FQ.08.06: Favorite Quote for This Week

Two concise definitions:

• "solar system" -  The sun, plus Jupiter, plus miscellaneous debris.

• "lawyer" -  The larval form of a politician.

[Sorry, the sources have faded from memory.]

Comments

[Bob]

Economist -

A one-handed data gatherer.

[gunthestops]

Steve, this is in response to your minifesto, I am putting it on your most recent thread to promote a little discussion of relevance over the weekend. If you feel it is inappropriate on this thread dispose of it, and no hard feelings.

No empire in the history of the world has ever debased its currency, ran huge debts and deficits along with trade imbalances and survived. And yes without a doubt we are an empire, our influence has spread to every corner of the world, we have our military in over 120 counties and provinces. Our military spending this year will exceed the military spending of the rest of the entire world. And there is no concern that is too small that we do not stick our big nose into and try to influence.

Our current financial neglect and recklessness along with the tsunami of unfunded liabilities coming at us over the next 50 years will usher in the most spectacular financial supernova the world has ever known. What is funny is that the greatest generation has handed off Americas future to the most irresponsible and do nothing generation of all time!!!

I find it interesting to read the delusional rants of many neo-cons that want more and more tax cuts without paying for them, and magically at the same time explaining how the ever-growing national debt of 9 trillion really doesn’t matter. How can any rational person justify the massive debt and deficits the US has piled up over the past 27 years, and not question what is going on? Since the Reagan administration and under Republican presidents the national debt had grown 1,700%, 500 billion in 1980 to 9 trillion in 2007. Well, if you can disguise the tax cuts as under the cloak of “supply side economics” and keep telling the masses over and over that growth will pay for the tax cuts, apparently you don’t really need to pay for them.

Both the Republicans and Democrats have participated in looting the treasury year in and year out. But of particular note is the most recent Bush administration and Republicans controlled Congress for 6 years have been the biggest spenders in history of the world, to the tune of 3 trillion dollars. During those 6 years not a single spending bill was vetoed.

One of the biggest lies trumpeted by the neo-cons is that the tax cuts were the primary driver behind the robust economy over the last 3 years. First, lets be honest there is no data that has any remote connection to explaining the last boom cycle 2003 to 2007 having any connection to the tax cuts. As we are seeing right now it appears that it was built on a mountain of debt, leverage, and consumer spending.

A general estimate of the major contributors and allocation to the latest boom cycle.

1. Productivity, the increases from the 90’s, for industrial, Internet, and Dot-Com era spending.

2. Tax breaks, primarily benefiting the wealthy (the no millionaire left behind program)

3. Deficit spending, 3 trillion dollars! Now if that doesn’t give the economy a boost nothing will.

4. Extended low, low, low interest rates, lots of liquidity, and a low risk-lending environment. There was so much money out there they couldn’t give it away fast enough. This in my estimate accounted for the greatest portion of the current boom. But as we are seeing right now this free money did not come without a price. Debt and leverage is not prosperity, it is only the illusion of prosperity.

1. Productivity 10%
2. Tax breaks 10%
3. Deficit spending 30%
4. Low interest rates 50%

Now I do not have empirical evidence to support my conclusions, but they are sure a hell of a lot sounder then the baseless lies that the neo-cons have been spinning about the Bush tax cuts and how they are virtually the sole reason for the economic boom! Not only are they lies, they are dangerous in respect to establishing sound economic policy.

In conclusion, the George Bush, neo-con cult has wrapped themselves in God and Flag to hide hubris of an abject failure in international, domestic and economic policies. Long live the empire!!!

[Steve]

gun:

Most of the empires I assume you're referencing were on some kind of metal standard (gold, silver, etc), and got into trouble when they ran out of the metal, or shaved too much off the coins. The Weimar republic, as I recall, was not on a metal standard, and got into monetary trouble when they let the printing presses outstrip the real economic growth rate by about ten billion percent (...wait, maybe it was a trillion percent; I can't remember).

I think there were some prehistoric societies -- on the cowrie shell standard -- that ran into trouble when people figured out how to harvest the right shells from the sea bottom at a faster rate than their real economy was growing.

Anyone on the gold standard today would run into inflationary trouble if someone figured out how to produce new gold faster than the real economy's growth rate. Conversely, they'd run into deflationary-depression-style trouble if the gold producers (eg, in Russia and South Africa) decided to cut us off -- like the soup Nazi ("no new gold for YOU").

But you are making a false analogy by equating the USA with those countries. Reason: We are (to the misguided horror of many) on a fiat money system -- not a gold standard, not a silver or bronze standard, not a cowrie shell standard. Fiat money can inflate, just like cowrie shell money can. It can also deflate, just like the others can. But if fiat money grows at exactly the same rate as aggregate real goods and services grow, there is no inflation or deflation in the price level (cet par, of course).

