1083: "Writing Styles"

This forum is for the individual discussion thread that goes with each new comic.

Moderators: Moderators General, Prelates, Magistrates

KrytenKoro
Posts: 1487
Joined: Tue Apr 05, 2011 2:58 pm UTC

Re: 1083: "Writing Styles"

Postby KrytenKoro » Tue Jul 24, 2012 8:45 pm UTC

Pfhorrest wrote:What if we got rid of the monopoly on money entirely?

Let anyone issue any kind of money they like. Whether that has any value to anyone else, and thus gets used for anything, will depend on each issuer's monetary policy; what it's backed by, its inflation rate, etc. Currencies which stably retain value and yet are widely enough issued to conduct all the transactions we need to conduct would become most popular and the de facto standard. To do that they would need to be backed by some widespread but scarce resource of stable value; or some diversified portfolio of such resources. They could even be that ABCD$1.00, in essence, equals "IOU one share of this holding company owning a huge, extremely diverse and therefore relatively stable, stocks and commodities portfolio" -- and that, taken to the extreme, could even approach what really makes most sense, ABCD$1.00 = one share of the economy.

We already tried something similar during the Articles of Confederation, and to my understanding, it failed miserably.
From the elegant yelling of this compelling dispute comes the ghastly suspicion my opposition's a fruit.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Wed Jul 25, 2012 5:47 pm UTC

Pfhorrest wrote:What if we got rid of the monopoly on money entirely?

Let anyone issue any kind of money they like. Whether that has any value to anyone else, and thus gets used for anything, will depend on each issuer's monetary policy; what it's backed by, its inflation rate, etc. Currencies which stably retain value and yet are widely enough issued to conduct all the transactions we need to conduct would become most popular and the de facto standard. To do that they would need to be backed by some widespread but scarce resource of stable value; or some diversified portfolio of such resources. They could even be that ABCD$1.00, in essence, equals "IOU one share of this holding company owning a huge, extremely diverse and therefore relatively stable, stocks and commodities portfolio" -- and that, taken to the extreme, could even approach what really makes most sense, ABCD$1.00 = one share of the economy.

Well, how do you back up the value of your currency?

What you're describing sounds like Whuffies at best, Klout at worst, and neither of those are any good.


My point is that it is impossible for the US government to run out of money or default on it's debts unless it just says "hey, fuck all ya'll, I ain't gotta pay shit" or is invaded/razed.


If we all had our own currency, but you held debt in my currency, my currency value is stable as long as the debt exists, since you need my currency to pay the debt.

If the debt is suddenly payable in your currency or steve waterman currency (let debt = debt', YES?) why use mine?
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Wed Jul 25, 2012 8:58 pm UTC

Max™ wrote:
Pfhorrest wrote:What if we got rid of the monopoly on money entirely?

Let anyone issue any kind of money they like. Whether that has any value to anyone else, and thus gets used for anything, will depend on each issuer's monetary policy; what it's backed by, its inflation rate, etc. Currencies which stably retain value and yet are widely enough issued to conduct all the transactions we need to conduct would become most popular and the de facto standard. To do that they would need to be backed by some widespread but scarce resource of stable value; or some diversified portfolio of such resources. They could even be that ABCD$1.00, in essence, equals "IOU one share of this holding company owning a huge, extremely diverse and therefore relatively stable, stocks and commodities portfolio" -- and that, taken to the extreme, could even approach what really makes most sense, ABCD$1.00 = one share of the economy.

Well, how do you back up the value of your currency?

What you're describing sounds like Whuffies at best, Klout at worst, and neither of those are any good.

My point is that it is impossible for the US government to run out of money or default on it's debts unless it just says "hey, fuck all ya'll, I ain't gotta pay shit" or is invaded/razed.

If we all had our own currency, but you held debt in my currency, my currency value is stable as long as the debt exists, since you need my currency to pay the debt.

If the debt is suddenly payable in your currency or steve waterman currency (let debt = debt', YES?) why use mine?


Money is essentially promises. Some people want to avoid money as promises by making money be commodities. Like you pay for things with gold bars or silver dimes. When you use commodities as money, you are not actually paying for things with money. You are doing barter.

There's nothing wrong with barter. One man barters gold bullion, another barters bushels of corn, another barters chickens. Somewhere along the line everybody gets what they need. The chicken farmer gets corn to feed his chickens. The man with the gold gets chickens to eat. The jeweler and the dentist get gold to melt down to make things. It all works out, with the complication that if you don't know how much everything is worth you might make bad deals.

Actual money is promises, and it is backed up by your faith that the promise will be fulfilled. To the extent that you accept gold not because you want gold, but because you have faith that other people will accept gold to give you things you actually do want, the gold is promise too.

Promises are a useful currency only if there are a considerable number of promises that have not been kept yet. When the promise is fulfilled, the money disappears. If there aren't enough promises available to meet people's need for exchange, they will be thrown back on barter.

A promise is only good if you believe it will be fulfilled. Otherwise it is worthless to you, though you might still do charity for people and accept worthless money for goodwill.

Government money is promises by governments. Governments have some advantages -- they don't grow old and die, and within limits they can decide how much stuff to take from their citizens to pay for things. But when a government spends too much or when it's in danger of being overthrown, its promises are valued less. When a government treats its citizens too badly, some of them try to escape and the government must promise rewards to other citizens who prevent escape, and that wastes promises and resources.

Technically governments make it illegal for anyone else to create money. But they can't keep people from making promises, and often people work out ways to trade promises. Recently when they sliced up mortgages thin enough that any single failed mortgage wouldn't have much effect and could be statisticly predicted, and traded them publicly, that was a kind of money that the government didn't regulate or control.

Here is a way we could arrange private money, assuming zero information costs. Each young man takes out loans -- promises -- to get himself established. The value of his promises varies with his prospects. As his income rises he pays back some of his debt, or maybe he goes deeper into debt with the assurance that he will make even more later to pay it back. Ideally before his ability to work drops he will have paid back his whole debt and he will be a net creditor. If not, the value of his promises will drop until he is unable to put out new debt and must live on his income. His old debt trades rapidly at increasingly lower prices. Nobody wants to be stuck with it.

When you die, the debt you owe gets matched off against the debt you own.

The value of the money would depend on everybody's perceived ability to repay their promises. Most people prefer to have some promises they can depend on, rather than owe. So to have promises to trade, somebody has to make promises they will need to fulfill later, and the people who can be coerced into that would normally be the ones who would be least able to pay off later. But young people might expect to do better later, and enough of them could actually do that for their promises to be valuable.

Is that kind of like what we have now? The federal money is backed by your promise to pay back your loans. The banks thought you can and will pay it back, or they wouldn't have extended you credit. You have some hope of working your way out of debt before you are forcibly retired. Since information is not free, bankers make very good income keeping track of your promises and judging how much they are worth.
The Law of Fives is true. I see it everywhere I look for it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Wed Jul 25, 2012 11:52 pm UTC

J Thomas wrote:Actual money is promises, and it is backed up by your faith that the promise will be fulfilled. To the extent that you accept gold not because you want gold, but because you have faith that other people will accept gold to give you things you actually do want, the gold is promise too.

Well, people accept gold because of a strange brainbug that makes us desire it. I admit to being fascinated due to the relativistic properties of the outer electrons moving so rapidly that they are actually inside of the next shell under them. It's also why mercury behaves as it does!

Mercury will kill you eventually if you play with it though.

I'm in no way suggesting a gold standard though, that is more absurd than a pure fiat currency.

I just think, if you're going to have a fiat currency, why not treat it like one instead of pretending it's still gold backed as we currently seem to do?

