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February 19, 2010

Comments

In order for the stimulus to not work in the short term, you would have to believe that there is an instantaneous accounting for any new government borrowing throughout the economy in which unknown mechanisms - demonstrably not interest rates in the short term - cause the rest of the economy to contract exactly in proportion to the amount of increased government spending. This is magical thinking.

There is a reasonable, principled, wrong argument to be made that the long-term effects of the stimulus will be canceled out in future higher interest rates, but there is no reasonable, principled argument that can be made against it working to prop up GDP in the short term.

The two big mistakes with the stimulus were the tax cuts - they had almost no effect, were extremely expensive, and bought no more than nominal bipartisan support for the bill - and (IMO) not funding any of it with progressive income tax hikes, even if they might have to be delayed in taking effect. If there was ever a chance to hike high-bracket rates* it was when you want the government to spend nearly a trillion dollars on an emergency. Maybe there wasn't that chance even then, I don't know - "taxcutstaxcutstaxcuts" appears to be the only thing anyone in DC understands how to say, including Obama, but among sane people I think there is a reasonable acceptance of the idea that, er, the government has to pay for the things it does, and the things it does are mostly a pretty good idea.

* For the record we are lucky enough to pay a reasonably high rate, and I would welcome paying more if we were going to get something real from it - by which I mean major investments in infrastructure, education, healthcare, & research.

Agree with everything, even the asterisk.

You just don't get it, merely conceding that a given Obama-implemented policy was good for the country transforms you into a hyper-partisan obot. Therefore, there is no such thing as a non-partisan proponent of Obama-implemented policy.

As Paul Krugman and others have pointed out, the stimulus does not contribute to the deficit dollar for dollar. Increased economic activity, whether "natural" or pump-primed by federal spending, generates increased tax revenue. So some of the stimulus -- not all, but some -- will come back in the form of that additional revenue. I don't claim to have any independent knowledge of how much will come back, but I've seen numbers in the range of 20-30% That's a lot of gigabucks.

When the Republicans were in charge, they were always touting the synergistic effects of tax cuts and how the increased economic activity resulting from the cuts would make up for the lost revenue. I swear that I caught Dubya on occasion talking as if the make-up would be dollar for dollar -- if you were to cut tax rates so that a static view of the economy would suggest a half-trillion in lost revenue, the whole half-trillion would come back in higher revenues caused by the expanded economy. This was every bit as wacky as Reagonomics, and I don't recall any knowledgeable economist ever making such an argument, but lots of politicians -- not just Dubya -- talked as if it were true.

No, children, the stimulative effect isn't dollar-for-dollar, and I think we can take it as given that tax-cutting in most economic circumstances is less stimulative than direct government expenditures. But a properly targeted stimulus comprising mostly expenditures is going to bring the biggest return (or the smallest net deficit) that can be had. Tax cuts are the least effective in this respect of any rational course of action (if such a course can even be called rational).

So of course the Republicans want to cut taxes. Why let facts intrude on idology? And did the stimulus help? Ask that new guy from Massachusetts. Ask Evan Bayh. Or any of dozens of other Republicans. (Yes, I know Bayh is a D. If he weren't quitting the Senate, he should be thrown out.)

If only there were something like the GMAT that a politician had to pass before becoming eligible to run for Congress.

Concerning the taxes...

How The Republican Party Has Conned America for Thirty Years

Reagan, Greenspan, Winniski, and Laffer took the federal budget deficit from under a trillion dollars in 1980 to almost three trillion by 1988, and back then a dollar could buy far more than it buys today. They and George HW Bush ran up more debt in eight years than every president in history, from George Washington to... Jimmy Carter, combined. Surely this would both starve the beast and force the Democrats to make the politically suicidal move of becoming deficit hawks.

[...]

George W. Bush embraced the Two Santa Claus Theory with gusto, ramming through huge tax cuts – particularly a cut to a maximum 15 percent income tax rate on people like himself who made their principle income from sitting around the pool waiting for their dividend or capital gains checks to arrive in the mail – and blowing out federal spending. ... See MoreBush even out-spent Reagan, which nobody had ever thought would again be possible.

And it all seemed to be going so well, just as it did in the early 1920s when a series of three consecutive Republican presidents cut income taxes on the uber-rich from over 70 percent to under 30 percent. In 1929, pretty much everybody realized that instead of building factories with all that extra money, the rich had been pouring it into the stock market, inflating a bubble that – like an inexorable law of nature – would have to burst.

SOD - not sure how much I trust an article that confuses the federal debt with the budget deficit, but the paragraph on the 15 percent cap gains rate is pretty much spot on.

