The "Fiscal Cliff" exposes myths, misunderstandings and misdirections
 

I like alliteration.

Some commonly held beliefs (many of them GOP-driven) continue to be upended or exposed as false as we move through the aftermath of the Global Financial Crisis of 2007-2009.

Deficits are always bad. It seems that most everyone now recognizes that cutting spending and raising taxes would (A) reduce the deficit significantly right up until (B) it tipped the economy from slow growth to negative growth. That negative growth would kick in all kinds of automatic stabilizers like reduced tax receipts and increased spending on unemployment insurance and social aid that would just increase the deficit again.

Markets are efficient. On November 16, some politicians claimed there was "constructive" progress on a deal to avoid the "Fiscal Cliff." The Dow Jones Industrial Average jumped 128 points shortly after - despite there being absolutely nothing concrete agreed to or laid out.

The Bond Vigilantes will keep Congressional spending in check. The Bond Vigilantes "now have become the Bigfoots of the U.S. economic debate — much talked about but without any proof of existence."

Cutting government spending is always a good thing. The same people that call for balanced budgets are railing against government spending cuts that could end up costing thousands of private sector jobs that sell goods and services to the government or to government contractors.

Obeezy campaigned on increasing spending by 4%. Too bad Romneybot lost, he was going to spend .5% less. America will die (of AIDS).

I made a few revisions.

Do MMT'ers/Chartalists in general, like Keynesians, believe that having bureaucrats and politicians direct where productivity and money taken by force (i.e. taxation), is better than leaving said money in the hands of individuals, who will each decide where to spend or invest said money for bettering their own lives, or to make a return?

If one were to look at gov't spending as a % of GDP (or, put another way, percentage of gov't control over total productivity)... do MMT'ers/Chartalists believe that more control over economic output is better? What do they posit is a "good" number? 10%? 20%? 50%? 100%?

1) Sure - the truth is, we need your money to convert the US to the metric system.

2) Let's ask Nate Silver, I'm sure he could round it to 3 decimal places too.

I don't really even know the best way to answer this. I think the short answer is, that depends on which one you ask. Warren Mosler has been a big proponent of additional tax cuts (such as a complete FICA holiday) and more funds directed to the state level vs others who likely argue for more Federal-directed spending such as larger-scale improvement of infrastructure.


You continue to misunderstand that MMT is designed as a description.

You are so focused on the ideological or philosophical that you can't separate description (what is) from prescription (what we think we should do).

It's like asking a physicist or an engineer if he believes that gravity should have so much influence on mass outside of a vacuum.

Excellent article today from Edward Harrison. I haven't watched the video at the bottom (and probably won't) but his summary notes are worth reading.

taxes are a moral issue. gov't's job.

I think clearly the solution is to continue raising taxes so we can waste more money on social programs. Obviously lazy people need MY money more than I do, it's not like I have my own bills to pay or anything.

Shit, why not continue spending our great great great great great great grandchildren's money? They can just keep blaming it all on Bush.

Yeah, we need to kick those lazy bums off welfare.

I say we start with Kansas.

https://www.miataturbo.net/attachmen...ine=1355351581

:drama: But please, continue. Don't let inconvenient things like facts get in your way there.

Full disclosure: PolitiFact | 'Red State Socialism' graphic says GOP-leaning states get lion's share of federal dollars

Awesome chart, the publishers even admit the data is outdated and no longer accurate.

Great summary and far more eloquent and succinct than I've been able to communicate. You will notice he also makes clear there is a descriptive and a prescriptive element at work.

Unfortunately, such objective and thoughtful work is lost on most people. See below:

"The graphic’s data uses data from the 2004 election rather than 2008, and the figures on taxes and spending date back to 2005. There are fewer states that would be labeled Republican based on the 2008 election, and there’s a strong likelihood that tax and spending data would have changed as well. Because of this likelihood, we downgrade the accuracy of this generally accurate chart to Mostly True."

Another win for New Jersey. Number 50 out of 57:jerkit: states.