Running out of fiat currency is literally impossible, hyperinflating it only happens if no one will accept it, and the US has a huge amount of debts which can only be paid in dollars... I don't think people are going to start turning it down any time soon, if they do, I'm pretty sure we'll just start bombing them, we've done it with far less motivation than an actual threat to our economy.

Government money is promises by governments. Governments have some advantages -- they don't grow old and die, and within limits they can decide how much stuff to take from their citizens to pay for things.

Whoa, where did you get the idea that the government NEEDS tax money to pay for things?

Do you think the IRS writes checks to Boeing to pay for new toys to be sent to the Pentagon?


Technically governments make it illegal for anyone else to create money. But they can't keep people from making promises, and often people work out ways to trade promises. Recently when they sliced up mortgages thin enough that any single failed mortgage wouldn't have much effect and could be statisticly predicted, and traded them publicly, that was a kind of money that the government didn't regulate or control.

http://bitcoin.org/

Is that kind of like what we have now? The federal money is backed by your promise to pay back your loans. The banks thought you can and will pay it back, or they wouldn't have extended you credit. You have some hope of working your way out of debt before you are forcibly retired. Since information is not free, bankers make very good income keeping track of your promises and judging how much they are worth.

No, the federal money is backed by THEIR promise to pay back their loans.

The banks gave us credit because some stupid fuckers thought credit bubbles would be awesome... I mean, it is awesome if you ride it and get off at the top, but aside from some objectivist bullshit, most people recognize that thrashing the livelihood of everyone else is a shitty thing to do.
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Thu Jul 26, 2012 1:22 am UTC

Max™ wrote:
J Thomas wrote:Actual money is promises, and it is backed up by your faith that the promise will be fulfilled. To the extent that you accept gold not because you want gold, but because you have faith that other people will accept gold to give you things you actually do want, the gold is promise too.

Well, people accept gold because of a strange brainbug that makes us desire it. I admit to being fascinated due to the relativistic properties of the outer electrons moving so rapidly that they are actually inside of the next shell under them. It's also why mercury behaves as it does!


They hear stories -- folktales -- about gold being valuable. But gold is pretty heavy for its value. A pound of gold is only worth around $23,000, while a pound of Stradvarius violin is worth hundreds of thousands to millions of dollars.

I'm in no way suggesting a gold standard though, that is more absurd than a pure fiat currency.


It isn't completely ridiculous, but gold is far too useful to inhibit its use for financial reasons. How about using osmium instead? It's ten times rarer, and we don't produce very much of it just yet -- you could easily store the entire world supply in Fort Knox. Under nitrogen. We could let tourists look at it through windows, and have cameras looking at it all the time with the output going onto the net so anybody could see. We'd have computers to track who owned how much of it, but the actual metal would sit in Forth Knox forever or until we got tired of it. As I said, under nitrogen or maybe better under argon.

I just think, if you're going to have a fiat currency, why not treat it like one instead of pretending it's still gold backed as we currently seem to do?


People have an irrational confidence in their money when they think there's a lot of gold in Fort Knox. We could probably persuade them that Osmium would do just as well.

Running out of fiat currency is literally impossible, hyperinflating it only happens if no one will accept it, and the US has a huge amount of debts which can only be paid in dollars... I don't think people are going to start turning it down any time soon, if they do, I'm pretty sure we'll just start bombing them, we've done it with far less motivation than an actual threat to our economy.


Some people say that the Chinese are stupid for extending us so much credit that will never be paid back. They work their people hard making stuff for us, and we don't give them back anything except pieces of paper -- and we don't even give them the paper, we give them little blips in computers that say we owe them the paper dollars.

But in the longer run, what happens if we get into some sort of disagreement with them, and they start spending dollars? "You want dollars for your oil? We have plenty of dollars to give you. And when we run out of dollars we can pay you in a hard currency...."

Say they stopped extending us credit. We would be in a lot of trouble. It was kind of like that when the USSR collapsed. One year they were doing kind of OK, and the next year they had MDs moonlighting as prostitutes because they couldn't live on an MD salary, and lots of mail-order brides trying hard to get out of the country. If as few as ten million chinese men who had no hope of marrying in china found they could afford American wives, they might consider that a decent win.

The Soviet army used to be pretty good, but when they collapsed they couldn't pay their soldiers enough to live on. They couldn't feed their soldiers enough to live on. It melted away, and had to be rebuilt later. If we got a big inflation along with US stuff selling cheap overseas while we mostly couldn't afford imports, We might not be able to support much of a military either for awhile. The US military is currently supposed to be by far the best in the world, and it's also by far the most expensive in the world....

Government money is promises by governments. Governments have some advantages -- they don't grow old and die, and within limits they can decide how much stuff to take from their citizens to pay for things.

Whoa, where did you get the idea that the government NEEDS tax money to pay for things?


They like people to think that inflation won't be very bad. People can adapt to inflation just fine when it's entirely predictable, but in practice it usually isn't that predictable. It's a pain predicting it. So they pay for stuff, and then they collect enough taxes to help keep inflation down. It's a tradition.

Do you think the IRS writes checks to Boeing to pay for new toys to be sent to the Pentagon?


The Treasury does.

Technically governments make it illegal for anyone else to create money. But they can't keep people from making promises, and often people work out ways to trade promises. Recently when they sliced up mortgages thin enough that any single failed mortgage wouldn't have much effect and could be statisticly predicted, and traded them publicly, that was a kind of money that the government didn't regulate or control.

http://bitcoin.org/

Is that kind of like what we have now? The federal money is backed by your promise to pay back your loans. The banks thought you can and will pay it back, or they wouldn't have extended you credit. You have some hope of working your way out of debt before you are forcibly retired. Since information is not free, bankers make very good income keeping track of your promises and judging how much they are worth.

No, the federal money is backed by THEIR promise to pay back their loans.

The banks gave us credit because some stupid fuckers thought credit bubbles would be awesome... I mean, it is awesome if you ride it and get off at the top, but aside from some objectivist bullshit, most people recognize that thrashing the livelihood of everyone else is a shitty thing to do.


Also we've been having economic problems for a long time. After the USSR collapsed Americans talked about a "peace bonus". They thought we could get richer if we didn't have to spend so much on the military. We put a lot of money into new civilian technology instead -- the "dot.com boom". But after we got new products, we built the factories to make them overseas where there was cheap labor and cheap politicians. And when we did get successful internet products they tended to be things like Amazon -- sell stuff cheaper by dropping the retail jobs -- and Ebay -- sell stuff you have lying around to people who might otherwise buy something new.

Then we got the wars, and military spending went from around 3% of GDP to more than 6%. (They talked like it was only 4% because the government kept war spending amounting to 2% of GDP off the books.)

We imported more than we exported, year after year, more each year. We needed a way to get foreigners to give us money that didn't involve us selling them stuff, value for money. During the tech boom we got lots of foreigners to buy stock in US companies. Then when the bust came they got burned. What could we do for an encore? We could find a way to sell US residential housing to foreigners. They couldn't come live in the houses, but they could buy the loans. We worked out a statistical flim-flam that persuaded a lot of foreigners to buy our stuff, and we pushed that as far as it would go until it broke.

What persuades foreigners to send us valuable stuff on credit? Is it our powerful military that can "protect" them? Some, probably. Is it they believe we will lead the way to new technological miracles and they want to bet on us? Maybe some. Are they used to the days when investment in the USA was the most profitable? Older people, some. I think it's mostly that they believe individual Americans will pay their debts. The more they believe that, the more they extend us credit. The less they believe it, the fewer will lend to us and at higher rates.