In that vein, the IRS released income data of the 400 taxpayers that reported to most adjusted gross income in 2007.

Bottom line:

Average AGI: $344.8 million (!)
Effective tax rate: 16.6% (!!)
% of Total AGI in the country: 1.59% (!!!)

So, Warren Buffet is right, he pays a lower effective tax rate than his secretary (who, to be fair, likely makes six figures working for him).

And note that, assuming the population of the United States is 300 million, 400 people represent 0.00013% of the total population. Their share of AGI is 11,925 times their share of the population.

Now, I'm not saying that everyone should pay the same in taxes or all income should be equal, just that these people could stand to have their tax burden raised.

Ugh,

Astonishing numbers.

Reminds me of (I think) a New Yorker cartoon.

Guy is standing in front of St. Peter, having presumably just died. St. Peter, looking at his book, says,

"Apparently you had more money than God. We frown on that."

To have a serious discusssion these quotes:

Reagan, Greenspan, Winniski, and Laffer took the federal budget deficit from under a trillion dollars in 1980 to almost three trillion by 1988, and back then a dollar could buy far more than it buys today. They and George HW Bush ran up more debt in eight years than every president in history, from George Washington to... Jimmy Carter, combined.
Shouldn't be included. The economy inherited by Reagan was almost as bad as last year and all of the "reasons" to use debt were perfectly valid. The same was true for the recession Bush II inherited.

Discussing these things in a vacuum or isolated time divisions is useless because the economy doesn't know when the President chaanged.

Of course there were 1.8 jobs created this year, many were the direct result of targeted spending in the government sector, direct jobs (Police, Fire) aand some small amount of infrastructure money.

However the economy had started to improve before we spent the first stimulus dollar, even in Eric's graph. A reasonable question is how much the stimulus changed where that recovery happened or if it is all attributed to the stimulus.

My question is, if I stipulate that the stimulus created at least 1.5 million jobs, does anyone really believe we wouldn't have done a stimulus no matter who got elected?

The psychological impact alone required it to be done by the time we got to January. I just don't give Obama a ton of credit for doing what Bush, McCain, Clinton or anyone else would have done.

So the discussion of how the stimulus worked on a scale of good to great is a perfectly valid discussion, but let's not break out the ticker tape parade yet. We are still almost 2% higher in unemployment than was promised when we rushed it through.

does anyone really believe we wouldn't have done a stimulus no matter who got elected?

If I recall correctly:

Number of Senate Republican votes for the stimulus bill: 3. Initially 0, then 3.

Snowe, Collins, and Specter.

Number of House Republican votes for the stimulus bill: 0.

None. Not one. Zero.

Who knows, maybe McCain would have broken all mavericky and gotten behind it. I can't think of anything in the platform he ran on that would lead to that conclusion, however.

Dream on Marty.

Their share of AGI is 11,925 times their share of the population.

As a simple thought experiment, I sometimes think of the relative period of time different people would have to work to make equivalent amounts of money.

You could probably do something similar with distance, I find time to be a helpful way to get a sense of scale.

So, a master of the universe works one year to make a certain sum, j-random non-master-of-the-universe works 11,925 years to make the same sum.

11,925 years is approximately the duration of the Holocene epoch, the geological epoch in which we now live.

That is, roughly, the entire known period of modern human culture. By "modern", I mean settled, i.e., not hunter-gatherer. Middle stone age and everything ever since.

Before America, before Europe, before Rome, before China, before Egypt. We're talking mud huts in Mesopotamia stone tools, and the earliest beginnings of agriculture. Before pottery.

There are marine fossils in Vermont that date from the early Holocene.

One year, and the entire period of settled human culture. That's the scale of the comparison.

If we raise the marginal tax rate on the higher percentages of their income, it will be the end of human liberty in this nation.

That's the party line.

You tell me who is freaking insane, and who is not.

However the economy had started to improve before we spent the first stimulus dollar, even in Eric's graph.

it must be spring. i think i can smell the new memes popping up!

the economy had started to improve before we spent the first stimulus dollar

Certainty on the part of business that a Democratic administration & Congress will enact Keynesian measures to head off a depression. "Business confidence" is real, for good or ill.

"Business leaders" may have cried bloody murder before (& after) the bill was passed, but when it comes to the actual operations, planning, and purchasing of actual businesses, reality rules. The certainty that the government is going to step in makes a big difference in estimating future demand.

There's also the banking bailout, which was a bipartisan effort with significant Obama involvement. Even if I think that was a terrible idea. (The bailout was probably necessary but should have come with strings attached; Obama signing onto it as-is when his vote was not actually required was a mistake.)

