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April 18, 2015


Maybe the fed could defuse that nuke by going all QE4 on their asses, buying up every bond in existence.


I'm not talking about a slack economy, but in more general, abstract terms.

Imagine an economy that relies entirely on cattle, to take an example. It obviously faces decisions as to how much to slaughter for food and how much to save for breeding. To the extent they increase the breeding stock thay are saving.

That's all I'm saying. Society-wide saving is possible.

byomtov, actually, your point makes sense in a non-abstract way.

Putting oil in a strategic petroleum reserve: saving. Putting banknotes in a vault: not really, when you have the power to print more, any time you want.

Or, in the modern era: adding bits to the electronic account balance.

Good thing we're not going to run short on "zeros" and "ones" anytime soon...I've got a few terabytes hoarded against the apocalypse, even so.

It's like purposely not scoring a touchdown in a football game, because you might need one more in the next game.

I've supported an inordinate number of teams that seem to have employed that philosophy.


The federal government can't really "save" the way you or I can. It's meaningless for it to save the money it creates out of thin air. It can spend money into existence or tax it out of existence, borrowing (unnecessarily, mind you) when it spends more than it taxes.

It can. For example, using tax revenues to pay down the national debt would be saving, just as paying down your mortgage is saving. Suppose, for example, with no change in revenues, there had been no Iraq War. What would have happened to the money spent on Iraq?

You seem to be saying that it would have somehow disappeared with no benefit to the country at all. I don't think that's right.

You seem to be saying that it would have somehow disappeared with no benefit to the country at all. I don't think that's right.

The benefit would be that we wouldn't have wasted actual resources. Not issuing the additional bonds for the defict spending required for the war might have reduced the amount of quantitative easing the fed later did, increased the amount of excess reserves the banks held at the fed, marginally reduced the amount of interest the treasury would have paid over some period (possibly offset by interest paid on additional excess reserves), or some combination thereof.

What it wouldn't do, in and of itself, is give the federal government future spending power that it wouldn't otherwise have had.

What we're talking about here isn't whether spending on a particular thing is or isn't a good idea when we're talking about saving in this context. That's always the consideration - whether or not putting resources to a particular use is worthwhile, in the context of all the other things those resources might be put toward, including nothing at all. But it's not a question of saving money.

If you're trying to do what's best for the health and welfare of the nation, money isn't the problem. What you're limited by is resources, if you're the issuer of the nation's currency. It's stupid to say we can't do something, when everyone knows it's the right thing to do, simply because we "don't have the money," especially when it's really because you think you might need that money later.

I'm going to add that I think we actually agree, if we can understand each other's way of putting things. The discussion of money, as such, is not in reaction to what you're saying so much as in reaction to those who argue against things that are actually worthwhile - things they, themselves, might admit are worthwhile - because "deficits!" and "burdening future generations!" and such.

You know what's a burden? Crumbling infrastructure and lots of sick, poor, and poorly educated people.

It's like purposely not scoring a touchdown in a football game, because you might need one more in the next game.

Wouldn't it be more like not trying to score well on the 18th hole if you do not need to do so to win? Just to keep from cutting your handicap for next time.

In some sports, you actually can save points (strokes, in this case) for next time.


Great football analogy!

Perhaps the confusion is there are those who believe that cutting "real stuff" today gives you room in the future to "spend more money" and thus conflate two different things.

We can certainly have a petroleum reserve to have "more oil" in the future. But couldn't we do the same thing by just leaving it in the ground? The total amount of oil is unchanged in either case. We are just deferring consumption.

But if we raised taxes today to "save" for tomorrow, that would not make any sense. In a fiscal sense there is no "saving" that can be realized in the future.

Apples and oranges?

I think you, byomtov, and I pretty much agree.

I think we do.

Of course definitions of "waste"differ, so that's a trap for the discussion. And yes, the issue is recources, not cash. Talking about it in monetary terms adds confusion, I think. So does conflating what the government, in isolation, doea with what society does.