It's mostly the US economy that backs the money. The government can back the money by printing more of it. That is not very convincing in itself.
The Law of Fives is true. I see it everywhere I look for it.

blowfishhootie
Posts: 486
Joined: Wed Sep 21, 2011 11:13 pm UTC

Re: 1083: "Writing Styles"

Postby blowfishhootie » Thu Jul 26, 2012 1:44 am UTC

J Thomas wrote:People have an irrational confidence in their money when they think there's a lot of gold in Fort Knox. We could probably persuade them that Osmium would do just as well.


I highly doubt most Americans know anything whatsoever about the gold reserve at Fort Knox. Or have an opinion on gold-backed currency, for that matter.

People have confidence in their money, in the U.S. at least, because ... it buys things. And there's nothing irrational about it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Thu Jul 26, 2012 3:14 am UTC

What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Thu Jul 26, 2012 6:27 am UTC

Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?


Anything that happens faster than people can adapt, is bad for the people who are slower to adapt.

I tried to imagine your scenario and I could no. I'll think about it and maybe come up with something similar enough to be a response.
The Law of Fives is true. I see it everywhere I look for it.

VanI
Posts: 61
Joined: Mon Mar 19, 2012 2:54 am UTC

Re: 1083: "Writing Styles"

Postby VanI » Thu Jul 26, 2012 6:33 am UTC

Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?

Horrible. US sovereign debt is one of the few really good safe-haven investments and hedges against instability in the world, and the complete annihilation of that investment vehicle would destroy much of the world's economy.
I swear, a fireball lied to me just the other day...

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Thu Jul 26, 2012 6:47 am UTC

VanI wrote:
Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?

Horrible. US sovereign debt is one of the few really good safe-haven investments and hedges against instability in the world, and the complete annihilation of that investment vehicle would destroy much of the world's economy.


Yes, that's bad for rich people who want a safe haven and are slow to adapt. The other consequences are harder for me to imagine. I can imagine lots of things but I have trouble persuading myself to believe any of them.

Why is our economy set up for the security of rich people who want a safe haven? Who is that good for?
The Law of Fives is true. I see it everywhere I look for it.

VanI
Posts: 61
Joined: Mon Mar 19, 2012 2:54 am UTC

Re: 1083: "Writing Styles"

Postby VanI » Thu Jul 26, 2012 7:21 am UTC

J Thomas wrote:
VanI wrote:
Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?

Horrible. US sovereign debt is one of the few really good safe-haven investments and hedges against instability in the world, and the complete annihilation of that investment vehicle would destroy much of the world's economy.


Yes, that's bad for rich people who want a safe haven and are slow to adapt. The other consequences are harder for me to imagine. I can imagine lots of things but I have trouble persuading myself to believe any of them.

Why is our economy set up for the security of rich people who want a safe haven? Who is that good for?


Oh, don't get me wrong, I would probably be the first to overthrow the whole system if I could, but I don't see it going anywhere soon, so I gave an answer based on the question presented. If we can reengineer the entire world economy at the same time, I would have quite a different answer for the hypothetical scenario presented. I would love nothing better than to throw the entire global financial elite over the wall, except that my parents' public employees' retirement and IRA are bound in with that same system, so I also have a bit of a vested interest in making sure they can have a house and do things, like eat.
I swear, a fireball lied to me just the other day...

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Thu Jul 26, 2012 7:48 am UTC

Yes, it's an npr story, sorry: http://www.npr.org/blogs/money/2011/10/ ... ent-report

http://media.npr.org/assets/img/2011/10 ... erDebt.pdf


Some more investigation of the causes and reasons why it is a bad idea to eliminate the debt: http://papers.ssrn.com/sol3/papers.cfm? ... id=2101811
mu

rattusprat
Posts: 26
Joined: Mon Nov 09, 2009 8:49 am UTC

Re: 1083: "Writing Styles"

Postby rattusprat » Thu Jul 26, 2012 9:58 am UTC

Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?

I would assume, unless the system was changed, this would be a disaster.

On a practical note, with the current debt at around $11-14 trillion (depending on how measured), or approx. 100% of GDP (or close enough to), the government would essentially need to tax 100% of everything for one year, and also pay no money out in that year, to achieve this. Assuming they were able to achieve this, however, this would be a massive contraction in the money supply, leading to recession / depression.

Remember, the above $11-14 trillion currently existis in the money supply only because the US government has made a promise to pay it back (remember, money = promise, or money = debt). Remove the promise (by actually fulfilling it) and you remove the money.

Unfortunately, aside from a massive reset and do-over, the only way to keep the current system turning is (aside from relatively short term fluctuations) to continually increase the debt.

Edit:
According to this guy, its worse than that.
http://www.dacris.com/blog/2010/12/13/us-national-debt-exceeds-money-supply/
That is, the US government debt is greater than the amount of money circulating in the US economy. There physically isn't enough money to come across.

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Thu Jul 26, 2012 1:24 pm UTC

rattusprat wrote:
Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?

I would assume, unless the system was changed, this would be a disaster.

On a practical note, with the current debt at around $11-14 trillion (depending on how measured), or approx. 100% of GDP (or close enough to), the government would essentially need to tax 100% of everything for one year, and also pay no money out in that year, to achieve this. Assuming they were able to achieve this, however, this would be a massive contraction in the money supply, leading to recession / depression.

Remember, the above $11-14 trillion currently existis in the money supply only because the US government has made a promise to pay it back (remember, money = promise, or money = debt). Remove the promise (by actually fulfilling it) and you remove the money.


I'm trying to imagine a way it could work. Something like -- government-funded scientists discover a way to jump-start your immune system to eliminate disease entirely, cheaply. But it takes a monthly treatment. The government owns it. They can rent you your health, a month at a time. They arrange to treat everybody, and charge a sliding scale -- 10% of your wealth each year, whatever you own. This would make the USA rich as a nation -- we currently spend well over 15% of GDP for medical care, and it's heading toward 20%. That's a lot of resources that could be diverted to something more useful. We'd still need bonesetting and obstetrics and a lot of things, but we might easily wind up paying considerably less than we do now. And the US government could sell that in foreign nations, according to whatever arrangement we could make with their governments. Obviously if they made the treatment illegal we wouldn't break their laws, while if there was no agreement on price we'd also stay out. I expect the US balance of payments issue would get resolved nicely for the USA.

Even that wouldn't eliminate the debt in one year, but we could pay down the debt considerably in one year, assuming we got everything organized instantly. And assuming Congress didn't expand government services enough to match the increased income, and we didn't start some extremely expensive wars. Pulling numbers out of the air, let's say that "real" GDP went up 10%, the government's share of GDP went up by 3% of GDP, and foreign nations paid us a couple trillion dollars a year. The federal government would have a bigger slice of a bigger pie, plus foreign payments. We could easily pay down the debt if we wanted to, over 10 years or so. To the extent that the debt is held by individual Americans, we pay it back and then they return 10%/year of it in health payments. To the extent it's held by foreigners we get it back at whatever rate we agree with their governments. To the extent it's held by the Fed it's just bookkeeping -- I hope.

What would that do to the economy? Whoever is slow to adapt would be in trouble. MDs who have specialized in infectious disease and its consequences? Unemployed. They could retrain. We would eventually want to spend much more on accident victims than we can afford to do now. Health insurance companies? They might get lots of policy cancellations. Who would be first to offer good deals on accident insurance? They tend to control tremendous assets, an insurance company that stopped selling insurance entirely would have no insurance income and no insurance payouts, but might do nicely managing those resources if they were audacious and brutal enough. I really don't know what to expect. If individuals each paid 10% of their assets per year, they would need to have income of 10% of their assets per year to stay even, beyond what they spend. People who were slow to adapt to that would be in trouble. Meanwhile banks etc would be concentrating wealth. To the extent they give the money to owners the government would start to take it away, but they wouldn't have to do that. Maybe they could get lots of private suckers to go increasingly in debt. Yes, I can see it. "If you owe enough money that you technically don't own anything, then the government won't take it's 10%. 10% of nothing! When you owe money at 7% you're coming out ahead! Sign this ARM and then we'll discuss the details." The debt would be privatized.