Just to demonstrate that I am still alive, and poke my head in sometimes. (Having a bit of insomnia at the moment from my latest dose of chemo.)

I think the chief complaint here should be that the stimulus was directed almost entirely at creating government sector jobs. The private sector is still shedding jobs. This is a government recovery, not a private sector recovery. Considering that the government sector has to live off the productivity of the private sector, I question whether that model for raising employment is sustainable.

"does anyone really believe we wouldn't have done a stimulus no matter who got elected?"

Oh, definitely! I'm certain alt-President McCain would have presided over a "stimulus" packed with tax cuts for the upper classes: permanent repeal of the estate tax, lower rates for capital gains & dividends, lower rates for higher tax brackets, etc, etc..

So, er . .. yeah?

(Although I do think we would have a few provision leading to job growth for Alaska . . . )

Cleek, There is nothing new in that statement, the graph in the original post reflects that fact. In addition, some of us pointed it out at the time.
I even conceded at the time that, like all presidents before him, Obama would get to take credit for the recovery. I don't even care if he takes credit. But he doesn't get out of being responsible for adding more to the debt in his four years than every President since Washington combined. He gets the credit and the blame. It comes from supposedly being in charge.

JD, the necessary components of stabilization were TARP and the trillions the Fed has pumped in to create liquidity. I think that Obama gets credit for recognizing those were essential. He loses a lot of that cedit when he starts using TARP funds for other random purposes. The stimulus was meant to speed up the recovery those other two created, so did it really speed it up a lot is the real discussion IMHO.

But he doesn't get out of being responsible for adding more to the debt in his four years than every President since Washington combined.

This is simply not true.

The economy inherited by Reagan was almost as bad as last year and all of the "reasons" to use debt were perfectly valid. The same was true for the recession Bush II inherited.

Perhaps with Reagan, but not Bush II.

Eric,

Rereading what I wrote I will clarify that it was not as bad with Bush II, however he did have to deal with a recession as he took office, thus stimulus and some amount of debt was not unrealistic. It is great to say Clinton left a budget surplus, but he also left a recession.

"But he doesn't get out of being responsible for adding more to the debt in his four years than every President since Washington combined.

This is simply not true."

Well we don't know it isn't true yet, however he will add more than any other President ever has including Bush II.

Cleek, There is nothing new in that statement, the graph in the original post reflects that fact.

err, no.

erase those blue bars and there's no way anyone reads RECOVERY! from the red. a month dip is not a reversal of a trend.

there's no actual recovery until March.

Marty,

does anyone really believe we wouldn't have done a stimulus no matter who got elected?

I don't believe that. You're right. We would have had a stimulus under McCain. It likely would have had more tax cuts and less spending, but would not have been hugely different than what we got. Note that Mark Zandi, who was McCain's top economic advisor, has spoken favorably of the impact of the stimulus.

And does anyone really believe Republicans wouldn't have supported a McCain stikulus and bragged about its benefits?

So think about that. Doesn't that make all the GOP opposition, and their anti-stimulus ranting, just that much worse? I mean, if al that is true then Cantor and the others really are very plainly a pack of knaves and liars, aren't they?

Brett

the government sector has to live off the productivity of the private sector, I question whether that model for raising employment is sustainable.

And the private sector lives off the productivity of the government sector. They ship their goods on government highways, or through government airports. They hire engineers and lawyers and such who attended state-sponsored universities. They call the cops when someone breaks into the warehouse. They use the government-created Intenet for all sorts of things. And so on.

I like my house heated, so I pay the (private) gas company for fuel. I don't want it to burn down, so I pay taxes to help fund the fire department.

And are you seriously suggesting that adding, say, a teacher, doesn't help? The teacher is productive to begin with (assuming you think literacy is valuable) and a lot of the paycheck ends up with the grocer, the clothing store, etc.

Whatever you're reading, throw it away.

"there's no actual recovery until March."

So when do you think we actually started spending stimulus money? Everyone I deal with in business pegged the bottom in Q4 2008. We figured recovery for Q2-Q3 2009. The graph tracks that pretty well, stimulus doesn't create recovery, it is designed to shorten the recovery. I am not sure how to actually measure how successful it was at that. It had some impact but, as Brett said, it was primarily government jobs so far. The measure I am looking for, I suppose, is the acceleration in private employment numbers, which will lag but hopefully not by too much.

" Doesn't that make all the GOP opposition, and their anti-stimulus ranting, just that much worse? I mean, if al that is true then Cantor and the others really are very plainly a pack of knaves and liars, aren't they?"

I agree that some of this is over done. But knaves and liars is pretty over done also.

