I would like to hope that people's taste for the hard left experiment has turned bitter, too. What worries me is that people become embittered at one or two aspects of it only, and think the rest is just fine. If those one or two aspects differ by person it is quite possible that the shift won't be enough to break up the coalition, just shake up the low n-issue voters. I am not sure how much of the left sees the common threads in the progressive left's philosophy of governance.
There is hope, although it is similar to the hope of destroying a Death Star by dropping a torpedo down its exhaust pipe.
The entire American health care complex is fubar. It is not just terribly expensive. It is inconceivably illogical and irrational. Do you know the list price of a spending 30 minutes in a health care facility in order for a health care specialist to spend 10 minutes in your presence and then to offer an opinion? In Maryland the sticker price is $400. Sure, after adjustments and insurance coverage the consumer price drops to $200.
That is insane. This cannot last. And it won't.
So predictions that Medicare is unsustainable assume nothing changes. There will be change for the simple reason the current trend is unsustainable. I predict the next dozen years will see massive change to how health care is provided, how it is priced and how it is paid.
What gives me hope is 40 years ago the financial industry was a monopoly. It was expensive and highly regulated. Today anyone with a laptop and some technical knowledge and run their own hedge fund. The world changes. It changed for the financial industry. It will change for health care.
We will need to have a financial collapse before healthcare can be reformed.
You're correct that being an entitlement hawk is meaningless without healthcare reform. Raising taxes or "cutting benefits" is pointless if you don't get medical cost trend under control. But one persons medical cost trend is another person yearly salary increase.
"surprised that we got away with as much deficit spending as we did from 2009 through 2020. "
It continues to disappoint me that so many economists consider tax cut deficits as essentially equal to increased gov't spending deficits.
Tax cuts increase the rewards to those who have been successfully selling stuff people want to buy - so there is more production. Zero increased gov't regulations or bureaucracies needed. More money chasing more goods - not so bad.
Gov't spending goes to the current admin friends, and to voters who "need" it, want it; often with reductions in efforts, thus not so much additional stuff people want to buy.
In the Lockdown Socialism post (2020) Brian Pflug writes well: "society has lost the ability to discriminate wants from needs. Until we regain the ability to make those choices and triage their implications, all else is distraction."
We can have a society where non-status material needs are met, because there is some "absolute" levels. Everybody in America has the opportunity to get enough food - tho often with some behavior strings, which are often "not wanted". No society can ever satisfy all the "wants".
But college students indoctrinated to be anti-Republican and anti-responsible, want their wants, and the MasterCard credit limit max had not yet been reached - and wasn't even known.
Because of Japan's national debt at a level of 240% of annual GDP, I was less surprised by bigger deficits. There is no written "max gov't debt". While Friedman was right that inflation is always a monetary thing, this half-truth doesn't cover the supply of goods side, whereby if the supply of goods increases 'enough' the extra money can chase the extra goods so the general prices don't need to rise.
House prices and stock prices were reflecting the high, almost hyper-inflation, of too much money (chasing not enough good goods), as well as Bitcoin & crypto (& NFTs, etc.). There, too, there is no rule that says P/E of 10, is too high (or low); 50, 100, 1000.
"The experiment with radical progressive ideas on the economy, race, gender, schooling, and crime may have run its course." I sure hope so, but it won't be seen in reality until:
Republican majorities in House & Senate,
Republican President with anti-inflationary policies,
states & cities focusing on locking up criminals.
The justice system is inevitably a gray area, with trade-offs. The more the system locks up the guilty, the more innocents (or less guilty) will be "wrongly" punished, while the fewer the innocents are punished, the more the guilty will be "wrongly" free & unpunished. The wrongly free criminals will then mostly continue committing more crimes (and thus punishing with crime their victims).
Republicans mostly understand such tradeoffs exist. Democrats have been acting as if there are easy, no-tradeoff answers; in economics, they've long been enjoying a Free Lunch - and expecting more free lunches.
Post-Volcker the deficit has been financed by borrowing but in the past 2-3 years it has been partly financed by printing money. This printing, however, may have not been what triggered increases in price indexes. Most likely, the increases were triggered by the energy shock at the world level (look at what is happening in all countries) and the "passive" increases in the money supply were to accommodate the shock. Now the grotesque Fed is worried and will stop printing money and most likely there will be a recession. Since the deficit will not be reduced --most likely it will increase-- it will have to be financed by borrowing until it cannot be financed by borrowing.