Well, but if the banks are assets, and they have owners, the owners should be taxed at 10% of their value. That would bring the stock price right down. Similarly if they are nonprofits or tax shelters -- if they are assets owned by you, they get taxed at their value and not at their profits. Investors who're slow to adapt would suffer. Maybe entitities that are not actually owned by anybody in particular might do particularly well. Better to be an employee of one of those. They pay you moderately, and your family can swim at the corporate swimming pool and eat at the corporate lunchroom etc. When they're rich they can afford to treat you well. Or it might go some other way. Even when lots of people do badly the lucky and the fast adapters can do well.

For the government to legitimately pay off the debt quickly, it must have something of great value to pay it with. Not just tax X% of GDP.

Well, but failing that, what then? The government can just repudiate the debt. Refuse to pay it. Declare a tax on whoever owns US debt of 100% of the debt. Then speculators would buy up debt cheap and sell them to foreigners that the USA can't legally tax. But we could tax them anyway,declare a transaction fee for anybody who cashes in US debt of 100.05% of the debt. That last little bit would pay for the paperwork....

If the US government did that, nobody would want to lend money to the USA for at least 3 years, and then they would charge higher rates. But hey, that's a good thing! We don't want to get stuck in that debt trap ever again. There would be some big disruptions at first, and slower adapters would suffer.

OK, how about if the government inflated its way out of the debt. If it repudiated the debt then the first to suffer would be those who lent the government money. They would be punished for their evil actions. If we just printed money and gave it to lenders, then whoever suffers most under inflation would be punished. Fixed income retirees, say. Anybody whose salary didn't go up in proportion to inflation. Anybody who was already holding money. The more money you have, the more money that loses value. But we could palliate that. Say it took $X trillion of new money to pay the debt. And say we printed another $X trillion and divided it evenly among voters. If you're already going to give away $X trillion, is $2X trillion so much worse? Then the day we distributed all that money, the lower 99% of voters would have about half the money. That's a lot more than they do now! But of course most of them would only spend it. It's the ones who figured out something effective to do with their new inflating money who would prosper.

Unfortunately, aside from a massive reset and do-over, the only way to keep the current system turning is (aside from relatively short term fluctuations) to continually increase the debt.


How long can that keep working? Is there something that makes it different from a Ponzi scheme? What's the difference?

Edit:
According to this guy, its worse than that.
http://www.dacris.com/blog/2010/12/13/us-national-debt-exceeds-money-supply/
That is, the US government debt is greater than the amount of money circulating in the US economy. There physically isn't enough money to come across.


That's no problem at all. Money can be recycled.
The Law of Fives is true. I see it everywhere I look for it.

rattusprat
Posts: 26
Joined: Mon Nov 09, 2009 8:49 am UTC

Re: 1083: "Writing Styles"

Postby rattusprat » Thu Jul 26, 2012 2:13 pm UTC

J Thomas wrote:How long can that keep working? Is there something that makes it different from a Ponzi scheme? What's the difference?


Exactly.

J Thomas wrote:That's no problem at all. Money can be recycled.


The money supply is continually cycled through the economy, but when money is used to pay off a loan from a bank it disappears - the opposite of what occurs when the money gets conjured into existence by the bank when the loan is made. Sure if some debt is owned by private investors, and some money is raised by selling additional goods/services overseas, some money would still be left somewhere, but there would still be a massive reduction in the money supply.

In the spirit of the original question, if the money was "raised" (through current means) quickly, and the loan "paid off", it would lead to massive issues, aside from being at least practically impossible.

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Thu Jul 26, 2012 3:22 pm UTC

rattusprat wrote:
J Thomas wrote:How long can that keep working? Is there something that makes it different from a Ponzi scheme? What's the difference?


Exactly.


There might be some important difference. I can't think right off what it is, but if there's something that makes it different in an important way, I need to know about it. "Anything you don't understand is dangerous until you do."

J Thomas wrote:That's no problem at all. Money can be recycled.


The money supply is continually cycled through the economy, but when money is used to pay off a loan from a bank it disappears - the opposite of what occurs when the money gets conjured into existence by the bank when the loan is made. Sure if some debt is owned by private investors, and some money is raised by selling additional goods/services overseas, some money would still be left somewhere, but there would still be a massive reduction in the money supply.

In the spirit of the original question, if the money was "raised" (through current means) quickly, and the loan "paid off", it would lead to massive issues, aside from being at least practically impossible.


You're talking about a problem where there just is not enough money floating around. This is a problem that legislators *love* to solve.

They could print money. Thinking that they shouldn't print money but should instead borrow it from banks is how we got where we are today.

So they print money, and then they have to decide what to do with it. Deciding what to do with free money is, again, a problem that legislators *love*. They could spend it. They could bribe voters with it. They could send B-57's over US cities and bomb the cities with it. If they wanted, instead of giving it away to voters, they could lend it to voters or whoever they thought was a good credit risk. Apart from the politics, governments could make great bankers. They can't run out of reserves. Bank operations could suffer from politics, but do private bankers stay out of politics?

What you describe is not a problem for the nation. It's only if you put extra constraints on it that it's a problem. If you say, "How can the government pay off its debts and still make sure the same people who're rich now will stay rich while the poor stay poor", then it turns complicated.
The Law of Fives is true. I see it everywhere I look for it.

User avatar
sam_i_am
Posts: 624
Joined: Mon Jun 18, 2012 3:38 pm UTC
Location: Urbana, Illinois, USA

Re: 1083: "Writing Styles"

Postby sam_i_am » Thu Jul 26, 2012 8:05 pm UTC

rattusprat wrote:
Max™ wrote:What do you think would actually happen if the government paid down the debt tomorrow, just assume for this hypothetical that they came across enough of whatever currency to do this without directly fucking with interest rates/inflation, which are all frozen until right after the debt hits zero for simplicity.

Would this be better or worse?

I would assume, unless the system was changed, this would be a disaster.

On a practical note, with the current debt at around $11-14 trillion (depending on how measured), or approx. 100% of GDP (or close enough to), the government would essentially need to tax 100% of everything for one year, and also pay no money out in that year, to achieve this. Assuming they were able to achieve this, however, this would be a massive contraction in the money supply, leading to recession / depression.

Remember, the above $11-14 trillion currently existis in the money supply only because the US government has made a promise to pay it back (remember, money = promise, or money = debt). Remove the promise (by actually fulfilling it) and you remove the money.

Unfortunately, aside from a massive reset and do-over, the only way to keep the current system turning is (aside from relatively short term fluctuations) to continually increase the debt.

Edit:
According to this guy, its worse than that.
http://www.dacris.com/blog/2010/12/13/us-national-debt-exceeds-money-supply/
That is, the US government debt is greater than the amount of money circulating in the US economy. There physically isn't enough money to come across.


The US doesn't need to pay off all of the debt in 1 year. It just needs to reduce the defecit to 0, and keep it there.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Thu Jul 26, 2012 11:38 pm UTC

Well, the paper I linked* made a case that the only time borrowing into a deficit is worthwhile is when you're financing high government return projects: infrastructure, education, and such.

That means if you're borrowing for bombs or tax cuts or financing the debt, you're a fuckup.

Do not run a deficit on anything which doesn't give a high rate of return for each dollar spent, deficits are allowed for economic downturns and high gain spending projects.


We need a term which isn't associated with homeowner/family type debt though, because government debt is ABSOLUTELY NOTHING LIKE the debt most people think of.