Lol. This is simply wealth redistribution. You can put decapitated kittens all over the charts and it still doesn't change the fact that all you're looking at is that people with higher incomes pay more taxes than they get back in government services; people with lower incomes get more back than they pay in. The more progressive the tax structure, the more pronounced the redistributive effects. Obama's proposed tax rates will make your chart look much "worse"

It's also shameful they always leave off DC and PR, who get back $5.55 and $6.xx back repsectively for every dollar put in.

Anyways, like always Blaen, you failed to make any point.

And still linking from Politifact I see. Did you see their "Lie of the Year?" It was this:

Yep, politifact gave that statement the "lie of the year award." Even though the statement is not a lie. Especially if you look at it objectively, since Romney probably read this story: http://chinaautoweb.com/2010/05/fiat...jeep-to-china/


If my friend got killed in a terrorist attack because of a "video" that only 2000 people saw, and it was later found it was a big complete lie and a cover up, I probably continue to use Politifact too.

I love all these liberals with their Earth shattering, counter-intuitive rhetoric about the fiscal cliff, the second amendment, and Islamic diversity. Let me summarize it for you:
Fiscal Cliff:
Republicans don't understand that when there is no money left in your wallet, you should spend more. It's foolish to stop spending, ever, because debt is not real and we need your tax revenue to pay for a bunch of programs to reward the unemployed who don't have access to handguns.
2nd Amendment:
"The people" is an undefined subset specific only to the 2nd Amendment; or in 1776 "the people" were non-enlisted military and comprised the militia. That doesn't apply today because it shouldn't. "Shall not be infringed" needs to be changed because you can rest easy in statistics.
Islamic diversity:
You should all stop breathing because it's offensive to Muslims.

Well, that pretty much sums it up. Every now and then it's important to remind non-rabid-Democrats that it takes a wall of text correct your interpretation on 3 word phrases the "shall not infringe" and concepts like "there is no more money left". I recommend you all go out and get credit cards if you're out of money and give away all your guns to homeless blacks to embrace social justice.

Yeah, I cant wrap it around my head that we need to raise revenue in order to pay for nine days of gov't spending.

taxes are a moral issue, nothing more.

Trey - Isn't your significant other studying economics? Granted, it's probably all rooted in gold-standard era neoliberal (Keynesian/Monetarist) but she can explain "pro-cyclicality" to you.

Cutting Federal government spending and raising taxes both do the same thing: take money out of the economy.

Increasing Federal government spending adds new money to the economy.

Cutting taxes adds new money to the economy.

Because of waste, cronyism and inefficiencies, I generally favor tax cuts. A healthy, developed economy grows at more than 3% net of inflation on a yearly basis ("real GDP growth"). 2012 will possibly be less than 2% and was probably closer to 1% in the Q4.


TL; DNR: Explain to me how "there is no more money left" at the US Treasury.

We aren't: Federal Reserve announced on Wednesday that it will keep interest rates near zero and will purchase $85 billion in bonds every month until unemployment falls from its present 7.7% to 6.5%.

that's going to be a LOT of money, and it WONT run out.

My GF would debate crush on all points above which remain. She is definitely a fiscal conservative, lol.

Oh inflation, how we love thee. The problem is not really the deficit itself but the rate at which it is growing and how the money being used is being spent. Currently the govt. is just pissing money away instead of using it to actually create jobs.

but if they keep doing it until enough jobs are eventually created, they can say they were the ones who created those jobs.

:bowrofl:

except he's wrong:

Obama hires 101 new federal employees a day

he's creating a small of amount of highly paid jobs :)

Ya'll fiscal conservatives postin in a lib thread.

Are any of them white male?

I can post wherever I want. FREEEEEEEEEEEEEEEEEEDUMB!!!!!!!!!!