Deficits do not cause inflation. Economic booms do not cause inflation. Surpluses do not cause inflation. Recessions do not cause inflation. Same goes for deflation. Only the Fed causes inflation or deflation, and it happens when the Fed misreads the real economy's growth rate -- which it does frequently these days, but in the long run is pretty good (but not perfect) at achieving a reasonable and predictable value of money. When wages and prices are inflating at a low, predictable 2-3%, that's just about perfect. (Zero percent is not perfect, because the Fed needs a nonzero cushion in case it needs to react to deflationary pressure.)

In short: Hyperinflation doomsday is not just around the corner. If we bequeath to our grandkids a growing, low-inflation economy with a debt/GDP ratio of 60%, they will be in fine shape -- and it doesn't matter if 60% is the result of $6 quadrillion debt in a $10 quadrillion economy. (I also do not care if innovation and growth are driven primarily by neocons, progressives, business CEOs, college professors, ex-hippies, or intelligent machines; I have, however, given up on Marxists.)

Start thinking about how to increase productivity at a faster rate; it's a better solution than worrying about the debt and inflation. Better financially, and better on one's psyche.

[Mike H]

Gun,

Your post overflows with emotion. You said so yourself that you lack much empirical evidence. I don't think there's much in what you said that I agree with, but I don't have the patience to debate everything.

Due to the tone of your post I doubt there is much you could change your mind about, but I will make one point. Steve has answered what you said about the debt in this blog. But in case you didn't know, those "tax cuts for the rich" are the only real places economic stimulus can happen. You might be upset that the rich could live off of interest and dividends without working, but the rest of us get something for it. The only way they can earn that money is by risking it through investment. That investment causes economic stimulus through jobs, new technology, and products. It doesn't matter how much money you have if the thing you need hasn't been invented yet. Their money will do much more for us through their investing than it would do for us in government programs, by balancing the budget, or paying off debt. Our "thank you" is the wealth they are able to build. This doesn't upset me, and I currently make $20k a year.

[Splashman]

"Now I do not have empirical evidence to support my conclusions, but they are sure a hell of a lot sounder then the baseless lies that the neo-cons have been spinning about the Bush tax cuts and how they are virtually the sole reason for the economic boom!"
-- Posted by: gunthestops

Translation: "Believe me, not them. Why? Because I'm right, duh."

Gawd.

[gunthestops]

Thanks for your affable replies to my therapeutic rant. After being inundated by Kudlowdian nonsense and CNBC financial porn day after day in my office, you just reach the breaking point. Better to pen out your frustration then to take your co-workers hostage—lol. Feel free to amp up your replies if it makes you feel better!!!

[Bob]

Gun,

Empire? Are you serious? Empires invade, conquer and incorporate, usually through military action. How many countries have we invaded, conquered and incorporated in the last 200 years or so? Don't go on about Iraq because it doesn't fit any reasonable criteria of incorporation by an empire.

[Gil]

An economist:

a - marries -=preferred supermodel=- for her money.

b - knows 100+ ways to make love but doesn't know any women.

[gunthestops]

Bob, thanks for your input about the US not being an empire, you said;

“Empire? Are you serious? Empires invade, conquer and incorporate, usually through military action. How many countries have we invaded, conquered and incorporated in the last 200 years or so?”

Well let’s see if this answers your question.

1. We can’t wait to invade Iran.
2. Iraq war 2003, we took Baghdad (under false pretenses) not to mention Baghdad is one of the most sacked cities in the history of the world, heck we couldn’t miss that historical opportunity.
3. Afghanistan 2001, Operation Enduring Freedom
4. 1996 King Abdul Aziz Air Base, American forces killed in barricks bombing. Point here is that once we get our military into a country we don’t leave!
5. Iraq 1991, Desert Storm (mostly air incursions into the country)
6. Mogadishu, 1993, Operation Gothic Serpent—most will know it as “Black Hawk Down” The movie version is so much cooler then real life!
7. Panama 1989, Operation Just Cause.
8. Bombing of Libya 1986.
9. Grenada 1983, Operation Urgent Fury.
10. Beirut 1981-84, 1983 over 150 Marines killed in barracks bombing.

Now this is just in the last 25 years and does not include all the CIA and NSA operations in South America, Far East, Middle East, African continent, and about every country on the planet.

The morality or righteousness of these operations I will leave up to you. But valiant efforts of the men and women that execute their duties for God and Country I will never question for we are bothers of the sword.

[Ariah]

gunthestops - I believe Bob's point was that we don't expand our nation by military means. No one would deny that we have been involved in a great many military conflicts.