It is pretty disingenuous to pretend that all Republicans that voted against the particular stimulus bill that was passed were against all stimulus.

Politicians in both parties often vote against bills because they believe it isn't good enough, it doesn't mean they disagree with every part of it.

The Democrats making a big deal out of this is as much being knaves and liars as anything Cantor has actually done.

It is pretty disingenuous to pretend that all Republicans that voted against the particular stimulus bill that was passed were against all stimulus.

My point exactly. Wwere there really no House Republicans who thought, "Well, this is not exactly the package I'd design myself, but it will do some good?" Of course there were, but they voted agians it anyway. And there were Senators who did the same.

You say McCain would have advocated a stimulus had he won the Presidency. Then why did he vote no on this one?

There may well have been some GOP legislators who simply opposed any stimulus bill. "Knaves and liars" is unfair to them, I'll grant. "Fools" might be appropriate though, and "liars" if they are now saying the stimulus did no good.

"Well, this is not exactly the package I'd design myself, but it will do some good?" Of course there were, but they voted agians it anyway. "

This isn't the first or last time politicians cast a safe vote, knowing it doesn't alter the outcome. Again, it is a little disingenuous to act like this is something beyond normal politics.

As far as questioning whether it has had any impact, there is a good faith arguement that it has had little impact aside from determining where recovery happened first.

As a simple example, I live in a state where my drive to work is on three highways. All three were under construction before the stimulus passed, all three construction projects now have ARRA signs.

I am sure that some money went to help fund those projects, but they existed without it and would have gotten done. So if that money hadn't been spent there, would it have been spent some where else? Would the money have been raised in increased taxes instead of federal borrowing?

Some of the Police and Fire fighter jobs would have been lost, but some would have been saved by other budgetary decisions. The counting isn't as straightforward as it is being portrayed.

But common sense says that if you borrow and spend 100B then you have done something, it is just hard to count what.

Marty,

I'm glad to see you agree that at least some jobs were created by the stimulus.

That's not what our new Senator is saying.

Discussing these things in a vacuum or isolated time divisions is useless because the economy doesn't know when the President chaanged.

Does this mean an end to the constant Republican cries of "ZOMG THE STOCK MARKET TANKED" every time a Democrat wins a presidential election?

"Does this mean an end to the constant Republican cries of "ZOMG THE STOCK MARKET TANKED" every time a Democrat wins a presidential election?"

Probably not. :)

Marty,

Do you have a citation for those numbers, because I can't find them. I did, however, find this which seems to paint a far different picture:

...deconstructing the projected federal deficit between 2009 and 2012...The New York Times crunched the numbers. The answers, in descending order, are the downturn in the economy (37 percent of the change), the policies passed by George W. Bush (33 percent), the extension of policies passed by George W. Bush (20 percent), the stimulus bill (7 percent), and the rest of Barack Obama's agenda (3 percent).

link here

So where are your numbers coming from?

"So where are your numbers coming from?"

The delta between the debt on February 1, 2009 and the projected debt, If you would like I certainly can find a cite for debt as of Feb 1. Your cite is interesting but entirely off point. The President is just as responsible for the debt accumulated during his Presidency as every other President.

It is amazing how he gets a 4 year free ride on this from all the debt hawk Democrats.

Interesting justification for a reelection campaign though. I appreciate the link because it is a classic example that I will save of how he never is held accountable for doing his job. Any of my employees with the number of excuses he uses would just get fired.

I would suggest his agenda should be to fix the debt.

Marty,

That is more tendentious than usual. Come on man, you can do better.

Any of my employees with the number of excuses he uses would just get fired.

Might I point out that this wasn't actually an excuse used by Obama. It was the work of David Leonhardt.

Any employee of mine using that kind of logic would be fired.

What is your suggestion anyway? The chart shows the deficit/debt action of Bush. Is it a lie? Should we wipe it from history? It was, after all, more than a year ago so...

Regardless, are you suggesting Obama came into power with zero debt? Or is it that there were projected surpluses given the state of the economy and current fiscal obligations?

What is your proposal? That zero of the Iraq war and Afghan wars is attributed to Bush? That zero of Bush's enormous, deficit exploding tax cuts? Really? Just pretend that all of the current spending programs were begun by Obama, and that they're easy to just snap your fingers and wish away.

I mean, with respect to Iraq and Afghanistan, even immediate, unconditional withdrawal (which even I wouldn't support) would take at least a year, which would cost an enormous sum of money. But I suppose that would go on Obama's ledger too, right?

No acknowledgement of the fact that Bush left him in the middle of two hot conflicts? Ok.

I would suggest his agenda should be to fix the debt.