It is bad for a household to be in debt, it is good for a government to carry debt.

It is good for a household to have a clear balance, it is catastrophic for a government to do so.


*http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101811
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Fri Jul 27, 2012 12:49 am UTC

Max™ wrote:Well, the paper I linked* made a case that the only time borrowing into a deficit is worthwhile is when you're financing high government return projects: infrastructure, education, and such.

That means if you're borrowing for bombs or tax cuts or financing the debt, you're a fuckup.

Do not run a deficit on anything which doesn't give a high rate of return for each dollar spent, deficits are allowed for economic downturns and high gain spending projects.


We need a term which isn't associated with homeowner/family type debt though, because government debt is ABSOLUTELY NOTHING LIKE the debt most people think of.

It is bad for a household to be in debt, it is good for a government to carry debt.

It is good for a household to have a clear balance, it is catastrophic for a government to do so.

*http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101811


This guy's reasoning makes sense given his assumptions. But his assumptions are utter garbage.

If we start out with the presumption that we have to be nice to the banks, then the rest follows. When the government needs to increase the money supply, they let the banks increase the money supply and collect interest as their payment for doing this task for the government. Then the government pays interest forever or until we lose a war and government debts are cancelled, and the government pays interest on the interest, and interest on the interest on the interest, and so on. Why is it good or necessary for the government to borrow so much? The government could get the same result by lending the money itself, rather than borrowing it.

When we need the money supply to increase, the government could just spend the money and collect less tax. What's wrong with that? If the government doesn't take as much tax from you, maybe you won't need to borrow so much. Is that bad for anybody except the banks?

Once we assume that we have to let the banks run the economy for their own fun and profit, the rest follows. But why would any sane person make that assumption? Well of course if you talk bad about the banks it might be hard for you to get a good deal when you need a mortgage. Your business line of credit might disappear precisely when you need it, and the bank will be forced to receive all your assets. There are lots of reasons that it might not be *safe* to say you think the banks shouldn't be in complete control. But does it make any sense at all to believe they ought to do what they do?
Last edited by J Thomas on Fri Jul 27, 2012 4:40 am UTC, edited 1 time in total.
The Law of Fives is true. I see it everywhere I look for it.

VanI
Posts: 61
Joined: Mon Mar 19, 2012 2:54 am UTC

Re: 1083: "Writing Styles"

Postby VanI » Fri Jul 27, 2012 2:31 am UTC

Max™ wrote:Well, the paper I linked* made a case that the only time borrowing into a deficit is worthwhile is when you're financing high government return projects: infrastructure, education, and such.


I would even argue against deficit funding of education (my parents are both retired public school teachers), except for capital projects. It's the sort of thing that taxpayers should be paying for constantly.

Max™ wrote:That means if you're borrowing for bombs or tax cuts or financing the debt, you're a fuckup.


Amen.

Max™ wrote:Do not run a deficit on anything which doesn't give a high rate of return for each dollar spent, deficits are allowed for economic downturns and high gain spending projects.


If you can have the discipline to increase taxes and lower spending during economic growth, government spending can actually work as a serious counter-recessionary force.

Max™ wrote:We need a term which isn't associated with homeowner/family type debt though, because government debt is ABSOLUTELY NOTHING LIKE the debt most people think of.

It is bad for a household to be in debt, it is good for a government to carry debt.

It is good for a household to have a clear balance, it is catastrophic for a government to do so.

*http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101811


That's an interesting perspective. Why do you think that government surplus is so toxic?
I swear, a fireball lied to me just the other day...

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Fri Jul 27, 2012 4:52 am UTC

Deficit means the government spent more than it collected in taxes.

Surplus means it collected more in taxes than it spent.

If there is a surplus in the public sector, there is a deficit in the private sector, and vice versa.


The government debt itself can either wind up in the hands of citizens (of one nation or another) or other sectors of the government, if the government owes money, who does it owe it to?

Since government debt itself holds a stable value as treasury bonds, it is thus a useful method of investment and exchange.


Assuming a hypothetical alternate universe created just now, just like this one, except the debt was set at 0, bonds would be worthless, the money supply would be unstable, and the economy would lack "lubrication".

If you pushed it to have a government surplus, that means WE as citizens of that nation are now paying the government to exist, with no benefit whatsoever for it.


Good debt: bonds for investment, financial stabilization, long term infrastructure investment, social benefits programs, education investment, things which work to guarantee a stable and productive future for us and our children.

Bad debt: servicing debt interest with debt (or servicing debt interest on debt which exists due to servicing interest, etc), military spending beyond what is actually needed to provide a stable and secure trade economy[1], tax cuts with no direct benefit (in general if a tax cut pushes the overall tax rate towards flat or even regressive curves, it's no benefit), pork projects, financing bailouts without changing anything about what caused the crisis, and so on.


Good deficit: financing emergency responses (not that there is a direct return, but if the government can't be forgiven for spending money to directly save lives, what the fuck is it there for?), financing high return projects, funding scientific and technological research and development, funding education, funding preventative healthcare (rather than letting conditions which are easily preventable go unnoticed and untreated, saving a huge amount of money which is currrently wasted), insert your own examples of government spending which leads to a net gain compared to private spending.

Bad deficit: financing debt interest, financing projects with a lower rate of return than private spending, financing projects with a negative gain (blowing up brown people, for example), financing tax cuts only to win votes despite the actual negative outcomes, ridiculous plans to "pay down the debt", and so forth.



[1] We're not getting invaded... ever, we're surrounded by two massive oceans with strong economic and political ties to our only neighbors we share a border with. As for terror attacks in the US, it is such a bullshit boogeyman it's laughable, particularly since most terrorism is undertaken by individuals who live in the nation where the attack occurs instances of international terror attacks like 9/11 are a tiny fraction of total terrorism worldwide, and singular attacks that destructive/lethal are a small fraction of all lethal terrorism attacks, which themselves are a small portion of terrorism as a whole. Source.
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Fri Jul 27, 2012 10:13 am UTC

Max™ wrote:Deficit means the government spent more than it collected in taxes.

Surplus means it collected more in taxes than it spent.

If there is a surplus in the public sector, there is a deficit in the private sector, and vice versa.


What if GDP grows by 3%, and the government deficit amounts to 3% of GDP? Where is the surplus in the private sector? What does a deficit in the private sector mean?

The government debt itself can either wind up in the hands of citizens (of one nation or another) or other sectors of the government, if the government owes money, who does it owe it to?


Government debt is owned by whoever the owner is. Typically banks. Also citizens who get tax advantage from holding government debt.

Since government debt itself holds a stable value as treasury bonds, it is thus a useful method of investment and exchange.


Think about that. I've seen you show some smart thinking, this one isn't that hard. The government takes out loans and pays interest, and that's a useful thing for the people who want to lend money to the government and make a profit. Sure. Similarly, when the government gives money to poor people, that's useful to the poor people. But if the government were to stop making these useful handouts to rich people they could pull up their socks and learn to stand on their own feet, at least as much as the poor folk.

If there's a useful service here that government can provide to investors ad exchangers, they can pay for it. The government doesn't need to pay them to use the useful method the government provides them.

Assuming a hypothetical alternate universe created just now, just like this one, except the debt was set at 0, bonds would be worthless, the money supply would be unstable, and the economy would lack "lubrication".


You can say that for anything. If we had a hypothetical alternate universe just like this one except that our giant agribusiness corporations did not exist, we would have mass starvation. If we had an alternate universe just like this one except we had no insecticides to spray on our crops, we would have mass starvation. Just like this one except the USA had no military, we would have mass unemployment and a lot of our trade agreements would immediately collapse because foreign nations agreed to them only because of our military. So what?

