since all production requires energy. Increasing energy prices increases all prices.
EB is right that Arnold hasn't articulated any falsifiable model, nor even much of an outline. I, too, believe it's a problem, but have no model to show exactly why.
Not being able to understand, or model, the truth, nevertheless doesn't stop it from being true. But without a model, there can be no confident predictions of timing, and possibly not many warning signs.
I can easily imagine a non-austerity counterfactual with the Russia-Ukraine war having a 2022 spike in energy, followed by an increase in energy supply after some sort of peace, and then a big reduction in energy prices and thus inflation. This can occur even without changing SS or Medicare or other fiscal or monetary policies.
More likely is that there will be political responses that have effects, and allow any model to plausibly claim its bad predictions were not really falsified.
In Spring 2020, millions of young adults had thousands of dollars deposited in their bank accounts with nothing to spend it on. What followed was an explosion of speculative trading in stocks and crypto currencies. The prices of many financial securities increased two to ten times between April 2020 and Fall 2021. Since the Federal reserve announced tightening of monetary policy, financial markets have entered a bear market.
Others appear to have directed their "Covid money" to real estate. What followed was a massive increase in the price of houses and significant increases in rents. So far, the inflation in housing prices has stuck, unlike what has happened in the financial markets.
The USA is experiencing significant inflation and significant supply shortages (what happens when you pay people to not work). The country is also experiencing ever worsening public services (education) and infrastructure and increasing congestion in its transportation network (road, air, sea ports).
It appears that private wealth (assets held by individual Americans) has never been greater but public debt has also never been greater. This public debt includes not only financial debt and liabilities but also the decline in quality of public services and infrastructure, despite massive legislation supposedly to fix infrastructure.
For reasons, public officials are inept at solving the education and infrastructure deficit. They either fail slowly or they never try. Either by direct transfer or via trickle down economics, public money makes its way to private citizens with no improvement made to the public services.
The intrinsic bias towards privatizing wealth and socializing debt points to a future of ever increasing inequality and social strife. Stein's law comes to mind: "That which cannot go on forever will stop." In this case, what exactly is going to stop? Will it be the illusion of government providing public goods and services? Then what?
We also need a retrospective on what the optimal degree and kinds of restriction on social interaction were in response to the changing course of COVID. My feeling is that on net there was too much restriction. For example, venues should have been restricted on the basis of how well or not they could prevent aerosol dispersion, not on the basis of the activity that was being carries out in them per se.
See my reply to Dave Baker. Now with respect to optimal degree and kinds of restrictions on social interaction, there is no way you can look at the history of any group or society to start even to define restrictions and assess their effectiveness --it amounts to attempt to draw the optimal law/legal system from the history of humanity. You may benefit from reading David Friedman's work on old legal systems to understand why (yes, Milton for money, his son David for law).
I only mean by "optimal" the best tat could have been done under the circumstances. Why can we not seek this in looking at what actually happened, to try to observe regularities that could guide future responses?
Because in early 2020 our knowledge was very limited and it continues to be quite limited despite all the analytical work and the talk of the past 2 years. We can blame political manipulation for the persistence of our limited knowledge but there are other forces --let us say, it's complex (how much do you think we know about the interactions between viruses and humans?). From my own attempts to understand that persistence, I think that the relevant interactions (among humans as well as among viruses, animals, and humans) are much more complex than the analysis of financial systems to which Arnold referred yesterday (fyi, I worked 20 years repairing "broken" banking systems in several countries).
By the way, my remarks are very much and intentionally based on hindsight. Of course things could have been done differently if we had know in March 2020 what we know in May 2022.
I agree. It was obvious from day one that the epidemiological models that were being offered did not include any human behavioral feedbacks. However inadequate, they were such features should have been included so that as the course of the disease changed, the could have been improved. [This is related to the style of behavioral reconditions which focused almost entirely on what to do for self-protection and not on controlling community spread.] But policy makers were also amiss in not trying to fit restrictions to the best models epidemiologists could produce.
The data indicates that NONE was the optimal social restrictions outside of elderly and medical care centers. Isolating people in their homes fails in every possible way. It didn't stop infections. It ruined learning , it caused great emotional harm. It caused great harm to the economy.
The data also shows that specific mandates, such as masking on airplanes and in schools accomplished nothing.
Do we trust the data? Do we allow the data to inform social policy? Or do we trust the "experts" who rule by computer model and who refuse to acknowledge what the data shows?
