Debtordammerung, Part IV: But why?
In Part I of this series, we discussed, briefly, salient elements of the politics of the current debt and budget conflict. Part II discussed the politics of economic statistics, and why the way GDP is calculated means that the total amount of government spending never gets reduced. Part III discussed possible economic ramifications of the current
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Oh, okay, fine. Lots of things. The banking system needs to be purged of its debt, and the comprehensive fraud must be purged as well; it's a boat anchor around the neck of the economy. If you want tax receipts to recover, you must do this. Sadly, that's probably not politically possible. Were I Tzar, I'd go through and decimate the financial system's upper management; the biggest offenders must be punished to put any possibility of a functional financial system back onto the field.
From a budget standpoint, it's a disaster. Several wars-of-choice have to be ended; the military will have to be cut. Al Qaeda isn't an organisation as much as it is a meme; you're looking at an organisation estimated at this point to have 20-30 people functioning in it. Spending a trillion or so invading poorer and poorer countries chasing a meme is insanity.
The Obama health-care plan can gain some indirect cost controls by mandating that core coverage be run as nonprofits, with the money opportunity being available on the inevitable resulting flotilla of supplemental coverage plans. (This is how Germany makes this system work; I'm skipping ideology here - I think the mandate is unconstitutional - and going towards functionality as best I can with this mess.) If this went really well, this could be a route towards solving some of the medicade/medicare crisis.
The Bush tax cuts are some of the most economically unproductive cuts in recent memory, and need to be eliminated. I'd actually prefer a massive overhaul of the tax system, but that really does take months, at best.
Social Security maximum retirement age will have to be ramped slowly upwards to 67, in stages, which is a cut and the Democrats probably won't go along. (Even with exemptions for health.) I'd strongly suggest extending the maximum income on the SS payroll tax as well, perhaps on an inverse-teir (higher brackets pay lower percentages, not higher. Yes, it's regressive; cope). Ballooning spending to boost GDP will not work - the money multipliers are showing that it hasn't been working and won't moving forward until the systemic debt is purged, rather than reinflated.
The housing mortgage deduction will have to be examined very, very carefully, and quite possibly phased out. A whole lot of corporate subsidies need to go away. And, of course, DHS needs to shut its fucking doors right the fuck now. But, honestly, I'm veering into politics now more than just economics. (Not, really, that there's much difference in the end.)
That's a rough outline, but these steps would, I think, start to clear the decks for actual economic recovery. It does not solve the China issue, however, and that's a big fucking deal. I have several ideas that work on paper but which have zero chance of going anywhere and would quite possibly trigger a series of overreactions leading to places we do not want to go, so as yet I do not have very good answers. I wish people had listened to me about this back in the 90s, but, well, I say that a lot. The core of these, had they been implemented then - rather than a straight slam to MFN trading status - would've been taken as positive, rather than negative, steps, and would've cushioned a lot of the problems of the last decade and a half. But, well.
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There are many ways to make the health system work. unfortunately, the government is way too slow in acting in it's best interest. I also agree, DHS needs to go away NOW. They're probably the most corrupt department in the government with the worst list of personnel and that is saying A LOT.
What do you suspect will actually happen? We're going to crash, but how bad? End of the Union bad or something which can be recovered from?
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As to what, exactly, is going to happen? Fuck, I dunno. There are a lot of possible paths here and I guarantee you that a lot of arms are being very seriously twisted right now by the corporate Powers That Be. I don't know which faction of those is going to win, tho'. I really don't. If I have to give advice, it's this:
1. Be flexible. Be adaptive.
2. Cut ongoing obligate expenses as much as possible.
3. Lose debt. In particular, lose variable-rate debt.
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I am also really fucking tired of the zombie lies about Social Security, which comes with its own dedicated funding source, which for the past 25 years has been collecting far more than it has been paying out and only this year has flipped to being the other way around never mind that this was explicitly planned for back in 1986 when the FICA rate was raised from 4% to its present 6.2% to deal with the baby boomer retirements, that to the extent that there's any shortfall at all looming 40 years from now (highly debatable) (1) there are any number of simple revenue tweaks that would cover it and (2) it's a drop in the bucket compared to the massive wastage occuring elsewhere (cf. wars of choice, DHS empire building, TARP, corporate welfare...). Social Security is not the problem and never was.