Indeed, we cannot understand how the deficit has been changing since 2008, and in particular since 2019, without a detailed analysis of the government's new role as first-insurer of damages caused by government (yes, don't blame the animal spirits and the virus). BTW, the beneficiaries of government insurance have not necessarily been the people harmed by government interventions (yes, government insurance often amounts to income redistribution).
Does the lack of expected response to the FED's expansion of the money supply tell us there is another major rate limiting step in economic growth that is not being fully considered.
With low interest rates and inflation creating real negative interest rates making it desirable to borrow as much as you can and just buy something with a "real store of value" from steel rebar to land or buildings. If your "investment" just maintains its true value you make inflation - interest rate using OPM (other people money). The government itself is the largest beneficiary of the huge negative real interest rate as the effectively steal from my retirement savings.
Ideally investing in new productive assets that provide future real benefits is the best thing to do for the future of our society, but when it takes forever to get permission to build anything new, that is not an option. "Permissions" for innovation and creating anything new could be the controlling variable.
It this really the best way to critique the slow Fed response to inflation and the often overly (or at least wrongly) restrictive response to the spread of the COVID virus? At least they are not my ways.
Explainably true short phrases are probably THE best way to critique the Fed, or any other authority.
"Free Lunch Era" << this should be a good phrase, from which good memes can be made and go viral, getting more people to at least hear the phrase "Free Lunch" and, maybe, think about it.
I agree that the concept of a hidden cost not being the same as no cost is useful to apply in many contexts. But I don't know what one should do or not do about a "Free Lunch Era." And how very specifically is this applicable as a criticism of the Fed's timing or level of monetary tightening?
I just think if it had been primarily fiscal spending inflation would be easing now that it is over. Seems like fed QE going on during the meme stock era and housing price escalation are at least as responsible. Look at what is happening now. Fed tightens and everything deflates
Lack of supply combined with excess consumer savings seems to explain our current inflation to my view. The stimulus spending did help increase excess savings but lack if supply seems to be explained by reluctance to invest on the part of suppliers.
"supported President Trump’s economic response to the virus"
What was his response to the virus? In general he was anti-lockdown and anti-panic. Sure there were the usual Trumpisms, but he was on the right side of things. His contribution on vaccines was the single greatest accomplishment of the pandemic.
Could Trump have had more of a spine and try to strong arm the governors. I guess. But your essentially blaming him for not stopping Dems from being Dems.
Trump signed the $2 Trillion(!) CARES Act into office on March 27, 2020. Trump signed it. Trump bears responsibility for his part.
The Democratic Party had a majority in the House. Democrats had the upper hand in negotiations, because the public would blame Trump for lack of action, not Democrats. Many Democrats wanted to see the economy crash to tarnish Trump's legacy. Much of the experts in the US were in an full blown panic over COVID back in March 2020, and were proposing much harsher measures, including Kling's circle of pundits.
Trump did push towards anti-lockdown and anti-panic, and most other government officials bowled over him. People within the Federal Bureaucracy, including Fauci, who technically operate underneath the POTUS were deliberately undermining Trump. Trump should have fired people like Fauci, instead Trump elevated him into the spotlight.
Trump can be fairly blamed for a lot of things. Kling is being entirely unreasonable in his criticisms however.
Yeah, Trump signed a bill two weeks after most of us found out COVID existed that passed with overwhelming support.
Let's be really honest about what Trump's covid stance was versus the Dems.
The Democrats passed COVID bills after vaccines in party line votes where they needed Kamala to be the tie breaker. Get real with your false equivalence.
And of course nobody voted for what the FED did during COVID.
I more or less agree with this- it was the governors of the southern states and farm belt that saved the country and the world a far worse outcome. We were teetering on the edge, in April 2020, of a full blown economic catastrophe if the reopenings hadn't happened in more than half the states of the US. Think about what 20%+ unemployment for more than half a year would have done (.and another 50% at home collecting paychecks for no product). To the extent Trump gave those governors the political cover to start reopening in May of 2020, he gets some credit, but he also gets a good deal of the blame for ever allowing the Fauci and others to lead the other half of the country into lockdowns that lasted well into last year.