We can cut down a tree today or let it grow. Letting it grow is saving. Who the woodsman works for is immaterial.

In some sports, you actually can save points (strokes, in this case) for next time.

Well, no. Because you have to execute more strokes "now" to do this. However, if you could go out and birdie every hole and still manage to raise your handicap, well, that would be something!

But what counts is winning matches, not how many strokes you take to do it. No bonuses for winning by 4 strokes this time, rather than 2.

I don't know from golf, wj. If you're right, then, no - it's not like golf. It's like football (and other real sports - ZINGER!!!).

Hope I'm not overdoing this, but here's why govenrment can "save." It collects some taxes, and then can spend that money on things with long-term benefits, or on current consumption, wasteful or not, as opinions will differ on that point.

If it does the former it saves. If it sticks the extra cash in a mattress nothing happens. If it uses it to reduce the debt then it marginally reduces the interest rates it faces, and enables greater borrowing later, when there are worthwhile things to do - like in a downturn when the returns on spending are large and it makes sense to borrow generously.

you're getting yourself tangled up in the (all too common) confusion between fiat currency and "precious metal" currency.

One, it makes sense for a government to hoard, the other, it has an infinite supply, only subject to constraints set by political and economic stability factors.


I don't think so, and I don't think I'm tangled up, but maybe you're right, and could explain. I am not talking about gold and the like at all (not that I think hoarding that ultimately makes sense, either.)

I am agreeing that hoarding dollars makes no sense for the government. My definition of "saving" is not consuming all real production, but using some of it to increase future production.

If I can stick with the fooball analogy, what you're describing would be like pulling your starting quarterback late in a game when you have an insurmountable lead, to avoid injury and/or to give your back-up some reps. That might reduce your chances of scoring more points, but you wouldn't be doing it for that purpose, and if you did score more points, it wouldn't reduce your ability to score in future games.

Perhaps we are confusing "savings" (not playing golf today) with "investment" (taking more strokes today to raise my handicap tomorrow).

In std. macro theory they are supposed to be equal, but when savings = not playing golf, well, that is totally unacceptable.

heh. ;)

taking more strokes today to raise my handicap tomorrow

Which, by the way, is cheating. Golfers, like fishermen, never lie.


Yes bobby.

It all gets confusing, especially when money comes into the picture.

Fallacies of composition lurk everywhere.

it's just that practically everyone's mental picture of "money" is something very much like "precious-metal based", absorbed by osmosis at a young age, no doubt.

For everyone other than the government, there's no real difference between the two: you have a limited supply of money. The problem comes when people try to apply a "family budget" model to a government that prints it's own money, implying limitations that do not actually apply.

My understanding of economics is pretty basic, at best, but I have a question.

Isn't there some relationship between the stock of money, and the underlying wealth that it represents? Where "underlying wealth" basically means "stuff" - goods, available services, infrastructure, etc.

I understand that there are cases (like the DC co-op example) where insufficient circulating money can impede productive activity. So, in those cases, maybe it makes sense to put more money in circulation.

But isn't there a point at which it's a bad idea to, for instance, deal with revenue shortfalls by printing more money?

I do understand that the two things - money per se, and stuff - are not the same, but surely they are not unrelated to each other?

In a fiat system, dah money created to cover central government deficits (either by printing or issuing bonds) = net financial assets of the private sector.

The government can also create money from nothing and buy anything the economy is able to produce. If they print too much to try to buy too much stuff you get monetary inflation.

At that point, pretty much everybody would agree that it's not a good policy...unless, of course, you are deeply in debt.

OK, cool, that makes sense. Thanks bobbyp.

Yeah, there's a relationship, but it's complicated. And abusive, sometimes. It's because money services two purposes (cribbing from Krugthulu, although this is standard stuff): a store of value, and a medium of exchange.

