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nding growth rate calc growth phase growth historical revisionism hoarding hodrick prescott household debt hover craft how to pay for it humor because you might not know if i didn t say i couldn t sleep iceberg inflation introduction is it ego captain jerry says krugman laffer curve limits long and variable loops malaise matched set fekete math problems medium of account military spending milton friedman mmt money multiplier more debt than money is policy motives moving average new tools of policy non linear not only household debt oil parameters for debt pfi policy predicting recession price controls printing vs spending problem x productivity questions r reading and writing red and green reduction reviews scott sumner sequence 2 serfdom simulacron simulated evidence slack special report spreadsheeting stagflation standard deviation star trek stimulus sumner symmetry in deception taxes taylor rule the difference between debt and credit the economy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman tuesday november 30 2010 a matter of life and death this book is chiefly addressed to my fellow economists keynes 1936 the economic problem this time around will not be solved by economists for better or worse it will be solved by ordinary people economists today are always concerned about the fine points no matter what topic you bring up a decent economist always responds to an assertion with hesitation and equivocation it reminds me of the old joke that if you took all the economists and laid them end to end they wouldn t reach a conclusion we have to fix the economy we cannot wait for economists to reach a conclusion and if you notice people are not waiting case in point the recent elections the task i have set for myself is to define a solution that can work i know people already have a solution cut federal spending they say politicians just don t have the will to make the cuts that must be made i disagree i say politicians have been doing what people say must be done for several decades now the fact that the plan has failed is not evidence it has yet to be tried as ross perot s own graph shows we reduced federal spending from 23 5 of gdp in 1983 to 18 4 in 2000 but did that fix the economy it did not did it leave us with an economy that was rarin to go nope peak capacity utilization was lower in the years after 2000 than at any time in the available data according to paul krugman the economy s performance in the years after 2000 was as bad as it was in the 1970s according to robert brenner performance in the 2000s was the worst in our lifetime the basic source of today s crisis is the declining vitality of the advanced economies since 1973 and especially since 2000 economic performance in the u s western europe and japan has steadily deteriorated business cycle by business cycle most telling the business cycle that just ended from 2001 through 2007 was by far the weakest of the postwar period the decline of federal spending in the 1980s and 90s did not restore the economy to health in the 2000s we were as bad off as ever or worse and in the last few years as everyone knows things have gone even more downhill this is my understanding of the popular view taxes are too high and still the federal government runs huge deficits so they must be spending too much the solution is to cut government spending until budgets are balanced or more it s a good argument a bit brief maybe but a good argument actually that s one of my criticisms of the popular view brevity it is very limited it looks only at taxes and deficits nothing else and immediately goes to conclusion another problem i have with the popular plan is that if we have an economic problem we ought to have an economic solution but the discussion almost always comes down to personal ad hominem criticisms they are spendthrift they are corrupt they lack the will they are the problem and that ladies and gentlemen just ain t economics another problem i have with the plan is it is very easy to claim spending is excessive as long as you don t get specific when you get specific it almost always turns out that one person s wasteful spending is another person s priority there s a mix of hypocrisy and wishful thinking involved when people get together leave out specifics and agree that cuts are necessary after all this time as you know our newly elected politicians are still saying everything s on the table and they cannot be specific if we can t decide what to cut then maybe cutting is the wrong strategy as for myself i don t think spending cuts are necessary i don t think they will fix the economy smaller government is better government i ll give you that but making government smaller will not solve the economic problem the problem lies elsewhere finally i object to the popular view because it does not go back to the beginning it doesn t go back to when our economy was good and try to figure out where things went wrong instead it focuses on one result of the problem the tax burden and hopes to improve things by fixing a result there is no way such a plan can succeed my strongest objection to the popular plan is that it failed we stuck with it all through the 1980s and 1990s and it just did not work people who support the plan keep saying we have not tried it it will work if we do hogwash we tried it it failed now they keep moving the bar now even social security is on the table where does it end the plan was to reduce the size of government ronald reagan said this would restore the economy to health and things would then improve and as perot s graph shows we tried that but things got worse things keep getting worse thus the popular plan is left with no option but to move the bar the goal of reaganomics was to restore economic growth as william a niskanen writes reaganomics was the most serious attempt to change the course of u s economic policy of any administration since the new deal only by reducing the growth of government said ronald reagan can we increase the growth of the economy as late as the mid 1990s growth remained the real objective in to renew america new gingrich writes the power of economic growth was driven home to me by a study that suggested that a 1 percent increase in our economic growth rate would shrink the federal deficit by 640 billion over the next seven years in this world of merely 1 percent higher growth the social security trust fund never runs out of money today we seem to have forgotten that the reason to reduce the growth of government was to increase the growth of the economy the talk today is only of making cuts to government cutting itself has become the goal reagan had the right goal to increase economic growth restoring growth is the only way to solve our economic problems but reagan s strategy reducing the growth of government did not work it didn t work because the growth of government was not the original problem like almost everything else the growth of government was a result of the problem for thirty years or more we have focused on the federal debt we have tried to cut federal spending in order to reduce the growth of that debt but by any practical measure we have failed to improve the economy the reason for this failure is that we have the wrong solution the growth of government debt is not the problem it is not government debt that holds our economy down