I think we are saying similar things, just that you are more certain of the exact results of the retrospective. I think there may have been a degree of people going out less that could have been helpful. I also think schools were closed for too long and could have been opened much sooner with a test to attend policy (which would have required previous massive development of capacity for testing asymptomatic people). At least that the KIND of result I'd like to see.
Amen! I think that the world wars should have been financed more with taxes, although not having a VAT at the time did make that more difficult. But there is just no excuse for a deficit when the economy is at full employment. The beneficial reductions incorporate taxes in 2017 should have been offset (or more than offset) with higher collection from personal income taxes (including converting most deductions into partial tax credits at less then the rate of the highest marginal rates.
Thanks for referring to a paper that very few economists will read. Too many economists are talking about inflation but know little about how government spending is financed (and much less about how central banks have been responding passively to large changes in relative prices). BTW, Tom Sargent has been studying the financing of government spending for the past 50 years, including episodes of hyperinflation. With George Hall, Tom has recently gone into the details of each source of funding large increases in government spending.
With respect to the long-run implications of your country's current federal debt, you should try to learn from Argentina's experience in the past 70 years (the show is still going on: the monthly inflation rate for last month jumped to 6% and since the agreement with the IMF is very unlikely to succeed the inflation rate will hardly decline as expected).
"Congress, Mr. Trump, and Mr. Biden have left a huge burden for future taxpayers" -- Japan's 3 decades of increasing debt without big increases in taxes falsify this claim.
Don't they?
There were two big decades to be hugely studied - the 1930s with the Great Depression, and the 70s with Stagflation - increasing inflation and higher unemployment/ lower growth.
Trump's tax cuts, which increased the deficit, also increased the investment and production in America. Not all deficits are equally bad.
I suspect there will be far more talk about austerity type programs then are actually enacted. Then there will be some inflation leveling out before much actual reduced gov't spending (= austerity?), but the reduction in inflation, even if it is mostly just reduced energy prices, will be used to stop any more (or any?) austerity,
--
Note that while the word austerity also applies to normal people, with a strong budget constraint, it is used almost exclusively for "government austerity", meaning less gov't expenditures ... than planned? than expected? than desired by the Deep State? Seldom compared with actuals from the previous year. (If the desire was a 5% increase, a 3% increase can be called "austerity" - and almost always is.)
What's the best way to understand the time scale on which austerity becomes unavoidable in your model? How do we tell if it will be a matter of years, decades or centuries?
There is no model in Arnold's post or in the paper he refers. Indeed, there is no way to develop a model that could predict how politicians will behave and governments will control their spending and much less how they will finance it. That is why you should learn from the history of Argentina and I bet you there is no alternative experience since WWII.
I meant "model" as in his mental model, not a formal model.
I refer to all definitions of model.
But clearly Arnold thinks he has some rough idea of when austerity will become necessary in the United States. He isn't saying "for all I know it'll be a thousand years before we have to cut entitlements."
This Q is almost a re-phrasing of a Q for Modern Monetary Theory - How long can deficits be increased? Japan has had 3 decades, since its '89 crash, of low inflation, low growth, and increasing deficits. I had read their Nat. debt is at 250% of annual GDP, but read today they're at 190%.
As real cost of energy increases, due to Biden plus other gov't restriction & reduction of supply (in whole world), both Japan and the USA will get energy based price rises which look a lot like inflation - since all production requires energy. Increasing energy prices increases all prices.
EB is right that Arnold hasn't articulated any falsifiable model, nor even much of an outline. I, too, believe it's a problem, but have no model to show exactly why.
Not being able to understand, or model, the truth, nevertheless doesn't stop it from being true. But without a model, there can be no confident predictions of timing, and possibly not many warning signs.
I can easily imagine a non-austerity counterfactual with the Russia-Ukraine war having a 2022 spike in energy, followed by an increase in energy supply after some sort of peace, and then a big reduction in energy prices and thus inflation. This can occur even without changing SS or Medicare or other fiscal or monetary policies.
More likely is that there will be political responses that have effects, and allow any model to plausibly claim its bad predictions were not really falsified.
In Spring 2020, millions of young adults had thousands of dollars deposited in their bank accounts with nothing to spend it on. What followed was an explosion of speculative trading in stocks and crypto currencies. The prices of many financial securities increased two to ten times between April 2020 and Fall 2021. Since the Federal reserve announced tightening of monetary policy, financial markets have entered a bear market.
Others appear to have directed their "Covid money" to real estate. What followed was a massive increase in the price of houses and significant increases in rents. So far, the inflation in housing prices has stuck, unlike what has happened in the financial markets.