I’m not sure the framing is right. Why do we have global inflation? Do stimulus checks to Millennials in the US cause inflation in France? I think there is a larger structural argument traditional conservative economists like you are ignoring or downplaying. To me the Fed’s QE and low rates persisting during economic recovery are more responsible than fiscal spending. These were actions duplicated throughout the world. Add to that supply shocks, dislocations in supply and demand, and ,yes, stimulus spending and you get where we are today. I’d ask that you check yourself and see if political biases are informing what you emphasize? It’s all Joe Biden because I hate democrats and MMT. I think he bears some blame but hardly the lion’s share. I say this because if we hadn’t done any stimulus in 2008, many more people would have suffered. Are you teaching the wrong lesson now?
It is probably worth noting that just about every world government printed a lot of money for pandemic relief, and just about every economy had a massive decrease in real productivity. That should generate a lot of global inflation. The previous debt financing at least had some people putting off consumption to loan the US (and other deficit driven over spenders with low interest rates) cash, but the past two years had just about everyone doing the same sort of thing.
The Fed is supposed to stop inflation, so they certainly bear a lot of responsibility.
"Fed’s QE and low rates persisting during economic recovery are more responsible than fiscal spending. " What quarter were they supposed to raise rates, and to how much?
Biden's first quarter in 2021, when he started strangling the US energy production with regulations and opposition?
Increased energy costs looks a lot like inflation, because nearly everything includes an energy cost component.
Still, I blame Biden's "new spending spree with the $1.9 trillion American Rescue Plan" more than the Fed, because that extra gov't money was "the disturbance" in the not-yet inflationary economy.
Agreed on regulation and that’s also years of history. I’d say the fed should have stopped buying particularly mortgage bonds beginning of 21. In retrospect they should have begun tightening then or at least when they saw the meme stock nonsense. What about a new Taylor rule based on crypto prices?
If there isn't money to go around, higher energy prices mean less money for say rent increases. But instead we have both higher energy prices and rent increases. It's just too much money.
This is where "inflation expectations" goes up with general price increases, especially increases from energy, which look like inflation.
Without Biden's fiscal cash, the higher energy costs would be more clearly an energy price shock increase. The extra cash, plus Biden's other supply chain problems causing shortages (like baby formula), people talk about inflation, and see prices going up (like cars), and call it inflation. So landlords try to raise prices, and find out they can do so without the tenants leaving for somewhere with lower rents.
Too much money was necessary - tho it wasn't sufficient, so it's not "just too much money".
In 2008 the stimulus could have kept people at work or put unemployed people back to work. In 2020, that couldn't happen since we were locked down. Thus the stimulus didn't increase production, just put out a lot of money competing for the same amount of goods and services, i.e. inflation. Am I missing something?
Did we get away with it post-2008? Unemployment increased, bankruptcies, sovereign debt defaults, capital was destroyed, currencies devalued, Government spending decreased, taxes increased, wages were fixed. Perhaps more evident in Europe.
The rich who got TARP cash got away with it. The guys Too Big To Fail.
If those guys had been allowed to all go bankrupt, as their contracts without bailout would have resulted in, then their replacements would have avoided our current mess.
Exactly. It’s called moral hazard. If there is no cost and consequences to an action there is no limiting influence, no incentive not to do it. If profits are privatised but costs socialised, then there is a perverse incentive to take reckless action and keep doing it. The message is now clear, do something stupid, mismanage your company and for political reasons - usually to save jobs, or in the name of national prestige - Govt/taxpayers will bail you out, you’ll keep your job and probably get a bonus.
And it’s not a sin of Left or Right, they are both as bad.
As for decreased Government spending. I can’t say for the USA but it was apparent here in Europe, with variations, public sector pensions reduced or frozen, public sector wages frozen, infrastructure projects halted, reduction in public services. It is not always obvious because spending per se remains the same, but there are reductions in service, particularly with inflation, or budgeted increases don’t take place.
A factor was the €uro zone. Unlike the US (or UK), which can print their own currency to pay for deficit spending, or pay back and service debt, the €urozone Countries cannot only the European Central Bank can. These Countries borrow in €uro and pay in €uro. But during economic downturn they just don’t earn the money to fund public expenditure and can’t print any, so they must borrow. But they can’t print money to service the loans and repay. This makes them high risk of default so their bond yields must be high to attract lenders, which means it costs more to service the debt.