If you pushed it to have a government surplus, that means WE as citizens of that nation are now paying the government to exist, with no benefit whatsoever for it.


Yes, it would be stupid for the government to collect more taxes than it spent, except to deflate the money supply. Kind of a way to tell the US public "You guys have been working too hard, let's all take it easy and spend more time enjoying ourselves".

Good debt: bonds for investment, financial stabilization, long term infrastructure investment, social benefits programs, education investment, things which work to guarantee a stable and productive future for us and our children.

Bad debt: servicing debt interest with debt (or servicing debt interest on debt which exists due to servicing interest, etc), military spending beyond what is actually needed to provide a stable and secure trade economy[1], tax cuts with no direct benefit (in general if a tax cut pushes the overall tax rate towards flat or even regressive curves, it's no benefit), pork projects, financing bailouts without changing anything about what caused the crisis, and so on.


I agree that most of the things you say are good debt look to me like good spending, and your bad debt is bad spending. There's the question of how much good spending we can afford to do. We want to invest in the future, and also we want to consume stuff now. If we sacrifice too much now, that isn't good even while too little investment is bad. I'm not clear how we should make that decision as a society. Individual investors can decide how much they want to invest versus consume, but there's no particular reason to think the sum of all those choices will be a good choice for the society. On the other hand there's no particular reason to think politicians would make good choices either. It's a puzzle.

Then there's the question how to pay for good spending. Collecting it as taxes has the disadvantage that the people who pay the taxes get upset about it. Spending the amount of money needed to expand the money supply enough, without going into debt or collecting taxes, is good. But it only pays a few percent of GDP a year. Maybe more if the economy gets good again like it was in the early 60's. We can borrow or inflate to spend more for good stuff, but that's always a gamble.

Good deficit: financing emergency responses (not that there is a direct return, but if the government can't be forgiven for spending money to directly save lives, what the fuck is it there for?), financing high return projects, funding scientific and technological research and development, funding education, funding preventative healthcare (rather than letting conditions which are easily preventable go unnoticed and untreated, saving a huge amount of money which is currrently wasted), insert your own examples of government spending which leads to a net gain compared to private spending.


Sure. And when it's politicians deciding, that's maybe less reliable than businessmen who perhaps might see ways to skim money by making bad choices. I don't see a good way to choose, except I personally am willing to selflessly research good choices.

Bad deficit: financing debt interest, financing projects with a lower rate of return than private spending, financing projects with a negative gain (blowing up brown people, for example), financing tax cuts only to win votes despite the actual negative outcomes, ridiculous plans to "pay down the debt", and so forth.


Agreed. But it's hard to be sure ahead of time. Wolfowitz projected we would make an easy profit on the Iraq war. And people say the intervention in Libya was quite cheap and had a wonderful result. It's hard to predict the rate of return of public spending. If there was an easy way to collect the profits, it might be plausible as a private venture. If you reduce disease rates, you can only guess what the rates would have been otherwise and what it would have cost.
The Law of Fives is true. I see it everywhere I look for it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Fri Jul 27, 2012 3:23 pm UTC

The government isn't just providing a service by injecting bonds into the system, it's a stable unit of investment, but that is beside my main point.


Simply put, government debt is absolutely nothing like household debt, arguing about it as though it is a dangerous thing that has to be fixed is absurd.
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Fri Jul 27, 2012 4:19 pm UTC

Max™ wrote:The government isn't just providing a service by injecting bonds into the system, it's a stable unit of investment, but that is beside my main point.

Simply put, government debt is absolutely nothing like household debt, arguing about it as though it is a dangerous thing that has to be fixed is absurd.


That does make sense. Surely there is no similarity at all between government debt and household debt.

Right? Like, if your household takes on too much debt then lenders will start to get worried and for later loans they will require you to pay higher interest, and then they might completely stop lending you more money.
But government debt isn't like that, no matter how much money the government borrows, they can always borrow more and not worry that rates will rise.

If you have a bank loan, you feel a strong need to be polite to your banker. He could cause you a lot of trouble if he wanted to. But no matter how much money the US government owes to the Chinese goverment or to chinese-controlled bankers, it doesn't matter because there is nothing China can do to us. They have to keep lending us more money or something bad will happen to them.

If your household owes a lot of promises to others, that's worse for your household than if others owe you more promises. One way you have to help them move, help them clean up for parties, help them with all their little emergencies. The other way you can call on them if you need them. But government debt isn't like that because if somebody tries to cash in on their government promises the government can just pay off with more promises, forever. Totally different.

A household that pays 20% of its income for interest payments would generally be considered endangered. They have to live on 80% of income, to pay for things that they may have bought in the distant past. Most people would advise them to look for ways to reduce expenses and pay down that debt, and the better they did that the less money they would owe and the faster they could claw their way out of debt and into prosperity. But it's different for government. With government, the more debt the better. It doesn't matter how much the government pays for interest.

Does that mostly cover it? Apart from all these differences, could there be some sort of similarities between household debt and government debt that we might have overlooked?
The Law of Fives is true. I see it everywhere I look for it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Fri Jul 27, 2012 5:36 pm UTC

Well, China can sell our debt to someone else and refuse to buy any more.

If this is done in large enough amounts it could damage confidence in US bonds and that would be bad all around.
mu

User avatar
eran_rathan
Mostly Wrong
Posts: 1846
Joined: Fri Apr 09, 2010 2:36 pm UTC
Location: in your ceiling, judging you

Re: 1083: "Writing Styles"

Postby eran_rathan » Fri Jul 27, 2012 5:46 pm UTC

J Thomas wrote:Right? Like, if your household takes on too much debt then lenders will start to get worried and for later loans they will require you to pay higher interest, and then they might completely stop lending you more money.
But government debt isn't like that, no matter how much money the government borrows, they can always borrow more and not worry that rates will rise.


Except if you are Ireland, Spain, Greece, France, Portugal...
"Does this smell like chloroform to you?"
"Google tells me you are not unique. You are, however, wrong."
nɒʜƚɒɿ_nɒɿɘ

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Fri Jul 27, 2012 6:39 pm UTC

eran_rathan wrote:
J Thomas wrote:Right? Like, if your household takes on too much debt then lenders will start to get worried and for later loans they will require you to pay higher interest, and then they might completely stop lending you more money.
But government debt isn't like that, no matter how much money the government borrows, they can always borrow more and not worry that rates will rise.


Except if you are Ireland, Spain, Greece, France, Portugal...


Yes, sure. But the USA is different. We're the only world superpower. That sort of thing could never happen here. Our government debt is nothing like household debt, or ireland, spain, greece, etc.

We're special.
The Law of Fives is true. I see it everywhere I look for it.

blowfishhootie
Posts: 486
Joined: Wed Sep 21, 2011 11:13 pm UTC

Re: 1083: "Writing Styles"

Postby blowfishhootie » Fri Jul 27, 2012 6:49 pm UTC

J Thomas wrote:
eran_rathan wrote:
J Thomas wrote:Right? Like, if your household takes on too much debt then lenders will start to get worried and for later loans they will require you to pay higher interest, and then they might completely stop lending you more money.
But government debt isn't like that, no matter how much money the government borrows, they can always borrow more and not worry that rates will rise.


Except if you are Ireland, Spain, Greece, France, Portugal...


Yes, sure. But the USA is different. We're the only world superpower. That sort of thing could never happen here. Our government debt is nothing like household debt, or ireland, spain, greece, etc.

We're special.


Is that sarcasm?

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Fri Jul 27, 2012 7:48 pm UTC

blowfishhootie wrote:
J Thomas wrote:
eran_rathan wrote:
J Thomas wrote:Right? Like, if your household takes on too much debt then lenders will start to get worried and for later loans they will require you to pay higher interest, and then they might completely stop lending you more money.
But government debt isn't like that, no matter how much money the government borrows, they can always borrow more and not worry that rates will rise.


