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Text of the page (random words):
y landsburg s measure if huey spends one new dollar it ever so slightly ever so slightly reduces the value of everyone else s money but if 600 billion hueys do it moneyholders end up exactly 600 billion dollars poorer there is no such thing as magic when the fed creates dollars but there seems to be some magic in landsburg s numbers besides the sleight of hand landsburg totally discounts the effect that economic growth would have on his numbers if output has been held below its natural level by a shortage of money as in adam smith s scotland increasing the quantity of money can result in an increase of output rather than prices granted such a state of affairs is alien to our experience but the printing money causes inflation argument makes the most sense in its most complete form which includes the possibility of a shortage of money see milton friedman money mischief money usually more significant aren t the taxpayers and the moneyholders largely the same people largely but not completely bill gates pays a lot of taxes but he might not hold a lot of money odds are most of his wealth is tied up in other assets like microsoft stock the question is a general one covering many people the answer is a specific one considering only one person i cannot analyze this answer further i would point out however that pretty much everybody has their money tied up one way or another in assets or in bills or what have you are there any other downsides to all this yes the taxpayers are relieved of a 600 billion dollar debt burden that s 600 billion dollars worth of good the moneyholders see the value of their money reduced by 600 billion dollars that s 600 billion dollars worth of bad so far at least from the perspective of the world as a whole that washes out but there are additional costs for one thing people will scurry around trying to convert their money into other assets so they re not holding money when it loses value that s a lot of effort that serves no real social purpose for another it s harder to do financial planning when the value of the currency is subject to unpredictable change so on balance the world is actually a poorer place not according to adam smith well that s terrible compared to what in the absence of this fed action we d still have to pay that debt off someday we d do it by raising 600 billion in taxes with all the accompanying disincentive effects that s kind of terrible too it s not clear whether the fed s action is better or worse than the alternative oh there ya go it s not clear whether the fed s action is better or worse than the alternative landsburg must be an economist he cannot reach a conclusion are there any ways in which printing dollars can enrich the world well maybe if people are sufficiently idiosyncratic take huey s uncle scrooge for instance unlike huey who like most of us values money only for what it can buy scrooge values money as a thing in itself he likes to fill his vault and swim in it i said earlier that dollars aren t wealth because you can t eat them drive them or live in them but they re wealth if you like to nuzzle them buying bonds from scrooge increases the world s stock of nuzzlables and that makes the world a richer place where does the extra wealth go well not to scrooge really because he s got to trade away his bonds to get those beloved dollars but consider when the fed buys scrooge s one dollar bond it retires a dollar of debt and makes taxpayers richer just like buying huey s bond but scrooge unlike huey never spends his new dollar so prices never get bid up and our money retains its value that s a gain for the taxpayers at no cost to anyone by creating something of value a dollar for scrooge to cherish the fed can make the taxpayers a dollar richer at no cost to anyone so landsburg is saying what we need is a way to reduce the federal debt but without increasing the quantity of money this interests me because landsburg apparently sees an imbalance between the quantity of federal debt and the quantity of money i see a similar imbalance between the quantity of total debt and the quantity of money of course there are differences i see the imbalance as a recurring long term trend that repeatedly results in depression landsburg sees the imbalance as a problem because it makes our taxes high there is a problem with landsburg s view because his focus is on the federal debt the problem arises because our money is backed by federal debt every dollar the fed puts into circulation gets there because the fed uses that dollar to buy some federal debt so how can they take federal debt out of the economy without putting money in 1 the fed can buy federal debt but this means the fed is putting money into the economy it s what they usually do but landsburg doesn t like it 2 the fed can buy non government debt as opposed to federal debt and interestingly that is exactly what they did in the first quantitative easing but again the fed is putting money into the economy 3 at some point perhaps the fed can swap the non government debt it bought during qe1 for federal debt held in the private sector this will reduce the federal debt without increasing the quantity of money that might satisfy landsburg it does not satisfy me because i don t think federal debt is the problem i think private sector debt is the problem that holds our economy down so buying a bond from huey means paying down the debt at the expense of the moneyholders while causing some auxiliary damage that might or might not be greater than the auxiliary damage you d cause if you tried to pay down the debt some other way but buying a bond from scrooge means paying down the debt at no expense to anyone correct at no expense to anyone okay i m rememberin that one i m gonna say stuff like anyhow as landsburg says it doesn t really cost anything when the fed spends money sounds like we need more scrooges do they exist outside of comic books probably not too often more s the pity more s the pity wow my differences with landsburg until now have been minor this one is huge uncle scrooge is hoarding money landsburg is telling us we need more hoarding i m saying we don t hoarding is a problem in a normal economy hoarding is what the fed does when it sells something it doesn t spend the money it receives in exchange it hoards that s the real reason we say that money is out of the economy when the fed has it in today s economy hoarding is what the banks are doing with their vast quantity of excess reserves the fed put all that extra money into the economy but the banks are sitting on it like uncle scrooge so that money is effectively out of the economy if the fed is putting trillions of dollars into the economy maybe the only way to avoid inflation is to increase the hoarding but that doesn t help the economy recover but all that hoarding that is the reason the fed has been increasing the quantity of money to keep the quantity in circulation from dropping as hoarders snatch money out of circulation and stuff it under the mattress or into reserve accounts i think our true objective is economic recovery preventing inflation by cloning scrooge the hoarder may be better than hyperinflation but recovery is better yet anything else we should know keynesian economists like paul krugman have various theories about how buying bonds from guys like huey could help get us out of the recession i m skeptical of those theories