This meant drastic cut backs in public spending in these Countries. But all European Countries cut back too one way or another.
So in the worst hit Countries, like Greece for example,
I live in Slovakia, and saw similar freezings, and smaller gov't spending increases than expected. But the nominal cash amounts spent by governments seldom actually went down.
Now I see it's easy to find the gov't spending as a % of GDP:
How can you say "government spending decreased" and also "spending per se remains the same"?? Perhaps it's true that "there are reductions in service" but that's certainly not the same as "government spending decreased". It just means they are spending money on the wrong things, which is all too typical.
Money has no value - it’s what you get for it that gives it its value. The cash amount is irreverent. If you are getting less you are in effect spending less, because you would have to spend more to get the same.
Nice rationalization. If the government is spending money on stupid things rather than the services people really want and need, that is not a reduction in spending.
But here they weren’t spending money on stupid things instead of public services, they didn’t have the money to spend, that’s the point. Which is why they cut public services so they could operate within the money they had to hand.
Governments in some European Countries take up to two years to pay supplier bills. Ordering less goods is a decrease in spending, but since they are paying in arrears the cash out doesn’t alter.
Government spending has to be seen in budgetary terms. If they are budgeted to spend 20% more say on medical care next year but cut that 20% budgeted by 10%, that is a decrease in spending, but does not affect current account spending.
Or they can delay capital expenditure and spread it across two budget periods so the total amount looks the same but it is in fact a decreased, because capital expenditure budgeted for the second budget period is reduced.
Givernment accounting is not like household accounting - more’s the pity.
I would like to hope that people's taste for the hard left experiment has turned bitter, too. What worries me is that people become embittered at one or two aspects of it only, and think the rest is just fine. If those one or two aspects differ by person it is quite possible that the shift won't be enough to break up the coalition, just shake up the low n-issue voters. I am not sure how much of the left sees the common threads in the progressive left's philosophy of governance.
There is hope, although it is similar to the hope of destroying a Death Star by dropping a torpedo down its exhaust pipe.
The entire American health care complex is fubar. It is not just terribly expensive. It is inconceivably illogical and irrational. Do you know the list price of a spending 30 minutes in a health care facility in order for a health care specialist to spend 10 minutes in your presence and then to offer an opinion? In Maryland the sticker price is $400. Sure, after adjustments and insurance coverage the consumer price drops to $200.
That is insane. This cannot last. And it won't.
So predictions that Medicare is unsustainable assume nothing changes. There will be change for the simple reason the current trend is unsustainable. I predict the next dozen years will see massive change to how health care is provided, how it is priced and how it is paid.
What gives me hope is 40 years ago the financial industry was a monopoly. It was expensive and highly regulated. Today anyone with a laptop and some technical knowledge and run their own hedge fund. The world changes. It changed for the financial industry. It will change for health care.
We will need to have a financial collapse before healthcare can be reformed.
You're correct that being an entitlement hawk is meaningless without healthcare reform. Raising taxes or "cutting benefits" is pointless if you don't get medical cost trend under control. But one persons medical cost trend is another person yearly salary increase.
"surprised that we got away with as much deficit spending as we did from 2009 through 2020. "
It continues to disappoint me that so many economists consider tax cut deficits as essentially equal to increased gov't spending deficits.
Tax cuts increase the rewards to those who have been successfully selling stuff people want to buy - so there is more production. Zero increased gov't regulations or bureaucracies needed. More money chasing more goods - not so bad.
Gov't spending goes to the current admin friends, and to voters who "need" it, want it; often with reductions in efforts, thus not so much additional stuff people want to buy.
In the Lockdown Socialism post (2020) Brian Pflug writes well: "society has lost the ability to discriminate wants from needs. Until we regain the ability to make those choices and triage their implications, all else is distraction."
We can have a society where non-status material needs are met, because there is some "absolute" levels. Everybody in America has the opportunity to get enough food - tho often with some behavior strings, which are often "not wanted". No society can ever satisfy all the "wants".
But college students indoctrinated to be anti-Republican and anti-responsible, want their wants, and the MasterCard credit limit max had not yet been reached - and wasn't even known.
Because of Japan's national debt at a level of 240% of annual GDP, I was less surprised by bigger deficits. There is no written "max gov't debt". While Friedman was right that inflation is always a monetary thing, this half-truth doesn't cover the supply of goods side, whereby if the supply of goods increases 'enough' the extra money can chase the extra goods so the general prices don't need to rise.