Except if you are Ireland, Spain, Greece, France, Portugal...


Yes, sure. But the USA is different. We're the only world superpower. That sort of thing could never happen here. Our government debt is nothing like household debt, or ireland, spain, greece, etc.

We're special.


Is that sarcasm?


Yes. I forget that it isn't obvious.
The Law of Fives is true. I see it everywhere I look for it.

blowfishhootie
Posts: 486
Joined: Wed Sep 21, 2011 11:13 pm UTC

Re: 1083: "Writing Styles"

Postby blowfishhootie » Fri Jul 27, 2012 8:16 pm UTC

Well I thought it was based on your other arguments in the thread, just wanted to make sure. I was shocked to read it until I considered it in context with the points you've been making. :)

User avatar
bmonk
Posts: 662
Joined: Thu Feb 18, 2010 10:14 pm UTC
Location: Schitzoed in the OTT between the 2100s and the late 900s. Hoping for singularity.

Re: 1083: "Writing Styles"

Postby bmonk » Fri Jul 27, 2012 10:41 pm UTC

J Thomas wrote:
eran_rathan wrote:
J Thomas wrote:Right? Like, if your household takes on too much debt then lenders will start to get worried and for later loans they will require you to pay higher interest, and then they might completely stop lending you more money.
But government debt isn't like that, no matter how much money the government borrows, they can always borrow more and not worry that rates will rise.


Except if you are Ireland, Spain, Greece, France, Portugal...


Yes, sure. But the USA is different. We're the only world superpower. That sort of thing could never happen here. Our government debt is nothing like household debt, or ireland, spain, greece, etc.

We're special.


This reminds me of something making the rounds a while back:

US Debt: Remove 8 Zeros. Get an Understanding.

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

Not so easy to understand? Numbers are mind boggling??
Let's now remove 8 zeros and pretend it's a household budget:

Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Total budget cuts: $385

A bit clearer where the problem is.

What should we do?
Revised family plan: Raise the credit card limit to $160,000

Obviously the parents are nuts. Pity the children.
Having become a Wizard on n.p. 2183, the Yellow Piggy retroactively appointed his honorable self a Temporal Wizardly Piggy on n.p.1488, not to be effective until n.p. 2183, thereby avoiding a partial temporal paradox. Since he couldn't afford two philosophical PhDs to rule on the title.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Fri Jul 27, 2012 11:07 pm UTC

Again, no, government debt is nothing like household debt.

http://www.nytimes.com/2012/01/02/opini ... .html?_r=1

Here, let a guy with all sorts of education and background in economics explain it, why don't I?

But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
mu

blowfishhootie
Posts: 486
Joined: Wed Sep 21, 2011 11:13 pm UTC

Re: 1083: "Writing Styles"

Postby blowfishhootie » Fri Jul 27, 2012 11:24 pm UTC

That's an interesting column, and I'm inclined to agree with the gist of it, but this part in particular kind of missed the mark, as I understand it:

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.


Now, I didn't live through this, and I haven't read nearly enough to say for sure, but I was under the impression that the major inflation crisis in the U.S. in the 1970s was attributable at least in part to spending and debt incurred during the decades of war (World War II, Korea, Vietnam) that preceded it. If that's the case, it seems a bit ignorant to just dismiss the debt incurred during that time as "irrelevant," though I reiterate that is an "if" that I'm not 100 percent sure about.

User avatar
firechicago
Posts: 621
Joined: Mon Jan 11, 2010 12:27 pm UTC
Location: One time, I put a snowglobe in the microwave and pushed "Hot Dog"

Re: 1083: "Writing Styles"

Postby firechicago » Sat Jul 28, 2012 3:09 am UTC

blowfishhootie wrote:Now, I didn't live through this, and I haven't read nearly enough to say for sure, but I was under the impression that the major inflation crisis in the U.S. in the 1970s was attributable at least in part to spending and debt incurred during the decades of war (World War II, Korea, Vietnam) that preceded it. If that's the case, it seems a bit ignorant to just dismiss the debt incurred during that time as "irrelevant," though I reiterate that is an "if" that I'm not 100 percent sure about.


If that were true then we would have expected big inflation in the 40s and 50s when debt to GDP was very high (peaking at 120%), and relatively little inflation in the 70s, when debt to GDP was low (around 50%). We saw exactly the opposite. In fact, a combination of robust economic growth and some of the highest tax rates the country's ever seen resulted in a steady decline in debt to GDP all through the 50s, 60s and 70s.

It wasn't until the 80s that our current debt run-up began

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Sat Jul 28, 2012 3:30 am UTC

Max™ wrote:Again, no, government debt is nothing like household debt.

http://www.nytimes.com/2012/01/02/opini ... .html?_r=1

Here, let a guy with all sorts of education and background in economics explain it, why don't I?


At least this time when you chose argument by authority you chose an authority.

But the argument is still wrong. Krugman is correct that the people he's arguing with are drasticly wrong. But....

Put it this way. Suppose you are dealing with a household budget, and 20% of the income goes to debt payment. You get worried. But responsible family members tell you it's no problem. "We can keep taking out more debt and it will be fine. All we have to do is make sure our income goes up faster than the debt does." How reassuring would that argument be?

Similarly a gambling addiction doesn't have to be a problem, as long as you arrange to win more than you lose.

The reason people don't believe this about household debt is that they have established a fold wisdom that it's hard to reliably grow your income at fast compound interest for a long time. You can figure that your trioka is faster than the wolves so you can outrun them forever. But what if it breaks down, and then you're stuck fighting them off while you try to fix it?

Krugman's argument is OK in theory, for some debt. But we're taking on a whole lot of new debt at a time we can expect the working labor force (increasingly unemployed in the short run) to support a retiring baby boom. Health care costs rising. Imported fossil fuels rising.

Krugman argues that while foreigners own a lot of US debt, Americans own a lot of foreign debt too and our money is put into riskier investments that pay off more, while more of theirs is in treasury bonds which pay less. It isn't clear to me that this is a good thing. We build up foreign economies that then export to us instead of our own economy? We take risks and if those risks go bad in an increasingly unstable economy we lose out? How much tax do foreign subsidiaries of US companies pay to the US government? Yes, in theory.
http://www.forbes.com/sites/lowellyoder ... ign-taxes/
In reality? Maybe these guys are right.
http://www.halliburtonwatch.org/about_hal/taxhaven.html

It's true that the economic system hasn't collapsed yet. That leads to the natural argument that everything is fine. We'll just grow our way out of our problems, like a household whose income grows so fast its debt becomes insignificant without ever having to pay it down. I can imagine that could happen. How likely does it seem to you?

The idea that the government should cut services and raise taxes enough to pay off the debt, and do nothing much else, looks to me like it would lead to consequences likely as bad as continuing on our current path. And maybe quicker. But there should be a clear difference between arguing against a crackpot disastrous potential policy, versus arguing in favor of the status quo.
The Law of Fives is true. I see it everywhere I look for it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Sat Jul 28, 2012 12:55 pm UTC

When the status quo is to cut taxes, fund wars, and rant about the debt being a looming disaster... I'd say there is little difference between it and the crackpots.


Btw, that would be an argument from authority if it was a fallacy, you may disagree, but you've hardly gone so far as to invalidate his position, nor is my acknowledging his greater understanding of the subject logically invalid according to my position. I am not expecting my point to stand exclusively on his merits, just noting that he is better at explaining it than I am.
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Sat Jul 28, 2012 2:03 pm UTC

Max™ wrote:When the status quo is to cut taxes, fund wars, and rant about the debt being a looming disaster... I'd say there is little difference between it and the crackpots.