PM me your phone number and we can do a conference call. Your girlfriend may be a fiscal conservative and she may be smarter than me, but she is not smarter/more educated in this arena/more exposed to the mechanics than Jan Hatzius, Warren Mosler, Cullen Roche, Edward Harrison, et al.

https://www.miataturbo.net/attachmen...ine=1355416474

I will bet you $20 that your girlfriend has not been exposed to sectoral balances in whatever business school she is attending. I am confident, because she is being taught the same crap almost every other economist or biz student (including myself once upon a time) was taught: money multiplier, loanable funds theory, etc.

It's why most people have been wrong on inflation expectations, why they don't understand that quantitative easing is primarily an asset swap (Fed takes $100 worth of your bond and gives you $100 worth of cash, leaving you with $100 in assets), why they don't understand the relationship of the Fed, Treasury and Primary Dealers, etc.

That's why those that do understand post-Keynesian/post-Monetarist economcs correctly called things like:

• the recession of the early 2000s as a result of the "Clinton surplus"
• the issues of the European Monetary Union and that a banking crisis would expose the weakness in having countries give up their currency sovereignty
• the bust of the subprime over-leveraging
• that QE and fiscal stimulus would not cause high, massive or hyper-inflation
• basically every major macro call of the past 25 years

At some point, being right should count for something and being wrong because of outdated ideas held on to like religion should have consequences.

I swear, talking to "fiscal conservatives" is like talking to religious nuts. The cognizant dissonance is infuriating.

"We are going to see hyperinflation because of all the money printing!"
translation: we have an unlimited supply of US dollars

"We're bankrupt!"
translation: we cannot pay our bills

"We should just voluntarily default on our debt!"
translation: we can pay our bills, but we shouldn't in order to teach people (like China and my grandmother) a lesson for buying US Treasury bonds

"We should refuse to raise the debt ceiling!"
translation: we are going to refuse to pay the invoice on spending we approved 8 months ago

https://www.miataturbo.net/attachmen...ine=1355416474


:crx:

why are you linking images from my local underground?

I don't disagree with any of these points. However, just because hyper inflation is not occuring does not mean there is not some inflation and that this inflation is not more harmful than the benefits derived from the govt. spending that created it.

If the govt. wants to spend massive amounts of money it should try investing heavily in infrastucture upgrades, military technology, and research grants that create jobs in the private sector where the funds will be spent much more efficiently. Right now the money is being spent on bullshit that isn't very effective.

but if it wasnt for the horrible poilcies of the fed, to help get our economy is such mess, we couldnt have horrible programs to keep thouse we ruined in control:

Obama's America Will Become Detroit | CNS News

I wanted to see a window into a bastion of progressive liberalism.

Yes, there is some inflation. The absence of inflation is typically deflation and that's what happens when economies contract or shrink. You may or may not recall that we just had some deflation a few years ago - along with one of the worst recessions in about 70 years.

To be more accurate, we have had less inflation over the past 4 years (1.6% average) than we did for the past 10 or 20 years (2.5% for both time frames). All three time frames are lower than the average going back to the late 1940s (farthest back the CPIAUCSL goes back in present trime). Since 1947, the average annual rate of change has been 3.7%.

I do not generally disagree.

This is the image I need to keep in my head every time I hear some of the nonsense that so-called "fiscal conservatives" wring their hands over so that I remember there is no point in trying to have an intelligent conversation with them on the subject.


I feel like Copernicus' student and people like Hustler and Brain are members of the Vatican. Smart people chained by the equivalent of religious beliefs.

Alternatively, I feel like Joe Perez on Miata.net trying to explain why a turbo does not, in fact, "ruin" a Miata.

I remember once you pm'd me, proud that I regurgitated something you said to me... you have made me sad today.

I feel like you are Confucius and I'm a little asain girl who is full of shame.

This seems to presuppose that "the economy" is a closed system, a zero-sum game.

The supply of money is essentially infinite, as the Fed has carte blanche authority to create it at varying levels simply by adjusting the speed of the printing presses.