House prices and stock prices were reflecting the high, almost hyper-inflation, of too much money (chasing not enough good goods), as well as Bitcoin & crypto (& NFTs, etc.). There, too, there is no rule that says P/E of 10, is too high (or low); 50, 100, 1000.
"The experiment with radical progressive ideas on the economy, race, gender, schooling, and crime may have run its course." I sure hope so, but it won't be seen in reality until:
Republican majorities in House & Senate,
Republican President with anti-inflationary policies,
states & cities focusing on locking up criminals.
The justice system is inevitably a gray area, with trade-offs. The more the system locks up the guilty, the more innocents (or less guilty) will be "wrongly" punished, while the fewer the innocents are punished, the more the guilty will be "wrongly" free & unpunished. The wrongly free criminals will then mostly continue committing more crimes (and thus punishing with crime their victims).
Republicans mostly understand such tradeoffs exist. Democrats have been acting as if there are easy, no-tradeoff answers; in economics, they've long been enjoying a Free Lunch - and expecting more free lunches.
Post-Volcker the deficit has been financed by borrowing but in the past 2-3 years it has been partly financed by printing money. This printing, however, may have not been what triggered increases in price indexes. Most likely, the increases were triggered by the energy shock at the world level (look at what is happening in all countries) and the "passive" increases in the money supply were to accommodate the shock. Now the grotesque Fed is worried and will stop printing money and most likely there will be a recession. Since the deficit will not be reduced --most likely it will increase-- it will have to be financed by borrowing until it cannot be financed by borrowing.
Indeed, we cannot understand how the deficit has been changing since 2008, and in particular since 2019, without a detailed analysis of the government's new role as first-insurer of damages caused by government (yes, don't blame the animal spirits and the virus). BTW, the beneficiaries of government insurance have not necessarily been the people harmed by government interventions (yes, government insurance often amounts to income redistribution).
Does the lack of expected response to the FED's expansion of the money supply tell us there is another major rate limiting step in economic growth that is not being fully considered.
With low interest rates and inflation creating real negative interest rates making it desirable to borrow as much as you can and just buy something with a "real store of value" from steel rebar to land or buildings. If your "investment" just maintains its true value you make inflation - interest rate using OPM (other people money). The government itself is the largest beneficiary of the huge negative real interest rate as the effectively steal from my retirement savings.
Ideally investing in new productive assets that provide future real benefits is the best thing to do for the future of our society, but when it takes forever to get permission to build anything new, that is not an option. "Permissions" for innovation and creating anything new could be the controlling variable.
"Free Lunch Era!" "Lockdown Socialism" :)
It this really the best way to critique the slow Fed response to inflation and the often overly (or at least wrongly) restrictive response to the spread of the COVID virus? At least they are not my ways.
Again, writing truthful descriptive language is a plus, not a minus.
I think a specific critique is more descriptive and truthful that bombast.
Of course you do, Thomas.
Explainably true short phrases are probably THE best way to critique the Fed, or any other authority.
"Free Lunch Era" << this should be a good phrase, from which good memes can be made and go viral, getting more people to at least hear the phrase "Free Lunch" and, maybe, think about it.
I agree that the concept of a hidden cost not being the same as no cost is useful to apply in many contexts. But I don't know what one should do or not do about a "Free Lunch Era." And how very specifically is this applicable as a criticism of the Fed's timing or level of monetary tightening?
I just think if it had been primarily fiscal spending inflation would be easing now that it is over. Seems like fed QE going on during the meme stock era and housing price escalation are at least as responsible. Look at what is happening now. Fed tightens and everything deflates
Lack of supply combined with excess consumer savings seems to explain our current inflation to my view. The stimulus spending did help increase excess savings but lack if supply seems to be explained by reluctance to invest on the part of suppliers.
"supported President Trump’s economic response to the virus"
What was his response to the virus? In general he was anti-lockdown and anti-panic. Sure there were the usual Trumpisms, but he was on the right side of things. His contribution on vaccines was the single greatest accomplishment of the pandemic.
Could Trump have had more of a spine and try to strong arm the governors. I guess. But your essentially blaming him for not stopping Dems from being Dems.