though you should treat my skepticism with a grain of salt because i am not really an expert on macroeconomics though neither come to think of it is paul krugman but even if those guys are right i m largely unimpressed because i don t think recession fighting is a terribly important goal compared to enriching the world in the long run and as far as that goal goes i think i ve covered the key issues here though i m sure readers will let me know if i ve left something out i don t think recession fighting is a terribly important goal compared to enriching the world in the long run sentences like that always make me thing about the dark age and i have to wonder whether the guy who says it thinks the fall of rome somehow enriched the world posted by the arthurian at 4 02 am 2 comments sunday november 28 2010 green lines posted by the arthurian at 9 22 am 0 comments if you pray at the great recession peter murray posts a graph of total u s debt relative to gdp it s a version of the graph we ve seen before but peter has labeled the high points i show this graph because it highlights the same high points that i used to stare at looking for meaning eventually i had a useful thought notice how the two run ups to peak are different the recent peak peter s 360 is fast but it seems to be an accelerating trend by contrast the older peak is a sharp spike quick up and quick down a departure from the trend the older peak is a spike generated by the collapse of gdp during the great depression we have not had anything like that yet this time around the second graph is a duplicate of the first but i added a red trend line to make the spike stand out i also added a black arrow below my trend line the arrow points to a location comparable to where we are now before the collapse i don t make predictions i don t know that there will be a collapse but i know that if there is one total debt will spike to 600 of gdp maybe more posted by the arthurian at 4 10 am 1 comments omg the kitchen floor s all wet turning off the faucet before you mop the floor doesn t work if one of the pipes is broken kitchen floor all wet total u s debt turning off the faucet cutting federal spending broken pipe policies that encourage the reliance on credit posted by the arthurian at 4 06 am 0 comments saturday november 27 2010 under every rock a critter it s amazing what you can find on the internet google and ye shall find federal taxes relative to gdp are remarkably stable tracking from 17 2 percent to 18 5 percent of gdp over six decades at 14 8 percent for 2009 and 2010 they were the lowest since the recession year of 1959 at the end of the eisenhower administration nobody would believe it i don t think i m gonna check it myself the excerpt is from reality of federal spending doesn t fit myth at twin cities dot com pioneer press it seems to be attributed to st paul economist and writer edward lotterman to me the post has a political feel to it not my cup of tea but i was looking for something on the level of taxes and there it was additional search results free by 50 provides graphs including one that pretty much confirms the twin cities excerpt above economicsjunkie provides a graph that doesn t agree after a while i figured out that this graph shows total federal state and local government taxes the two previous links consider only federal taxes thus the difference at first blush junkie s two graphs expenses and receipts both appear to be continuously climbing looking again one can see that from 1970 to 1993 more or less total government receipts as a percent of gdp briefly stabilize at around 28 i always look for details like that posted by the arthurian at 4 04 am 0 comments friday november 26 2010 i blogger and yes there it is i m clicking it now nice posted by the arthurian at 8 50 am 2 comments labels tot some days i wake up with thoughts like these put lawyers in congress and they make laws no one can read put finance people in charge of policy and they cannot see debt as a problem posted by the arthurian at 4 17 am 0 comments thursday november 25 2010 this is too good to pass up from economicsjunkie happy thanksgiving posted by the arthurian at 4 15 am 3 comments wednesday november 24 2010 making nice to krugman i pick on paul krugman a lot not because he s bad but because he s good that s not an apology paul but it s as close as you re gonna get anyway i ran across an article of his on slate posted in 1998 if you can believe that like lots of economics it s part interesting and part wrong but he does say this you may tell me that it s not that simple that during the previous boom businessmen made bad investments and banks made bad loans well fine junk the bad investments and write off the bad loans write off the bad loans i ve said it before but the fed now owns a huge chunk of bad loans the result of a rescue mission to get those loans out of the private sector well they re out but people are still trying to make payments on those loans we got the bad assets out of the economy but not the bad liabilities that s why the economy cannot recover if the fed would just write off the bad loans the economy would recover and yes paul you said it before i did posted by the arthurian at 4 13 am 2 comments tuesday november 23 2010 making the wrong argument krugman argues over and over that we need more government spending that we should not worry about government debt that government debt will bring recovery in my recent series on debt beginning here i have shown that government debt is not the debt that is holding our economy down private debt holds us down note that there is no mention of government debt in this sentence private debt holds us down increases in government debt have not brought recovery not yet and not since the 1970s we never really recovered from that 1974 recession why because private debt holds us down krugman is right increases in government debt should bring recovery but the other guys are right too increases in government debt don t bring recovery so are we gonna argue about this until we end up in a dark age or are we gonna take a step back and try to see what s missing from the discussion what s missing is any consideration of private debt posted by the arthurian at 4 28 am 1 comments monday november 22 2010 ge capital you know they advertise on the sunday morning talk shows ge s tax return is the largest the irs deals with each year some 24 000 pages if printed out its annual report filed with the securities and exchange commission weighs in at more than 700 pages inside you ll find that ge in effect consists of two divisions general electric capital and everything else the everything else maker of engines power plants tv shows and the like would have paid a 22 tax rate if it was a standalone company it s ge capital that keeps the overall tax bill so low over the last two years ge capital has displayed an uncanny ability to lose lots of money in the u s posting a 6 5 billion loss in 2009 and make lots of money overseas a 4 3 billion gain not only do the u s losses balance out the overseas gains but ge can defer taxes on that overseas income indefinitely it s the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us as a result figures tax economist martin sullivan companies are keeping some 28 billion a year out of the clutches of the u s treasury by engaging in so called transfer pricing arrangements where say microsoft s msft news people 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