It's particularly galling because the whole point of this exercise is to manufacture a crisis and destroy the social safety net (whether this is because the Tea Party folks are racist fuckheads who care more about keeping government money from going to Those People than they do about keeping themselves afloat, or because their backers want cheap labor that won't talk back), and no matter what changes are made to the spending profile to fix the deficit, the moment the Republicans get back in, they'll pass another round of tax cuts and gosh look at this huge deficit. We know this because they've already done it twice (1980, 2000). We know it's manufactured because all of these supposed deficit hawks only come out when there's a Democratic administration.
Ballooning spending to boost GDP will not work - the money multipliers are showing that it hasn't been working and won't moving forward until the systemic and won't moving forward until the systemic debt is purged, rather than reinflated.
worked pretty well in 1939-1945, when we had the biggest public works project of all time (otherwise known as World War II) which is what finally got us out of the Great Depression. What matters is what you're spending the money on. I agree that you don't want to use it to prop up zombie banks and make a few billionaires whole. Using it to employ large numbers of currently unemployed people and (re)build necessary infrastructure is quite another matter.
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worked pretty well in 1939-1945, when we had the biggest public works project of all time (otherwise known as World War II) which is what finally got us out of the Great Depression. What matters is what you're spending the money on. I agree that you don't want to use it to prop up zombie banks and make a few billionaires whole. Using it to employ large numbers of currently unemployed people and (re)build necessary infrastructure is quite another matter.
Yes, then there's what we have, which is to say, not 1939, but instead propping up zombie banks and making billionaires whole. I don't see that changing substantially. Most of any money spent will go towards fluffing up dead investments to make them appear not dead; that's the debt overhang I keep talking about; that's what must be purged before this approach will work again. In other words, yes, that's part of what I keep saying: until and unless the debt overhang is cleared, adding more (new) debt won't help, because it will go to propping up the overhang rather than actual economic activity. That won't change unless you can somehow magically make the finance system behave completely differently than it's been behaving for the last few decades.
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no it's not. or at least, not according to every discussion I've ever seen of this, which has referred to 2011-2012 as when the baby boomers start retiring -- it's not like they were going to get that subtraction wrong back in 1986. The only prediction that's actually failed was that nobody expected income inequality to grow quite as fast as it did, meaning a larger percentage of overall income is being captured by the top 1% and hence inaccessible to FICA; that's the potential 40-years-from-now problem and the easy/appropriate fix is raising the cutoff.
The trust-fund surplus isn't there, because it's been borrowed and spent by the rest of the government.
Then, again, that means it's the rest of the government that needs to be fixed.
Yes, then there's what we have, which is to say, not 1939, but instead propping up zombie banks and making billionaires whole. I don't see that changing substantially. Most of any money spent will go towards fluffing up dead investments to make them appear not dead;
I said, "What matters is what you're spending the money on. ... [Use] it to employ large numbers of currently unemployed people and (re)build necessary infrastructure..." Those people will be able to spend money on goods and services, businesses will see a surge of consumer demand and be able to hire people, who in turn will likewise become able to spend money, etc... Do that on a large enough scale and you've jump-started the economy. Yes we also need to kick over the dead banks and prosecute people; do that, too.
Obama's stimulus worked - without it we'd be in Great Depression Mark II right now. The problem is it just wasn't big enough to get a real recovery going.
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Yes, but the Clinton/Gingrich revisions in the late 90s supposedly extended the breakeven point to between 2014-2016.
The trust-fund surplus isn't there, because it's been borrowed and spent by the rest of the government.
Then, again, that means it's the rest of the government that needs to be fixed.
Potaeto, patato. Seriously, this is making a difference that is no difference at all. What the accounting books say doesn't matter at all if the money. is. not. there.
As for the size of stimulus and the debt overhang issue, I go back to money being fungible and the giant debt hole continuing to suck the life out of everything. Until that's fixed, nothing gets fixed, and more debt can very well make the problem worse, not better. (More on that in tonight's second post.)
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