The USA is experiencing significant inflation and significant supply shortages (what happens when you pay people to not work). The country is also experiencing ever worsening public services (education) and infrastructure and increasing congestion in its transportation network (road, air, sea ports).
It appears that private wealth (assets held by individual Americans) has never been greater but public debt has also never been greater. This public debt includes not only financial debt and liabilities but also the decline in quality of public services and infrastructure, despite massive legislation supposedly to fix infrastructure.
For reasons, public officials are inept at solving the education and infrastructure deficit. They either fail slowly or they never try. Either by direct transfer or via trickle down economics, public money makes its way to private citizens with no improvement made to the public services.
The intrinsic bias towards privatizing wealth and socializing debt points to a future of ever increasing inequality and social strife. Stein's law comes to mind: "That which cannot go on forever will stop." In this case, what exactly is going to stop? Will it be the illusion of government providing public goods and services? Then what?
We also need a retrospective on what the optimal degree and kinds of restriction on social interaction were in response to the changing course of COVID. My feeling is that on net there was too much restriction. For example, venues should have been restricted on the basis of how well or not they could prevent aerosol dispersion, not on the basis of the activity that was being carries out in them per se.
See my reply to Dave Baker. Now with respect to optimal degree and kinds of restrictions on social interaction, there is no way you can look at the history of any group or society to start even to define restrictions and assess their effectiveness --it amounts to attempt to draw the optimal law/legal system from the history of humanity. You may benefit from reading David Friedman's work on old legal systems to understand why (yes, Milton for money, his son David for law).
I only mean by "optimal" the best tat could have been done under the circumstances. Why can we not seek this in looking at what actually happened, to try to observe regularities that could guide future responses?
Because in early 2020 our knowledge was very limited and it continues to be quite limited despite all the analytical work and the talk of the past 2 years. We can blame political manipulation for the persistence of our limited knowledge but there are other forces --let us say, it's complex (how much do you think we know about the interactions between viruses and humans?). From my own attempts to understand that persistence, I think that the relevant interactions (among humans as well as among viruses, animals, and humans) are much more complex than the analysis of financial systems to which Arnold referred yesterday (fyi, I worked 20 years repairing "broken" banking systems in several countries).
By the way, my remarks are very much and intentionally based on hindsight. Of course things could have been done differently if we had know in March 2020 what we know in May 2022.
I agree. It was obvious from day one that the epidemiological models that were being offered did not include any human behavioral feedbacks. However inadequate, they were such features should have been included so that as the course of the disease changed, the could have been improved. [This is related to the style of behavioral reconditions which focused almost entirely on what to do for self-protection and not on controlling community spread.] But policy makers were also amiss in not trying to fit restrictions to the best models epidemiologists could produce.
The data indicates that NONE was the optimal social restrictions outside of elderly and medical care centers. Isolating people in their homes fails in every possible way. It didn't stop infections. It ruined learning , it caused great emotional harm. It caused great harm to the economy.
The data also shows that specific mandates, such as masking on airplanes and in schools accomplished nothing.
Do we trust the data? Do we allow the data to inform social policy? Or do we trust the "experts" who rule by computer model and who refuse to acknowledge what the data shows?
I think we are saying similar things, just that you are more certain of the exact results of the retrospective. I think there may have been a degree of people going out less that could have been helpful. I also think schools were closed for too long and could have been opened much sooner with a test to attend policy (which would have required previous massive development of capacity for testing asymptomatic people). At least that the KIND of result I'd like to see.
Amen! I think that the world wars should have been financed more with taxes, although not having a VAT at the time did make that more difficult. But there is just no excuse for a deficit when the economy is at full employment. The beneficial reductions incorporate taxes in 2017 should have been offset (or more than offset) with higher collection from personal income taxes (including converting most deductions into partial tax credits at less then the rate of the highest marginal rates.
Thanks for referring to a paper that very few economists will read. Too many economists are talking about inflation but know little about how government spending is financed (and much less about how central banks have been responding passively to large changes in relative prices). BTW, Tom Sargent has been studying the financing of government spending for the past 50 years, including episodes of hyperinflation. With George Hall, Tom has recently gone into the details of each source of funding large increases in government spending.
With respect to the long-run implications of your country's current federal debt, you should try to learn from Argentina's experience in the past 70 years (the show is still going on: the monthly inflation rate for last month jumped to 6% and since the agreement with the IMF is very unlikely to succeed the inflation rate will hardly decline as expected).