Making adjustments (either positive or negative) to federal spending and/or tax rates affects three things, all of which interact:

1: The amount of "free" money in the economy, which can also be influenced by

2: The need to create new money, which along with the first has an effect on the side of

3: A largely fictitious variable which is most easily conceptualized as "the deficit."


It is entirely possible to increase spending while decreasing taxation. This has the effect of leaving more money in circulation while simultaneously decreasing the need for money creation (which raises the value of money), while at the same time increasing the amount of federal debt.

Raising taxes while increasing spending, or lowering taxes while decreasing spending, has virtually no effect on the amount of free money in the economy nor the need to create new money.

Raising taxes while decreasing spending removes money from circulation while also decreasing the amount of federal debt.


So, how do you assign relative valuations to the quantity of federal debt vs. printing money vs. the value of money vs. quantity of money in circulation?

I'll post more detail later, but I will argue this is not really accurate. The Federal Reserve does not add new net dollars to the economy. The US Treasury, upon direction of the Congress, does that.

Again, looking at quantitative easing as an example, if you hold $100 million in mortgage backed securities and I buy those for $100 million, I have only changed your liquidity - not the net value of your assets.

A counterpoint for those willing to read:
The Upside-Down World of MMT - Robert P. Murphy - Mises Daily

The counter-example used uses, instead of math, a closed-system example - an island economy.

A Robinson Crusoe barter economy with no international trade, no banking, no contingent institutional approach, no differentiation between a sovereign currency issuer and non-sovereign currency user, etc.

Basically, a very helpful way to understand a system that does not exist in today's reality.


Also, he starts his post with a misrepresentation that students of the modern monetary system believe "deficits don't matter." They matter very much.

I was using the term "The Fed" as a blanket term for the US Federal Government as a whole. The Treasury Secretary is a member of the Cabinet, and the Treasury, operating under the authority of the Congress, is essentially an agent of the Federal Government.


I don't really understand where you're going with this, insofar as how the creation and exchanging of securities is relevant to monetary policy.



I couldn't agree more.

Jason, this is part of the reason why I find these discussions to be tiring. You seem to have a tendency towards citing academic studies which are simply not applicable to a present-day global economy. This is not the first time.


As I hinted at earlier, this is a point on which many, myself included, are quite hazy.

On the one hand, it seems intuitively obvious that deficit spending is not endlessly sustainable. If I keep running up my credit card balance and only ever make the minimum required payments, then I will quickly hit my credit limit (at which point I can no longer make new purchases on the card) and sooner or later, they will wind up suing me.

On the other hand, there does not appear to be a practical, finite limit to the US Government's credit limit. For starters, there is no one single lender, just an aggregate of many different lenders, some of which are functionally the government itself. And historically, every time we have approached a debt limit, it has subsequently been increased.

With no actual credit limit, and no realistic threat of collections / forclosure / similar concept, what motivation is there to curb deficit spending? I mean, if my credit card company upped the limit on my card every time I approached it, and was toothless to ever actually act against me to collect, why wouldn't I use the card endlessly and irresponsibly?

Inflation, primarily. For one thing, in your scenario, in order to receive your magical credit card, you would have pledged to use your credit card to achieve dual goals of price stability and full employment. As a practical matter, if you continued to spend without some mechanism to also destroy an appropriately large amount of money, each new dollar would be worth less and less.

But does the amount of "money" represented by a growing federal deficit count towards inflation in the same way that printing new money would?

It's an honest question, as I really don't quite know how to conceptualize this.

On the one hand, deficit spending does not increase the total amount of actual money in existence. But on the other hand, it does increase the velocity of money, which is the most direct result of money creation. But on the gripping hand, inflation is not an absolute evil. Inflation is also a side effect of the increased productivity which results from an increase in the total number of jobs in existence, whereas deflation typically correlates with an increase in unemployment, which I would argue is "more bad" than inflation per se.

But I'm rambling. Here is a diagram of how a cat works:

http://upload.wikimedia.org/wikipedi...omy-en.svg.png

Perhaps I'm misunderstanding what you mean here, but if you are creating more dollars than you are destroying on an annual basis, how would the total amount of dollars not increase?