And I am kind of touched that you've found religion at this late date. Bush? Not his agenda, nor should it have been. Right? But now that Obama is in office...he's responsible for the fiscal picture of America that has steadily grown darker over the past 50 years.

Oh, I forgot, any acknowledgement of historical growth of the national debt is an excuse Obama is using.

"And the private sector lives off the productivity of the government sector."

That stuff you list is overhead. If we had enough of it to enable the private sector to be productive several years ago, doubling it isn't going to make the private sector more productive today, anymore than hiring more janitors to sweep your warehouse floor is going to make your factory more productive, when the floor was already being kept clean enough.

The delta between the debt on February 1, 2009 and the projected debt, If you would like I certainly can find a cite for debt as of Feb 1. Your cite is interesting but entirely off point.

However, Obama hasn't exploded spending or deficits the way his predecessors have. He's currently riding a massive swell of spending, and in the middle of a recesssion, tightening up would have been what Hoover did.

This is partisan BS.

Further, when he tried to pass a pay-go bill in Congress to control spending, the GOP, who "supposedly" support such measures, voted it down.

So, brav-o.

"And I am kind of touched that you've found religion at this late date. Bush? Not his agenda, nor should it have been. Right?"

Once again, I didn't like debt then, I don't like it now. I didn't like Bushes spending policies and i havenever defended them herem from the war to the Prescription bill I believe they should have been paid for.

But, other than the economic downturn (I understand you blame Bush for this entirely), he was still in a surplus projection in 2012 until it hit. So we listened to Obama talk about how his policies were the right ones to fix it and now I expect him to, why don't you?

"Further, when he tried to pass a pay-go bill in Congress to control spending, the GOP, who "supposedly" support such measures, voted it down."

So he got it passed anyway, so he moved the ball forward, I count that as a success for him.

You can't have the authority without the accountability, sorry Eric , that isn't partisan. He worked real hard to get this job.

You can't have the authority without the accountability, sorry Eric , that isn't partisan. He worked real hard to get this job.

Right, but you can't have accountability without appreciation of reality and history, and the interplay thereof. Sorry. It is partisan to skew that.

But, other than the economic downturn (I understand you blame Bush for this entirely), he was still in a surplus projection in 2012 until it hit.

Actually, no. Clinton played his part for repealing Glass-Steagall - I've said so numerous times. And the bankers played their part (said that countless times). And Greenspan, and the pumping of the housing bubble, and the credit obsession.

But I sure don't blame Obama, which you do in the name of "accountability." Brilliant!

And do you have the stats to back up the Bush in surplus projection? Could be true, but I'd like to see it. And, it should be noted, that Bush's projections looked good then because his tax cuts were set to expire before 2012. Which he, and every single Republican, argue SHOULDN'T be allowed to expire.

Accountability!

Catch the fever!

"Actually, no."

Actually in the graph in your link he was in a projected surplus position in 2012 until the current recession hit. Those are your facts.

That stuff you list is overhead. If we had enough of it to enable the private sector to be productive several years ago, doubling it isn't going to make the private sector more productive today, anymore than hiring more janitors to sweep your warehouse floor is going to make your factory more productive, when the floor was already being kept clean enough.

Overhead. Pathetic argument, Brett.

The population doesn't grow. Roads and bridges and buildings don't deteriorate. Universities don't need new labs and other facilities. ("Let 'em use slide rules.") Who cares if police can communicate with each other, or fire trucks get oil changes.

Right.

Eric,

I read through all of this and missed one point. I don't expect or want Obama to get to zero deficits too fast. There is some level of debt that he needs to work with. I think he needs to limit that to creating economic growth and investing in little increments toward some of his other goals.

I believe by 2011 we need to figure out how fast the recovery will get us more revenue and then make sure he exits with a balanced operational budget and limited war budget.


I think that adds 4-6 trillion to the debt and I would like for him to get it as close to 4 as possible.

Marty,

In the Bayh-partisanship thread you readily agreed to my impish proposal that we pass a two-point health insurance reform bill (no preconditions, no recissions) and let the insurance companies take on the job of explaining why something so simple can't possibly work.

Okay, try this one on for size: let's privatize the national debt.

I have explained before what I mean by that. The 'national' debt is owed by the nation, and the nation is you and me and our 300 million closest friends. So let's split the check. Assign each American his own personal share of the national debt to service or pay down as he or she sees fit.

Think about how that would benefit you. Federal spending would instantly drop by the 8% or so that currently goes to interest on the debt. So we could cut your federal taxes and mine (and Warren Buffett's, and everybody else's) by 8%, without increasing the deficit. If you're the "average" American, your tax savings would exactly equal your interest-only payments on your personal share of the debt.