Agreed. But they can keep arguing back and forth between "We have to pay back the debt and my party promises to do that just like they promised many times before" versus "It's all your fault and the grownups will fix the mess you made after we win the wars and build the economy" until the bills come home.

Btw, that would be an argument from authority if it was a fallacy, you may disagree, but you've hardly gone so far as to invalidate his position,


This is a gray area. It looks like an argument from authority to me. You didn't say why you believe there's no problem with the current government debt, you pointed to an authority who said it. On the other hand, you didn't just say that he said it so it must be true, you pointed to his vastly oversimplified polemical arguments, giving the implicit claim that you agree with him.

I don't see anything wrong with making an argument from authority. They call it a logical fallacy, but that's just because it isn't an argument from logic. There's nothing particularly wrong with pointing to an authority when the authority happens to be right.

Still, it looks to me like I have invalidated Krugman's position at least as well as Krugman has established it. There are times that it makes sense to go deeply into debt and not worry about it because you are sure to make so much more money that the debt will become insignificant. That's true for both households and governments. Krugman has done very little to establish that this is one of those times. If you disagree you are welcome to explain where I went wrong.

nor is my acknowledging his greater understanding of the subject logically invalid according to my position. I am not expecting my point to stand exclusively on his merits, just noting that he is better at explaining it than I am.


Sure. It may be logically invalid according to somebody's rules, but it can still be worth doing. And if he's stated your position well there's no need for you to repeat it all.
The Law of Fives is true. I see it everywhere I look for it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Sat Jul 28, 2012 3:51 pm UTC

J Thomas wrote:
Max™ wrote:When the status quo is to cut taxes, fund wars, and rant about the debt being a looming disaster... I'd say there is little difference between it and the crackpots.


Agreed. But they can keep arguing back and forth between "We have to pay back the debt and my party promises to do that just like they promised many times before" versus "It's all your fault and the grownups will fix the mess you made after we win the wars and build the economy" until the bills come home.

Well, there's a reason I think we need a lot of rope, pitchforks, and sturdy tree branches.

Btw, that would be an argument from authority if it was a fallacy, you may disagree, but you've hardly gone so far as to invalidate his position,


This is a gray area. It looks like an argument from authority to me. You didn't say why you believe there's no problem with the current government debt, you pointed to an authority who said it.

I have specifically stated this, but without the weight that being a professor of economics carries, it has been my point all along, perhaps I did not express it well enough.
On the other hand, you didn't just say that he said it so it must be true, you pointed to his vastly oversimplified polemical arguments, giving the implicit claim that you agree with him.

I don't see anything wrong with making an argument from authority. They call it a logical fallacy, but that's just because it isn't an argument from logic. There's nothing particularly wrong with pointing to an authority when the authority happens to be right.

Still, it looks to me like I have invalidated Krugman's position at least as well as Krugman has established it. There are times that it makes sense to go deeply into debt and not worry about it because you are sure to make so much more money that the debt will become insignificant. That's true for both households and governments. Krugman has done very little to establish that this is one of those times. If you disagree you are welcome to explain where I went wrong.

He doesn't say it isn't something to worry about, he's saying it isn't something to worry excessively about, nor is debt entirely bad. He then explains why debt is actually a good thing in many ways, as did the writers of the papers I linked before.

nor is my acknowledging his greater understanding of the subject logically invalid according to my position. I am not expecting my point to stand exclusively on his merits, just noting that he is better at explaining it than I am.


Sure. It may be logically invalid according to somebody's rules, but it can still be worth doing. And if he's stated your position well there's no need for you to repeat it all.

I stated it before in the thread, and provided him as he is an actual expert on the matter who was able to more clearly express my point than I had managed to so far, that's all.
mu

J Thomas
Everyone's a jerk. You. Me. This Jerk.^
Posts: 1190
Joined: Fri Sep 23, 2011 3:18 pm UTC

Re: 1083: "Writing Styles"

Postby J Thomas » Sat Jul 28, 2012 6:18 pm UTC

Max™ wrote:
J Thomas wrote:Still, it looks to me like I have invalidated Krugman's position at least as well as Krugman has established it. There are times that it makes sense to go deeply into debt and not worry about it because you are sure to make so much more money that the debt will become insignificant. That's true for both households and governments. Krugman has done very little to establish that this is one of those times. If you disagree you are welcome to explain where I went wrong.

He doesn't say it isn't something to worry about, he's saying it isn't something to worry excessively about, nor is debt entirely bad. He then explains why debt is actually a good thing in many ways, as did the writers of the papers I linked before.


Here is an example of Krugman making a wonderful simple explanation.
http://www.slate.com/articles/business/ ... onomy.html
This explanation works so well that if you do a lit search you can find hundreds of examples of his enemies believing they have found reasons why it is wrong.

------------------
He talks about a babysitting coop. The members have coupons good for one session of babysitting, and they pay for babysitting with the coupons.

But they don't actually do very much babysitting, because there aren't enough coupons. People want to babysit so they can build up their reserve of coupons, and advertise their services, but no one responds. Others would like to hire babysitters, but they don't have coupons or they figure they'll wait until it's more important, so they don't take up the offers.

Consider it -- if there were half as many coupons as members, only half the families could arrange babysitting at any given time. If all the coupons were gone, the system wouldn't work at all. And as it was, people wanted to save coupons in case they needed them later, and for lots of occasions they would *like* babysitting they decided not to so they would have coupons later when they *needed* them.

A solution that worked was this -- the coop council printed up extra coupons and gave them away. And they gave a few free coupons to each new member. The result was that people could cheat the system a little bit if they wanted to. Somebody could join, get a few free babysitting sessions, and then quit. But mostly the system worked. People felt free to ask for babysitting when they wanted it because they thought they could afford it, and they got lots of chances to do babysitting.
--------------------

His analogy is that when there isn't enough money circulating, we can get a recession because of that. Just like the babysitters had a babysitting recession.

If you look at what his detractors say about it (search "Krugman babysitters") you'll see enough subtle argumentation to make you dizzy. There are arguments that if you really want coupons you should offer to babysit for half price, you'll do two to get one. There are arguments that if people didn't want babysitting enough to pay for it, that means they got the amount of babysitting they wanted and there was nothing wrong. (Though people happily did a lot more exchanges when there were more coupons.) it goes every which way.

Ignoring the subtleties. I say that Krugman is right that the government or somebody should manage the money supply to have the right number of dollars in circulation. If they can.

And I point out that the coop council did it by giving away coupons to people who needed them. It did not set up a private bank that lent virtual coupons at interest. Suppose that the US government, recognizing the need to increase the money supply, gave every 18 year old voter a sum of money to help get started. Something in the range of $20,000 to $250,000, enough to increase the money supply about the right amount for that year. Would that be an OK way to do it? Why should the government increase the money supply by borrowing money at interest from banks?

It's good for the US government to manage the money supply. The government can issue promises without collecting them from anybody, and sometimes it ought to. This is an entirely different thing from the government borrowing promises at interest from bankers, on the assumption we can trust the bankers to create virtual money but we can't trust the government to create new money.
The Law of Fives is true. I see it everywhere I look for it.

User avatar
Max™
Posts: 1792
Joined: Thu Jun 21, 2012 4:21 am UTC
Location: mu

Re: 1083: "Writing Styles"

Postby Max™ » Sun Jul 29, 2012 1:41 am UTC

The money supply and debt are related, but in no way the same thing.

The debt is more accurately what stabilizes the value of money against variations in the money supply.
mu


Return to “Individual XKCD Comic Threads”

Who is online

Users browsing this forum: Leovan and 101 guests