They say a picture says a thousand words:
Biden on Covid:
https://www.gannett-cdn.com/presto/2020/09/09/PDTF/45a0f4c2-ba35-4beb-a9e2-0e87d28b336e-AP_Election_2020_Biden_MIPA1_1.jpg?width=1320&height=882&fit=crop&format=pjpg&auto=webp
Trump on Covid:
https://d1e00ek4ebabms.cloudfront.net/production/4e706ee4-265c-4eb9-a6f0-98c36bbc0297.jpg
Trump signed the $2 Trillion(!) CARES Act into office on March 27, 2020. Trump signed it. Trump bears responsibility for his part.
The Democratic Party had a majority in the House. Democrats had the upper hand in negotiations, because the public would blame Trump for lack of action, not Democrats. Many Democrats wanted to see the economy crash to tarnish Trump's legacy. Much of the experts in the US were in an full blown panic over COVID back in March 2020, and were proposing much harsher measures, including Kling's circle of pundits.
Trump did push towards anti-lockdown and anti-panic, and most other government officials bowled over him. People within the Federal Bureaucracy, including Fauci, who technically operate underneath the POTUS were deliberately undermining Trump. Trump should have fired people like Fauci, instead Trump elevated him into the spotlight.
Trump can be fairly blamed for a lot of things. Kling is being entirely unreasonable in his criticisms however.
Yeah, Trump signed a bill two weeks after most of us found out COVID existed that passed with overwhelming support.
Let's be really honest about what Trump's covid stance was versus the Dems.
The Democrats passed COVID bills after vaccines in party line votes where they needed Kamala to be the tie breaker. Get real with your false equivalence.
And of course nobody voted for what the FED did during COVID.
My false equivalence? I agree with everything else you said. Trump was not the main figure to blame, by any means in the COVID debacle.
I more or less agree with this- it was the governors of the southern states and farm belt that saved the country and the world a far worse outcome. We were teetering on the edge, in April 2020, of a full blown economic catastrophe if the reopenings hadn't happened in more than half the states of the US. Think about what 20%+ unemployment for more than half a year would have done (.and another 50% at home collecting paychecks for no product). To the extent Trump gave those governors the political cover to start reopening in May of 2020, he gets some credit, but he also gets a good deal of the blame for ever allowing the Fauci and others to lead the other half of the country into lockdowns that lasted well into last year.
I’m not sure the framing is right. Why do we have global inflation? Do stimulus checks to Millennials in the US cause inflation in France? I think there is a larger structural argument traditional conservative economists like you are ignoring or downplaying. To me the Fed’s QE and low rates persisting during economic recovery are more responsible than fiscal spending. These were actions duplicated throughout the world. Add to that supply shocks, dislocations in supply and demand, and ,yes, stimulus spending and you get where we are today. I’d ask that you check yourself and see if political biases are informing what you emphasize? It’s all Joe Biden because I hate democrats and MMT. I think he bears some blame but hardly the lion’s share. I say this because if we hadn’t done any stimulus in 2008, many more people would have suffered. Are you teaching the wrong lesson now?
It is probably worth noting that just about every world government printed a lot of money for pandemic relief, and just about every economy had a massive decrease in real productivity. That should generate a lot of global inflation. The previous debt financing at least had some people putting off consumption to loan the US (and other deficit driven over spenders with low interest rates) cash, but the past two years had just about everyone doing the same sort of thing.
The Fed is supposed to stop inflation, so they certainly bear a lot of responsibility.
"Fed’s QE and low rates persisting during economic recovery are more responsible than fiscal spending. " What quarter were they supposed to raise rates, and to how much?
Biden's first quarter in 2021, when he started strangling the US energy production with regulations and opposition?
Increased energy costs looks a lot like inflation, because nearly everything includes an energy cost component.
Still, I blame Biden's "new spending spree with the $1.9 trillion American Rescue Plan" more than the Fed, because that extra gov't money was "the disturbance" in the not-yet inflationary economy.
Agreed on regulation and that’s also years of history. I’d say the fed should have stopped buying particularly mortgage bonds beginning of 21. In retrospect they should have begun tightening then or at least when they saw the meme stock nonsense. What about a new Taylor rule based on crypto prices?
If there isn't money to go around, higher energy prices mean less money for say rent increases. But instead we have both higher energy prices and rent increases. It's just too much money.