"So why bother," you ask? Because you would have a degree of freedom you do not have now. You would be able to decide, for yourself, to pay down your own balance -- and not mine. If I choose to merely service my own balance until I die, then my debt gets inherited by my heirs -- and not yours.

But you'd get an even bigger benefit: your 300 million closest friends, looking at their personal debt balances, might start voting against continuing deficits. For continuing deficits would of course increase the 'national' debt, and thus their own 'privatized' debt balance. Also yours, to be sure, but you'd stand a better chance of them voting to NOT increase either one.

Naturally, the opposite might happen. Your fellow Americans might decide that whatever present benefit they personally get from continuing federal deficits is worth the increase in their personal debt balance. But if that were the case -- if Americans making decisions about their own debt decided to let their politicians grow it -- then I wonder how you'd argue that they're making a mistake. Do you trust people to make decisions about their own money, or don't you?

So, assuming you are sincerely worried about the 'national' debt, will you join my call to privatize it? If no, why not? If yes, I'd like to know how you would divvy it up: per capita? per household? in some progressive way?

--TP

TP,
I have read your suggestion before.

First, I believe that the government would have to secure all of the debt anyway so I am pretty sure you just can't make it happen.

Second, it would be a lot like taking out a second mortgage to pay off your credit cards, not really such a good idea unless you really believe you won't do it again.


Average AGI: $344.8 million

Please take a moment to peruse
the L "curve", A Tour of the
US Income Distribution.

Welp, Marty's finally managed to make it onto my pie filter.

The same was true for the recession Bush II inherited.

Bush II didn't inherit a recession; he redefined the economic indicators in 2003 (I think it was) to make it look like he did.

[I think it's fair to say that he inherited a bubble, if that's the route you want to go, but a recession? No.]

"Bush II didn't inherit a recession; he redefined the economic indicators in 2003 (I think it was) to make it look like he did."

I think they did redefine when it started by a few months to make sure it started under Clinton, like that mattered. But it was a recession. Anyone in the technology business knows there was also a bubble that was much more painful than the wider recession.

Marty,

What do you mean by "the government would have to secure all of the debt anyway"?

"The government" can only service or pay down the 'national' debt by collecting money from us, the individuals who constitute 'the nation'. The government "secures" its debt by force, ultimately: don't pay your taxes, and "the government" can throw you in jail. Under my modest proposal, "the government" would throw you in jail if you did not pay at least the interest on your 'privatized' debt balance every year.

In case I've been unclear: the IRS would collect both your 'taxes' and your 'debt payments'. It would simply credit them to two different accounts: your 'tax' to the general fund; your 'debt payment' to your personal debt account. The bondholders would still get their money from the Treasury -- from the aggregate debt account. If you pay down (or pay off) your personal debt account, the Treasury gets to retire some bonds, and your personal bill for 'debt payments' goes down (or goes to zero), independently of your 'tax' bill.

So your first sentence, while true, seems pointless.

Your second sentence seems no better. My modest proposal is not remotely similar to "taking out a second mortgage to pay off your credit cards". What it's similar to is this: 300 million of us went out to a lavish banquet and ran up a $12 trillion collective tab. 'We' owe that $12 trillion, whether we split the check or not. I propose that we explicitly split the check, so that each of us gets his explicit personal share of the bill to put on his own credit card, which he can then pay down or service according to his individual choice. I say we are less likely to vote ourselves another $12 trillion collective banquet in the near future, that way.

If the 'national' debt is something to worry about, it's only because we doubt that 'the nation' can afford to service it. But 'the nation' is just us 300 million chickens. "The government" which decides whether to take on debt on our behalf is elected by 'us'. Some of us would rather take on more debt than pay higher taxes; some of us would rather take on more debt than forgo present benefits; a big reason in either case is that we see our individual tax cuts personally, and we see our individual benefits personally, but we don't see our individual share of the debt personally. How can you expect 'us' to vote sensibly if you dismiss the idea that we should individually be made aware of both sides of the ledger?

So, look: you may have a good reason to consider my modest proposal as ridiculous as I consider the proposal to 'privatize Social Security' to be. But you have not stated it yet.

--TP

"Under my modest proposal, "the government" would throw you in jail if you did not pay at least the interest on your 'privatized' debt balance every year. "

So, as far as I can decipher, What you are proposing is a fairly hefty (or maybe not) tax increase with some percent allocated specifically to reducing the debt. Of course, I am not sure about some of your assumptions. The whole "Federal spending would instantly drop by the 8% or so that currently goes to interest on the debt)" makes no sense. The debt would still be paying interest to the holders, the US budget would still be carrying the debt, so other than a tax increase I am not sure what you have changed by this "privatization".