[mark]

I would suggest excessive govt spending or deficits could be inflationary. Govt spending competes with private sector spending for goods and services. In a fiat money system the govt can not run out of money and can always "outbid" the private sector for resources. Bidding up of prices is inflation. Same holds true for deficits. Excessive deficits puts more financial wealth in the hands of the public (deficits in a fiat money system equals money the govt spends into the economy without removing via taxes). A wealthier public can also bid up prices amongst itself. The question is "what is excessive?". The public debt/gdp ratio is much higher in Japan and it caused no inflation or devaluation of the yen. I think the size of the deficit that is non-inflationary depends on how much financial wealth (money+treasury securities) the public wishes to save (not spend).

[Steve]

mark:

I might concede that government purchases (but not transfers) could be inflationary when the economy is at so-called full utilization, because it consumes zero-sum resources instead of unutilized resources -- in theory. In practice, I'm not sure it's possible in the real world to define "full utilization" or measure "actual utilization" accurately. Besides, many are fond of asserting that there is plenty of capital around for entrepreneurs to expand whenever they want, so if they're right, then full-utilization is a moving target that's difficult to reach. In short, I buy the full-utilization theory, but don't expect to see it reached in practice except for once in a few hundred blue moons.

So, with that concession, I should modify my stance, as follows: Deficits almost never cause inflation, and therefore almost never cause higher interest rates.

[Bob]

Gun,

Chill, man. You're bordering on hysteria. Look, if you want to live in a country that will never use military action of any sort try Switzerland or maybe Tahiti.

And you may want to investigate what an empire really is and stay away from reading Noam Chomsky.

[gunthestops]

Bob, thanks for your suggestion as to where to live, but I think I’ll stay here. Since I have been at the “tip of the spear” in crappy little places you couldn’t even pronounce, I’ve earned that right for both you and me.

Oh by the way, I forgot to include our little adventure in the Balkans during the mid 90s, in my prior diatribe.

Bob, forgive me if I embarrassed you by answering your question in detail about our recent military adventures, as it pertains to similar historical aspects of imperialism.

As to your statement bout investigating what a “real empire” is, I’m confused because there have been more then 50 or so throughout history both large and small ranging in duration from a few years to over a 1000. So could you elaborate on which ones were real, and which ones are not so real? Please try not to use “dude” or “chill” in your dissertation--lol

[Aaron]

gunthestops,

To me an empire requires control over the territories in it. Maybe it could include colonies, or proxy states, but control would be very clear.

So, for example, do we control South Korea? Can we tell them what to do? Can they ask us to leave, and would we do so?

I think it will be pretty clear that we do not control S. Korea. Influence, yes. Control, no.

Let's examine some more conventional empires:

Rome: yes, they controlled their conqurered provinces.

Chinese: yes, they controlled their conquered regions.

British empire: yes, they controlled many of their colonies directly and controlled other areas indirectly, but with much, much more influence then we wield over any of our allies.

[gunthestops]

Aaron---OMG---Please go on!!!!!

(I feel bad, I'm using all of Steves good blog paper up on this stupid empire topic)---lol

[mark]

Steve,
I agree the govt cannot run out of money. I agree that govt spending or deficits will almost never result in exceeding the full utilization capacity of the economy. That brings me to a few questions. Why does the govt run a Social Security surplus? If the govt will not run out of money in the future why does it need to "save" money now?
If the govt cannot run out of money, can the govt purchase un-utilized resources without raising taxes or causing inflation? For example, a port needs 100 extra workers to inspect incoming cargo. There are 100 inner city black men looking for a job. Can the govt hire those people without raising taxes? After all, it may add to the deficit, but if hiring those people will not result in higher taxes or inflation and the work needs to be done, it will benefit the rest of us without doing us any economic (financial) harm. (I am not talking about building bridges to nowhere - but doing useful productive work). Any thoughts?

[Ry]

Steve, I think your definition of the solar system came from an Isaac Asimov quote: "The Solar System consists of Jupiter plus debris."

[gunthestops]

Mark, I'm not trying to bust your balls but what do you mean by SS surplus. There is no surplus, just an IOU from the Government in the form of Intragovernmental Securities for 2 trillion dollars. The federal government has spent every penny of surplus funds collected for SS.

[Steve]

Mark,

As you know, the unified budget nets out the silly concept of government "managing" a trust fund denominated in its own currency. (Understanding that concept seems to be an insurmountable leap for most politicians and ideologues, unfortunately.) And I agree in principle that employing slack resources is not inflationary. But I'd like to see some experimentation around that, so we could observe secondary and tertiary effects. Maybe it would yield nothing but good news; maybe we'd learn about some problems. In either case, we'd get smarter.