private debt holds us down private debt is the problem private debt increases the cost of living and the cost of doing business paying the cost of private debt reduces living standards and reduces demand it reduces profits and reduces supply the cost of private debt is the impediment to growth people say we need credit for growth we do but you don t get something for nothing new uses of credit help the economy grow that good effect is eventually offset by the negative effect of accumulated debt which holds the economy down i think the trouble with the popular plan is that we got the details wrong we saw high taxes and big deficits and said we must reduce the government debt the fact that it has not worked is evidence we need to re think the plan our objective must be to reduce private debt not public debt for if we do this the economy will grow again and the government debt will eventually evaporate for the nation it is a matter of life and death update 22 jan 2012 apparently the perotcharts site is gone the link now displays a screen snip of the perot page as it used to look posted by the arthurian at 4 30 am 3 comments monday november 29 2010 counterthoughts qe2 by steve landsburg november 18 2010 some q a about quantitative easing with a somewhat higher ratio of economics to cartoon characters than we had yesterday what is this quantitative easing stuff what exactly is the federal reserve a k a the fed doing they re creating 600 billion new dollars and using those dollars to pay down the government s debt they re paying down the debt i thought they were buying bonds it s the same thing last year huey mcduck lent the government a dollar and received a bond a bond is the same thing as an iou today the fed buys huey s bond now the government owes a dollar to the fed instead of to huey it s the same thing if the federal reserve is part of the government and the u s treasury owes money to the fed then our government owes the money to itself in that case it doesn t owe that money to anybody else so i guess it doesn t even count as money owed makes sense to me kind of by definition the fed is not part of the economy so if the fed has a dollar that dollar is not in the economy when the fed buys something with that dollar the dollar goes into the economy and if the fed sells something and receives that dollar in payment the dollar comes back out of the economy so if the fed buys something the dollar goes into the economy and the something comes out if they buy government debt then that government debt should come out of the economy it should cease to exist in the same way a dollar ceases to exist when the fed receives it that s what makes sense to me but i never saw the story told that way by somebody who really knows somebody like an economist if this is the right story then a lot of things fit together and make sense for me if a government debt ceases to exist the government shouldn t have to pay interest on that debt or to simplify the paperwork say it could continue to pay interest on that debt but then get that money back at the end of the year or whenever makes sense to me of course this all depends on accepting the view that the fed is part of the government i accept that view but some people don t see milton friedman money mischief p 206 click the page 206 link see g thomas woodward on public or private but the government still owes someone a dollar well yes and no unlike huey the fed is subject to a 100 tax on profits so the government can pay its one dollar debt to the fed and then turn right around and swoop that dollar back up again that s just as good as not owing anything in the first place the fed is subject to a 100 tax on profits almost 1 g thomas woodward writes over its history the fed has paid to the treasury approximately 95 of its earnings so it s not 100 percent it s 95 percent but that s close enough for me 2 the blogger landsburg says the fed is subject to a tax i don t think that s right i think it s an oversimplification the kind that leads to important misunderstandings down the road the fed turns it all over to the treasury not to the irs it s sorta like a husband and wife both working and they pool their funds it s not like a tax at all see g thomas woodward on where do the profits go see yahoo answers so in effect the fed is reducing the debt by 600 billion dollars does this mean taxpayers will have to cough up 600 billion fewer dollars in the future yes this is a definitive answer to an ambiguous question i think the question means is this 600b of debt that taxpayers won t have to pay back if that s the question the answer is easily a definitive yes because the federal debt never gets paid back does this come as a surprise to you it really shouldn t oh yeah clinton reduced the federal debt four times and nixon reduced it once but basically the debt never gets paid back it used to be policy these days people get all bent out of shape about it see time magazine of 31 december 1965 next to last paragraph sounds like magic why don t they just do this over and over again until all the debt is gone that s not even a reasonable question i don t think anybody would ask that except maybe somebody writing a q a anyway here is landsburg s answer because there is no such thing as magic you can t make the world a richer place just by creating dollars dollars are claims on wealth but they re not wealth you can t eat them you can t drive them you can t live in them well that s part of landsburg s answer landsburg says you can t make the world a richer place by creating dollars because dollars are not wealth fair enough but as he points out dollars are claims on wealth so there is a relation between wealth and dollars that relation has to do with making claims on wealth or as i would put it it has to do with buying and selling if they print too many dollars it makes prices go up yadda yadda so we can say with some authority that the relation has to do with the quantity of money and that too much money can be a problem now just naively one would expect that not enough money could also be a problem however that is not something one hears people say my collection of statements on money as the problem includes two from the 1600s which warn of problems resulting from a shortage of money and an observation by adam smith that an increase in the quantity of money was beneficial in scotland in the 1700s no other observations on shortage of money until mine of 1977 you cannot make the world a richer place landsburg says just by increasing the quantity of money adam smith said you can smith said when paper is substituted in the room of gold and silver money the quantity of materials tools and maintenance which the whole circulating capital can supply is increased production is increased not because the money is paper but because the use of paper permits an increase of the quantity of money smith continues i have heard it asserted that the trade of the city of glasgow doubled in about fifteen years and that the trade of scotland has more than quadrupled as a result of this increase in the quantity of money it worked because there had been a shortage of money just something to keep in mind the balance of landsburg s answer paying down debt makes the taxpayers richer but in order for taxpayers to get richer someone else has to get poorer unless the fed 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