So, I guess I am wondering if you just always propose things that you really don't think can possibly work to get to a point you could probably just state, or are you really interested in exploring very out of the box ideas?

"Actually, no."

Actually in the graph in your link he was in a projected surplus position in 2012 until the current recession hit.

The "actually no" was a reference to you suggesting I blame Bush "entirely" for the downturn. My response made it clear that I blamed other leaders, factors.

Later on, I actually said that the surplus sounded plausible, I just wanted your citation.

But you knew that. Or should have by my response.

Just to inject a dose of reality here, if what folks are most concerned about is reducing the deficit, there is a very simple solution.

Restore the upper tax brackets that have been removed over the last 40 years or so.

Federal marginal tax rates are progressive up to $373,650 this year. From there on up, no change. It's all 35% on your next dollar, from $373,651 to a billion and one.

Add a new top rate of, say, 40% and have it begin at $1M. For every dollar you make above a million, you pay Sam 40 cents.

If it makes everyone feel better, maybe we can specifically allocate funds raised that way to reducing federal debt.

If you make $2M, this will cost you $50,000. That ain't nothing, but it's also not going to kill you.

Take one for the team.


Here's
an interesting link (PDF) regarding income distribution (from joel hanes' L-curve link) for anyone with a physics or mathematics background. It's been a while since I did that kind of math, but I could still follow along well enough to stay interested.

Sorry Eric, I took the shortest line in your comment to establish a reference to it but you are correct, I picked the wrong one.

Add a new top rate of, say, 40% and have it begin at $1M. For every dollar you make above a million, you pay Sam 40 cents.

Let's make that 60%. 40% barely gets us back to pre-Reagan.

I like 40% at $1M. But I'd go with 50% at $5M, 60% at $10M, 70% at $50M, 80% at $100M and 90% at $500M, stopping there. I don't mind purely economic dis-incentives to income earning at those levels. I tend to think you'd turn off a lot more Bernie Madoffs than Bill Gateses.

I agree with every word Hairshirt said -- which means I agree with Russell and Phil too, as far as they go.

Maybe we have the core of a new political party here. We could call ourselves the C.O.F.F.E.E. Party, just for symmetry. All we need is a snappy ... what's the opposite of acronym?

Seriously, though: why is it that progressive-all-the-way-up taxation is such an "out of the box" idea? Why do at least half, but probably more like three quarters, of Americans vote as if they would be worse off with more tax brackets and higher rates at the top?

--TP

Why do at least half, but probably more like three quarters, of Americans vote as if they would be worse off with more tax brackets and higher rates at the top?

Because they're being systematically lied to.

Marty,

Either I was horribly opaque yesterday or your 11:32PM comment was horribly obtuse.

So, as far as I can decipher, What you are proposing is a fairly hefty (or maybe not) tax increase ...

No. A tax CUT.

The whole "Federal spending would instantly drop by the 8% or so that currently goes to interest on the debt)" makes no sense.

Why not? Of every $100 the federal government spends, $92 goes to pay for current outlays and $8 goes to pay interest to the bondholders. Privatize the debt, and we can cut taxes by 8% without changing the current deficit.

Now, you may be confused by the "without changing the current deficit" bit. My modest proposal does NOT purport to cut the annual deficit directly. The only way to eliminate the deficit in any particular year is to collect as much in taxes, that year, as we spend that year. That's true whether or not we 'privatize' the existing debt. It's just that interest on the debt is part of government spending if we don't 'privatize', and it's not if we do. So we can have a balanced budget with lower 'taxes' if we do 'privatize', because interest payments to the bondholders become personal spending rather than government spending.

There's no free lunch, of course: if you're the "average" American, you still have to send in $100, of which $92 is your 'tax' and $8 is your interest-only 'debt payment'. But here's the thing: if you, individually, choose to send in $102, say, then your extra $2 goes to pay down your personal debt balance, and not mine. Next billing cycle, your balance (and not mine) is a little less. Your 'interest only' payment (and not mine) drops a bit. That's an individual choice that you do not have now.

Your only 'choice', now, is to pay the $100 in 'taxes', thus making the 'interest-only' payment on your share of our collective debt. You may be willing to see your 'tax' go up to $102 so as to chip away at the debt, but you have to convince me to vote for the tax increase, too. You may be willing to see current spending reduced to, say, $90 so as to leave a couple of bucks to reduce the debt. But you have to convince me to vote for the spending cut, too. Why not spare ourselves at least this little bit of argument and acrimony, by splitting the check?