Simplest case: too much money chasing a fixed amount of "stuff" makes the prices increase (inflation). But if that extra cash isn't chasing "stuff", but instead being put in mattresses or bank accounts or paying down debt (and not being lent out), then there's little affect on prices.

But if you have too little money (as you mention), it hampers the exchanges that make an economy function, and you get a classic deflationary depression: prices drop (cash gets more valuable), trade stagnates, debt becomes difficult to service.

Getting the right balance isn't trivial, but there's some leeway, and a fiat currency system can adjust, unlike a metal-currency system.

The most common "failure mode" for fiat currency is runaway inflation, for metal-currency it's deflationary depression.

I have also encountered the theory that part (but only part) of the reason for the boom and bust cycles in the 19th century was that we kept finding large gold and silver fields -- California, the Yukon, Nevada, etc. Which meant that our precious-metal-based currency featured the same inflationary problems as fiat money -- more money was going into circulation, without any (or at least without adequate) corresponding increase in the real economy.

The most common "failure mode" for fiat currency is runaway inflation, for metal-currency it's deflationary depression.

Good recap. That was mostly true, but no country I am aware of is on a metal (i.e., gold) standard. Some peg their currencies to the dollar...which is similar.

So now we witness an all to common "failure mode" in fiat currency systems (cf. Eurozone, and possibly even the USofA) where we have actual deflation in systems where the government can, technically, spend as much as it wants.

Krugman's "lower bound" complicates matters.

Yeah, the "deflationary depression" was much more common in the 19th century, when most countries were still on metal-based currency. Not that there's anything magic about the "metal", but it's just an effect of having a money supply that is out of a country's control.

wj: yes, gold/silver rushes...Spain had similar problems a couple of centuries earlier, when all the metal from the New World hit their economy.

Also, England and China in the 19th century: China had wonderful high-quality goods to sell, but was only interested in getting silver in return...draining the English economy of silver. SO, the English started to ship opium to China, and fought wars to open up the trade.

The Greeks are finding out just how much fun it is to turn over monetary policy to forces that are out of their control.

The "lower bound" means that it's much easier to recover from inflation than deflation.

The most common "failure mode" for fiat currency is runaway inflation, for metal-currency it's deflationary depression.


The difference is that under a precious metal system you can't do anything except hope for more discoveries or go off the system. And going off the gold/whatever system has often been a very good idea. (The history of this is a good argument against gold bugs, BTW).

Under a fiat system it is possible, albeit sometimes painful, to stop the problem via government action. See Volcker, Paul.


It is also instructive that Andrew Jackson paid off every penny of all outstanding national debt during his presidency, kicking off one of the nastiest of the 19th century depressions.

This, his war against the National Bank, and his racism makes mockery of his portrait being on the 20 dollar bill, a widely circulated unit of currency backed by, well, nothing.

There is some small comfort to be had knowing the level of apoplexy he would undoubtedly experience if he could somehow know this.

about 1,200 Americans control more than 40 percent of election contributions

because pseudo-libertarian sugar daddies and their lackeys in the courts say they should.

Please go back in time to the mid 90s and explain this all to the New Jersey legislature that allowed Whitman (and by extension, every NJ governor after her) to blithely ignore the pension in the pursuit of political power thru legal bribery of the constituents. Cause my current governor is ignoring a contractual obligation to fund the pension, citing necessity. Just like Whitman.

Not that I agree with what they did with state pensions in NJ, but the discussion here applies to the federal government. States are constrained as users, but not issuers, of currency. There are no fiat New Jersey dollars. New Jersey is stuck with using US dollars and is not fiscally sovereign (the same way Greece is currently not fiscally sovereign and is stuck with using the Euro).

HSH, Jado's point is more about the OP topic of states playing dishonest games with pension investment estimates.

