Sunday, October 13, 2013

Almost everyone is stupid by default

Including me.  How dumb must I be to freely share my pearly political punditry with the raging masses of shallow voters who will never really understand or care enough to read what I have written more deeply than a quick scan for emotive catch phrases on which to tack a pathetically pithy comment?

Here is how it is.  Some political issues are complex, and some are simple.  Some issues matter a lot, and some matter less.  I'm here to tell you about the simple issues that matter a lot.  Everyone who disagrees with me on at least one of the following points is stupid:
  1. Climate change is happening, and it's worth worrying about.  Any Republican who denies this deserves to be called a Tea Partier for being so obstinate.  The single most important national policy to slow global warming is to raise the gas tax.  Doing so would make us a little bit more like our liberal friends in Europe.
  2. The U.S. government has a lot of debt, and the debt is growing fast.  Failing to stop this trend will bring great regret, in the year 2026 by one economist's guess.
  3. Invading Iraq was a mistake.  But that's not even the point.  Here is the point:  If a lonely group of rogue liberal members of Congress had found a way to prevent the Iraq war by any means possible, including shutting down the George Bush administration by voting no to everything he wanted, we would owe these lonely congressional heros some debt of gratitude for saving the U.S. from a useless multi-trillion dollar war bill.
  4. A lonely group of rogue Tea Partiers, much like the hypothetical group in (3), claims to be doing whatever it can to resolve (2), and they deserve respect for that, despite their great shortcomings (1).  This desperate situation gives Obama an opportunity to negotiate drastic future spending cuts to save the homeland from disintegrating like the Roman empire.  Go Obama!
Update on the meaning of a default (10/14/2013):  This article does an exceptionally good job of describing the mechanics of a default.  Some key points:  Default would be bad, but no one knows how bad.  At best, various payments would simply be delayed until Congress removes the debt ceiling.  At worst, these delays would trigger some greater economic collapse.  
In the past, I have speculated about how a doomsday default scenario might play out.  The present situation differs from my doomsday scenario in one big way.  Politicians aside, the U.S. is presently fully capable of keeping up with its interest payments, and will remain capable even if the interest rates shot back up to pre-financial crisis levels, about 5%.  That's because the debt maintenance, say 5% of 15 trillion, is far less than federal tax revenues.  By contrast, in a doomsday scenario, we'd be looking at 10% of 30 trillion, which could eat up ALL government revenue, leaving nothing for social security, defense, or national parks, etc.  When that time comes, it will be impossible (even if politicians cooperate) to pay the debt, and that's when the government and economy shut down for reals, folks.
In comparison to the horror of my apocalyptic medium-distant future default scenario, I am optimistic (but not certain!) that the present default, if it occurs, will be quite mild.  I am also optimistic that the default pains will be growing pains that prompt the electorate to become more conscious of fiscal sustainability, so that federal deficit spending can be corrected before it is truly too late.  Ideally, our dear leaders can agree to correct the spending problem right away to avoid all defaults, present and future.

12 Comments:

Anonymous ReddUp said...

I'm glad we agree on point #1, because you're dead wrong on 2-4. You claim that allowing the debt to continue growing would bring great regret, but this is false. The Mankiw article you cite is an excellent example of this: Mankiw sounded the debt catastrophe bells in March 2011 because he thought the markets would no longer lend to the US government at preposterously low rates. But 2.5 years have gone by, with the markets continuing to lend. Mankiw cried wolf, but there was none.

Instead, people and countries around the world (including American citizens and corporations) have lent the US government the cash needed to provide critical services the private market does not, like a defence department, regulatory agencies, and almost certainly your salary. All while keeping our taxes extremely low. It's a very good deal, at least at current interest rates.

Sadly, while Mankiw's wolf didn't appear, the Congressional Secessionists (let's not pretend it's a "party" of any kind) are importing a real one for us. Once the government defaults on its debt, it will suddenly get very expensive for the government---and everybody else---to borrow money.

9:09 PM  
Blogger My Freakwentness said...

@ReddUp, I have more respect for Mankiw than you, but his existence and opinions are not central to my arguments. I don't have proof that an ever-rising debt will cause catastrophe, I do have evidence of this: Greece, Argintina, Spain. Similarly, the exact consequences of climate change are not well-understood, but I would prefer to avoid them, or at least slow them down.

Your "Secessionists" are my "heroes". I'm not sure how calling names helps anyone in this situation. There are real issues behind the names on both sides, and both sides share the blame for failing to reach an agreement.