Note that the bondholders still get their $8 from the Treasury, under my modest proposal. They don't care whether the Treasury collected that $8 from you in the guise of 'taxes' or 'debt payment'. If the Treasury redeems a bond they hold, they don't care if the principal came from you paying a bit more than interest-only on your privatized debt balance, or from me doing so on mine. It's only you and I that care. The Treasury, like VISA, simply makes sure to credit each of our accounts properly, while passing our payments along to the bondholders, like VISA does to merchants.

So, I guess I am wondering if you just always propose things that you really don't think can possibly work to get to a point you could probably just state, or are you really interested in exploring very out of the box ideas?

On this 'privatize the national debt' thing, I should hope I have made it clear by now that it could "work" in the mechanical sense. If we actually divvied up the national debt amongst ourselves (who owe it, either way) the mechanics of collecting the payments and servicing the bondholders would be fairly straightforward. Whether it could "work" in the political sense of having a chance to be adopted is a different question. It's certainly NOT possible for "out of the box ideas" to be adopted if they are not even explored.

Most "out of the box ideas" are crazy; otherwise wisdom would be easier to come by. Crazy ideas can usually be discredited fairly easily. If 'let's privatize the national debt' is a crazy idea the way 'let's build a perpetual motion machine' is a crazy idea, then I would be glad to see a modern-day Sadi Carnot discredit it. If it's merely an unpopular idea, well, maybe it will become more popular if more people understand it.

I will tell you one way to make it unpopular even if people do understand it: propose to divvy up the debt per capita. Per capita, the current national debt is about $40,000 and authorized to go to about $50,000 very soon. Tell the 'average' American that you propose to cut his federal taxes by 8%, but in exchange he gets to pay interest on $50,000 of debt (plus $50K for each of his kids, and for each of his retired parents) and the 'average' American will tell you to go hell. So will the bondholders, by the way, and for the same reason: the 'average' American can't service that much debt.

I will tell you one way to make it wildly popular: divvy up the national debt in proportion to wealth, simultaneously with an 8% across-the-board tax cut. Even you might go for that.

--TP

TP,

I will repond to this tomorrow when I have the time to answer each point.

"It's just that interest on the debt is part of government spending if we don't 'privatize', and it's not if we do.
"

TP this would be where you lose me. There is nothing that you have proposed that accomplishes this. The treasury still owes the principal and interest no matter how (or how much) they collect the money topay it. Your explanation is a way to spread the collection of the debt, nothing chanhes in how the government pays it.

TP,

One more thing would help me. Can you tell me how you would define wealth for the divvying up process?

Here's one analysis of what wealth is, and how it is distributed, in the US.

I guess I'm not sure what this article is supposed to show. The main argument about the particular stimulus which was enacted was that it was particularly inefficient and back-loaded. I don't see anything here which suggests differently.

Your explanation is a way to spread the collection of the debt, nothing chanhes in how the government pays it.

Now you're getting it, Marty.

I am not proposing to change the contractual relationship between the bondholders and the Treasury. I am proposing to change the relationship you and I, as citizens, have with the Treasury.

Look, would you vote for your taxes (and mine) to be cut by 8%, or not? Guessing wildly, I think yes. Okay, I am proposing a way to give you an 8% tax cut.

Do you want me (as well as yourself) to take the national debt seriously? Again, I bet yes. Okay, I am proposing that, too.

We each get our 8% tax cut. We each take on his fair share of the national debt to pay interest on. Each of us pays both his 'tax' and his 'interest payment' to the IRS. The money goes into two separate accounts. Your tax and mine go into the general fund, which pays for current outlays, where our money gets utterly comingled. Your 'interest payment' and mine go into the 'debt service fund', which is the fund that pays the bondholders. But our payments to that fund do NOT get comingled. Your payment pays interest on your share of the debt, not on mine. If you send in more money than you owe in interest, that reduces your outstanding balance, and not mine.

I don't know how to explain the mechanics of the thing any better.

The interesting thing for me is not the mechanics, anyway. It's the all-important question raised by the 4-letter word that starts with 'f', above. What would be a fair way to divvy up the debt?

If we agreed about that, we would not need all the accounting rigmarole in my modest proposal. We would be able to agree on changes to the tax code that would achieve the same fairness. I offer the idea of a 'privatized' national debt as a way to explore our mutual understanding of what 'fair' means.

--TP

This isn't the first or last time politicians cast a safe vote, knowing it doesn't alter the outcome.

Except their votes DID alter the outcome -- the stimulus was a lot less than it would have been without the knaves and liars (and that is exactly what they are) opposing it for purely political reasons.

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