NJ is a particularly egregious case, where the governorship has alternated between Republicans and Democrats: Democrats try to raise the taxes needed for pensions, lose popularity; Republicans run on a platform of tax cuts, play dishonest games with investment estimates, leave a pension mess. Rinse, repeat, ad nausium.

The workers don't get to decide "hey, my bills are high this month, so I'm going to skip on that pension contribution", so why should a governor?

Ah, I think you're right. I took "this all" and "citing necessity" respectively to mean "all of this stuff about non-existent fiscal constraints" and "citing a thereby non-existent necessity."

But I do know what Jado's getting at. I live in NJ, my dad's a retired cop, and I have a number of friends and neighbors who are working cops, so I do get exposed to all the happiness over the NJ pensions.

Since corps and public entities are moving to shun defined benefit pensions like the plague, I feel a few ground rules should apply:

1. Pensions are part of the wage. Reneging on a pension promise is therefore theft as surely as if they shorted your paycheck. Pensioners should be first in line in the event of a corporate or public entity bankruptcy.
2. If an entity has no pensions for front line employees, then no pensions for executives, either.
3. Changes to the program can only apply to new enrollees.
4. Try paying public employees a decent wage instead of extravagant and likely to go unfulfilled future promises.
5. Maybe fix the assumed ROI to match that crowd wisdom and no cheating on the "fully funded" part.
6. Chris Christy and Meg Whitman should be sharing a jail cell.

about 1,200 Americans control more than 40 percent of election contributions

Ha! Nonsense:

Correction: An earlier version of this article incorrectly stated that 1,200 people control 40 percent of election contributions. In fact, 1 percent of 1 percent of the 1.26 million Americans who gave in 2012 is one-tenth that, or around 125 people.

Who the hell is Meg Whitman?

bobbyp: all good stuff; the accounting profession needs to crack down on those crazy investment assumptions.

BTW, to add to your list: require state and municipal employees be enrolled in SS. Some aren't, because of "state sovereignty", which makes the underfunding of public pensions even more devastating.

around 125 people

blessed honorable patriots who deserve to speak for the rest of us, each and every one!

"...around 125 people..."

I think that's the best argument ever made for extended magazines.

Who the hell is Meg Whitman?

oops...meant Christine Todd Whitman.

They could share a cell, which Meg in for intent to emulate Christine.

with, witch, whatever.

You know, you could do a sociological study of American history in the here and now by comparing the fall in subscription rates of magazines and the rise in the demand and purchase of larger caliber magazines.

Reading your enemies opinions is down.

Preparing to shoot your enemies is the thing now.

People Magazine.

Dead People Magazine.



Perhaps someone should make a movie: "I see soon to be dead people."

"Reading your enemies' opinions is down."

No kidding. You know how often I'll post a link to something, and be told it isn't worth following because it's a rightwing site? The only sites they'll go to are the ones that would never tell them anything that might change their views.

The Washington Post continues its War on Old People

You know how often I'll post a link to something, and be told it isn't worth following because it's a rightwing site?

I haven't seen a link from you for a while. Looking in the dashboard, since you've come back to taunt the Count, you haven't posted a single link. But don't let the presence of actual evidence force you to change your views.

That was mostly a problem at Crooked Timber, though it g
has happened here once or twice.

You know how often I'll post a link to something, and be told it isn't worth following because it's a rightwing site?

I've made comments to that effect when you've linked to stuff on Breitbart or similar.

Some folks are just so partisan that you have to go fact-check everything they say. That's a big PITA, so I don't bother reading them.

There are left-wing sites I don't read for the same reason.

There are only so many hours in a day.

Yes, and there's a difference between fairly obvious bias, on one hand, and being purposely full of crap, or crazy enough to believe your own crap, on the other.

I might diagree with the conclusion of an analysis in the Wall Street Journal, for instance, but it will at least have enough factual information and detail that it's worth the read, even if for the sole purpose of criticizing it.

Too bad I didn't run across this earlier.

Good link, bobbyp. Clear-headed.

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