This is where "inflation expectations" goes up with general price increases, especially increases from energy, which look like inflation.
Without Biden's fiscal cash, the higher energy costs would be more clearly an energy price shock increase. The extra cash, plus Biden's other supply chain problems causing shortages (like baby formula), people talk about inflation, and see prices going up (like cars), and call it inflation. So landlords try to raise prices, and find out they can do so without the tenants leaving for somewhere with lower rents.
Too much money was necessary - tho it wasn't sufficient, so it's not "just too much money".
In 2008 the stimulus could have kept people at work or put unemployed people back to work. In 2020, that couldn't happen since we were locked down. Thus the stimulus didn't increase production, just put out a lot of money competing for the same amount of goods and services, i.e. inflation. Am I missing something?
Did we get away with it post-2008? Unemployment increased, bankruptcies, sovereign debt defaults, capital was destroyed, currencies devalued, Government spending decreased, taxes increased, wages were fixed. Perhaps more evident in Europe.
The rich who got TARP cash got away with it. The guys Too Big To Fail.
If those guys had been allowed to all go bankrupt, as their contracts without bailout would have resulted in, then their replacements would have avoided our current mess.
(But I don't think gov't spending decreased.)
Exactly. It’s called moral hazard. If there is no cost and consequences to an action there is no limiting influence, no incentive not to do it. If profits are privatised but costs socialised, then there is a perverse incentive to take reckless action and keep doing it. The message is now clear, do something stupid, mismanage your company and for political reasons - usually to save jobs, or in the name of national prestige - Govt/taxpayers will bail you out, you’ll keep your job and probably get a bonus.
And it’s not a sin of Left or Right, they are both as bad.
As for decreased Government spending. I can’t say for the USA but it was apparent here in Europe, with variations, public sector pensions reduced or frozen, public sector wages frozen, infrastructure projects halted, reduction in public services. It is not always obvious because spending per se remains the same, but there are reductions in service, particularly with inflation, or budgeted increases don’t take place.
A factor was the €uro zone. Unlike the US (or UK), which can print their own currency to pay for deficit spending, or pay back and service debt, the €urozone Countries cannot only the European Central Bank can. These Countries borrow in €uro and pay in €uro. But during economic downturn they just don’t earn the money to fund public expenditure and can’t print any, so they must borrow. But they can’t print money to service the loans and repay. This makes them high risk of default so their bond yields must be high to attract lenders, which means it costs more to service the debt.
This meant drastic cut backs in public spending in these Countries. But all European Countries cut back too one way or another.
So in the worst hit Countries, like Greece for example,
I live in Slovakia, and saw similar freezings, and smaller gov't spending increases than expected. But the nominal cash amounts spent by governments seldom actually went down.
Now I see it's easy to find the gov't spending as a % of GDP:
https://www.statista.com/statistics/431891/government-expenditure-spending-as-share-gdp-slovak-republic-slovakia/
With a big drop in GDP at 2008, the same gov't spending amount results in a much higher % of GDP.
Your points (vs MikeW) are mostly good, but "Government spending decreased" seems inaccurate.
How can you say "government spending decreased" and also "spending per se remains the same"?? Perhaps it's true that "there are reductions in service" but that's certainly not the same as "government spending decreased". It just means they are spending money on the wrong things, which is all too typical.
Money has no value - it’s what you get for it that gives it its value. The cash amount is irreverent. If you are getting less you are in effect spending less, because you would have to spend more to get the same.
That’s what inflation is about.
Nice rationalization. If the government is spending money on stupid things rather than the services people really want and need, that is not a reduction in spending.
But here they weren’t spending money on stupid things instead of public services, they didn’t have the money to spend, that’s the point. Which is why they cut public services so they could operate within the money they had to hand.
Governments in some European Countries take up to two years to pay supplier bills. Ordering less goods is a decrease in spending, but since they are paying in arrears the cash out doesn’t alter.
Government spending has to be seen in budgetary terms. If they are budgeted to spend 20% more say on medical care next year but cut that 20% budgeted by 10%, that is a decrease in spending, but does not affect current account spending.
Or they can delay capital expenditure and spread it across two budget periods so the total amount looks the same but it is in fact a decreased, because capital expenditure budgeted for the second budget period is reduced.
Givernment accounting is not like household accounting - more’s the pity.