9:38 PM  
Anonymous Anonymous said...

Freakwentness:

I sure hope you and ReddUp stay friends. He might feel bad about you respecting Mankiw more than you respect him.

4:28 AM  
Blogger My Freakwentness said...

@Anonymous, Too Shay! Thanks for pointing out my grammar error.

5:56 AM  
Anonymous ReddUp said...

Ok, first, there is nothing wrong attaching labels to things; there is a difference between labeling and "name-calling". My term "Secessionists" is an attempt to accurately label the group of people who are attempting to destroy the US government. I will admit it's not my creation; Bill Moyers is the originator of the label.

If you don't believe that Sececssionist is an accurate label, here's a quote by Larry Klayman of the political advocacy group Freedom Watch, said at the tea party rally on Sunday:

"I call upon all of you to wage a second American nonviolent revolution, to use civil disobedience, and to demand that this president leave town, to get up, to put the Quran down, to get up off his knees, and to figuratively come out with his hands up."

I *know*, without a doubt, the Freakwenter does not approve of this kind of bigotry, yet he claims this group are heroes. I don't understand.

Second, what makes the Freakwenter believe that this uprising is about the national debt? There has been a lot more vitriol about Obamacare than about the debt. The debt ceiling is the gun pointed at the hostage of the economy, but the stated goal of the negotiation is the repeal of Obamacare.

Which brings me to the final point, stated much more eloquently by Moyers. The most important people in a democracy are those who lose elections and legislative battles. It's absolutely critical to the fabric of the system that they accept the outcome. Like his Freakwentness, I am not a big fan of Obamacare (or rising government spending and taxation, FWIW), but it was passed by the Congress, signed by the President, and approved by the Supreme Court. We lost. So let's do everything we can to win the next round of elections and enact laws that we think will work better.

Both sides do *not* share the blame here, a position even mainstream Republicans are willing to admit. The Secessionists are actively trying to throw the baby out with the bath water, a proposition that precludes true negotiation.

2:42 PM  
Anonymous dr perfection said...

Cruz is your hero???

3:49 PM  
Blogger My Freakwentness said...

@dr perfection, no.

@ReddUp, The purpose of my original post had little to do with trying to decide who is hero and who is Sececssionist. I'm interested in pursuing your ideas here further without spending much time on these terms.

Yes, there is a lot of resistence to Obamacare. It looks like Obamacare constitutes a significant increase in government expenditures: http://useconomy.about.com/od/healthcarereform/a/Cost-of-Obamacare.htm

Perhaps trimming social security or medicare or defense spending, etc., would be a better way to control government growth, but I don't mind if they start with Obamacare. I wish that they also hold up the traditional programs to the same kind of scrutiny.

The long-term national debt issue is the only one right now for which I think the government "hold-up" could be justified. I don't like it that some of their other demands are not related to the debt, such as that pipeline to nowhere.

Now for the issue of what is good politics: I think you raise an interesting point, and I can't figure out if it's relevant. First, it's obviously not a literal hold-up. As far as I know, none of the politicians are threatening physical violence. Nor are they breaking Congressional rules (are they?). Nor are they stealing from anyone. They might be lying, but that's kind of normal.

In a sharp departure from the messy reality of the current situation, I have a hypothetical question: Is there any conceivable situation in which you would support a minority of law makers using all the legal tools available to them to prevent the majority from enacting some abhorrent policy?

5:24 PM  
Anonymous ReddUp said...

I am by no means a lawyer, but here's how I see it:

1. Representatives take an oath to support, defend, and bear allegiance to the Constitution, and to faithfully discharge the duties of their office.

2. The 14th amendment to the Constitution says that the "validity of the public debt ... shall not be questioned."

3. The Consitution enumerates the power to levy taxes and borrow money to Congress, *not* to the President.

Therefore, Congress is responsible for ensuring the government raises sufficient funds to pay its obligations. The people who prevent this from happening are violating the oath of office. Interestingly, the relevant clause of the 14th amendment was intended to prevent this kind of factional extortion (ironically, when the shoe was on the other foot and Democrats wanted default). source

I will not address your last question about when it's ok to destroy a good but not perfect government through apparently legal means. I have been unhappy with many policies enacted in the last few years, but I have never advocated such extremism. In the words of some random document I found on the Googlescape, "Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes...."