Deficit spending in and of itself does not increase the velocity of money. See below for a graph that shows the velocity of the M2 money supply relative to the US fiscal balance of payments. I've taken the inverse of the deficit simply to make it easier to visualize.

http://research.stlouisfed.org/fredgraph.png?g=dQA

What causes an increase in the velocity of money is, primarily, demand for money - usually via demand for credit. :)


Also, you should discard the terminology "money printing" from your usual lexicon. All deficit spending and all government spending is "money printing" or, more accurately today, marking up or down someone's spreadsheet.

•$430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States. Producers can expense up to $15 million of costs for their projects.
•$331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.
•$222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.
•$70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”
•$59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.
•$4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.



meanwhile:

The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.

More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday.

Help me interpret the above. This is what I took away from your post:

You do not like fiscal stimulus via tax cuts for corporations and some consumers (e.g. electric bike buyers) but you do like fiscal stimulus when it comes in the form of household tax cuts.

However, you would prefer that the household tax cuts enacted in the fiscal stimulus were made permanent rather than enacted as temporary cuts. You do not like that household taxes are being raised on the lower and middle income earners that work.

You do not find any cognitive dissonance in the fact that the payroll taxes being raised are likely the only taxes some of Romney's 48% of people "that don't pay Federal income taxes" pay in to the Federal system and that you have previously criticized the system for those people not contributing enough.


Is that about right? :)

yes. taking from the poor and giving to the rich is immoral.


correct.



pretty much. :) I dont mind them not paying any federal taxes, I do mind them milking all the services that other's taxes unfortuantely pay for.

I am just waiting to see what happens in the next 2 months considering all that really happened was a bandaid. Oh yeah, so much for Obama's promise to keep paychecks the same for the middle class in 2013 as in 2012, I was holding my breath....

has he ever kept a promise?

:brain: :party: :makeout:

Yes and no. The fact that the marginal Federal income tax brackets for everyone under $400k/$450k taxable income were extended with no expiration is significant. The fact that the AMT was permanently patched and indexed for inflation, along with some others like the estate tax, is significant.

It also extended some tax credits for lower income earners and extended unemployment insurance benefits but did let the payroll tax holiday expire.

Long term capital gains rates are going up for some people, but mostly only those making over $200k/$250k MAGI. That's a mix of Obamacare and this new deal. Likewise, it looks like we will see a return of exemption and deduction phase-outs.

To me, this was a pretty impressive result for a Republican party that really had very little negotiating power as far as I could tell. Some of the easiest political targets like the estate tax and carried interest treatment were barely scathed. They managed to get the "top income earners" redefined from $200k/$250k MAGI to $400k/$450k taxable income.


Unfortunately, there is a big mish-mash of income thresholds now and some are measured by taxable income (marginal rates), some by earned income (Medicare payroll surtax) and others by modified adjusted gross income (investment income surtax).


On the other hand, they did not address the major sequestration issues as I understand it. Those were delayed, which means you won't have that as a drag on economic output for now but you will have a new battle in a couple of months and that will be tied with raising the debt ceiling limit.

I assume that is probably going to be in the hands of some potentially very annoyed House Republicans.

A great writeup on where that stuff came from Tim Carney: How corporate tax credits got in the 'cliff' deal | WashingtonExaminer.com

Didn't read most of this thread, but from what i did read i'm on the same page as everyone else...

I'm getting $100 more taken out of my pay check every pay period (every 2 weeks). This is combined both jobs that i have. I'm also in a union, we just took another %8 pay cut this year, on top of the %50 cut that my position got when i took my job 3 years ago. (i suppose the union "saved" my job, but i get paid dick...)

I put an offer in on a house last week, it got counter offered but now i'm thinking about not buying a house. I suppose i could afford it now if i finance it, but when obamacare starts kicking in i'm really not sure.

Fuck.