Since you believe the national debt is not a light and transient cause, here's a counter-non-hypothetical question. Without looking at the current numbers, and in light of the fact that the Constitution explicitly allows Congress to accrue debt, what fraction of GDP do you think is acceptable for the government to pay each year in debt interest? What would have to happen for you to no longer think the national debt is a problem? (And no, electing Bill Clinton to a 3rd term is not an answer.)

8:14 PM  
Anonymous dr perfection said...

ReddUp is my hero

3:26 AM  
Blogger Freakwenter said...

The question at hand is whether to raise the debt ceiling. My answer is "only when there is a clear plan for controlling the growth of the debt."

You seem to be interpreting a refusal to raise the debt ceiling as a failure to obey the constitution. I support the constitution when it is clear, but such clarity does not apply to this case. The problem is that both sides seem to have their own favorite way of dishonoring the debt:

1. The government can spend so much that someday it becomes physically impossible to raise enough tax revenue to service the debt., as in my apocalyptic scenario. Evidently, such spending is unconstitutional.

2. The government can temporarily fall behind on debt payments momentarily while (1) is being resolved. This is also unconstitutional.

I prefer (2) over (1). I reiterate: long-term soundness of the national debt is the only issue on which I support sacrificing the short-term soundness. Although, if negotiators are gumming up the works with all kinds of extraneous demands, unrelated to government spending, then I don't support that.

Finally, to your question: how much debt is too much? I'm pretty sure that no one knows the answer to that. It's like the climate -- how warm is too warm? Gosh, I even like warm whether. The fact is that the debt has grown much faster than GDP growth in recent years. To feel confident about financial stability of the U.S., I need to see that debt growth (or at least its 3-year forecast) slow down to approximately zero rate of growth, just like our GDP growth rate.

On the question of principle (without looking at current numbers) I'll venture that I'm OK with 20% of GDP going to debt payments. I think I see where you're going with this, and that's another big conversation if you dare.

6:51 AM  
Anonymous ReddUp said...

The Freakwenter has found a glitch in the Matrix! Let me see if I can summarize his logic: to avoid a debt crisis, he would...precipitate a debt crisis! Brilliant!

I'm not blind to the distinction between your two scenarios. To be more fair, you see a fundamental insolvency as the greatest evil, and are willing to countenance a liquidity crisis in the short run for the greater good. Three points:

1. Scenario two will not be a short painless hitch in the payment schedule. It is already hurting real people and businesses in tangible ways, and the costs will rise precipitously in the coming days. Those politicians grandstanding at war memorials in DC seem to forget this.

2. I'm not aware of any clause of the Constitution says it's ok for Congress to violate the document now in order to avoid the (remote) prospect of violating it later. The appropriate action is to reduce spending through legislation, not ignorance of the 14th amendment, even if the Freakwenter would prefer the latter.

3. Scenario one (potential insolvency) is not worth burning the house down! The prospect of rising interest payments on the debt *is* a major concern, but not one worth destroying the economy and democracy over.

You said you'd be willing to tolerate debt service at an astonishingly high rate of 20% of GDP. You're in luck, because the true number is currently 1.4%, and the CBO predicts it will rise to 3.3% by 2023. (Aside: did you really mean 20% of GDP, and not 20% of the budget?).

Of course, this is based on the fact that interest rates are currently very low; if they go up, the cost of debt service will rise dramatically. And take a wild guess at what the Secessionist default attempt is already doing to those rates. Indeed, the debt burden so feared by the Freakwenter is only becoming a reality because of the extremist policies that he supports. This is why the rest of the world is so dumbfounded - why, they ask, would we do this to ourselves???

8:45 AM  
Blogger My Freakwentness said...

Goodness gracious, I'm not looking over my shoulder at the rest of the world. They are just as screwed up as we are.

I appreciate that you acknowledge that a jump in interest rates would cause a jump in debt costs. I speculated in my post that 30 trillion in debt was a relevant number -- that's approximately where debt service costs could conceivably reach 20% of GDP [sic], or approximately 100% of tax revenue, thus forcing default.

I am not advocating a default ("burning the house down", as it were), now or ever. It is the job of Congress to agree on a fiscally sustainable path. At present, the President and his friends in Congress have not proposed a sustainable budget.

So we agree that we should try to avoid a default. For me, the question boils down to this: Does a "hold-up" of the government now do more to (a) hurt us via ripple effects of a potential short-term default and poor politicking or (b) help save the economy from complete collapse later on.

Perhaps we differ on our forecasts of the likelihood of that future economic collapse. I think that some version of a collapse is more likely than not within 30 years unless there is a major shift in how the mainstream views government spending.

9:21 AM  

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