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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Make sense, now?
Actually, no.
First of all, which "they" are you're referring to here?
Secondly, calling this "Russian roulette" presupposes that there are empty chambers in the gun and I'm not seeing any "empty chamber" outcomes that either the teatards or their backers could possibly want, cf. the still-remotely-possible scenario where Obama says "fuckit" and invokes the 14th Amendment option to make the debt ceiling a dead letter, which then means the House Republican caucus has burned their ammunition…
Barring that, if the premise is that the debt ceiling is Real and they simply will not accept any deal, then either the government is forced into default which increases borrowing costs, or forced into massive spending cuts which further trash the economy and further reduce revenue, either way borrowing costs become a larger percentage of the budget, which, by your reasoning seem to get us into a definite currency death spiral now rather than a possible currency death spiral later. The only people who win in that world are the proto-fascists (hmm…)
… if you raise taxes you'll just prompt capital flight. There is some merit to this argument, but I think less than they think. Of course, you can really get at it by erecting further capital controls, which leads straight to hi there, Smoot-Hawley. That didn't work out so well last time.
Wait, Smoot-Hawley was a set of tarriffs on imports enacted by the Republicans in 1930, which then led to a tarriff war, which then crashed the global economy even deeper -- were about protection of domestic industries and had nothing to do with capital control.
The actual capital controls enacted by FDR post-1933 (i.e., the gold confiscation and other measures), as I recall, worked out just the way they were supposed to - at least until the 1970s. Granted, I don't think another gold confiscation is in the cards, but they won't need it: given that, these days, most major monetary flows are electronic, and given the anti-terrorism/anti-money-laundering/national-security infrastructure that exists now, the Feds today have cross-border monetary surveillance/control that FDR could only dream about. The only real question will be one of political will.
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"They" meaning the Tea Party. This post is about explaining why they're doing this.
Secondly, calling this "Russian roulette" presupposes that there are empty chambers in the gun and I'm not seeing any "empty chamber" outcomes that either the teatards or their backers could possibly want
Again, this part is explaining their POV. It's why they are doing this. (If it hasn't been made clear from various comments - and this post has garnered comments everywhere, so it may not be in this set of replies - this is not what I would do.)
Barring that, if the premise is that the debt ceiling is Real and they simply will not accept any deal, then either the government is forced into default which increases borrowing costs, or forced into massive spending cuts which further trash the economy and further reduce revenue
It will be the latter, of course. They're aware of this; again, as per above, "The pain you take now is to avoid worse pain in the future."
[Capital controls] Smoot-Hawley [was] about protection of domestic industries and had nothing to do with capital control.
And I'm referring in this case to reducing the fungibility of capital across borders (c.f. addressing capital flight); I'm talking about effective tariffs on (or outright bans on) capital transfers across borders. I think once you get into that game, trade barriers are implicit, and retaliation will be made. I could be wrong about that, but I wouldn't want to try to find out.
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It will be the latter, of course. They're aware of this; again, as per above, "The pain you take now is to avoid worse pain in the future."
That's the part I'm not seeing. If they're smart enough to understand currency death spirals, they should be smart enough to see that they're shooting themselves in the head along with the rest of us.
Looks to me more like, "We just want to burn everything down and start over."
I'm talking about effective tariffs on (or outright bans on) capital transfers across borders.
Trade, in which one is exchanging goods & services for presumably-equal-valued currency or other goods & services does not (ideally) involve net transfers of capital. There are already pretty significant restrictions on straight capital transfers and GATT is just fine with it (...I'm pretty sure if I were to withdraw the entire balance of my SSB account and wire it to a Canadian bank, all kinds of hell would break loose...)
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I'm sure it does. What's relevant is what it looks like to them.
If it makes you feel better, I'll absolutely decline to rule out "burn everything down and start over" as an underlying motivation, whether they know it or not.
There are already pretty significant restrictions on straight capital transfers and GATT is just fine with it (...I'm pretty sure if I were to withdraw the entire balance of my SSB account and wire it to a Canadian bank, all kinds of hell would break loose...)
But they're manageable. I mean, we still see this going on - there's a neat trick going on right now where a lot of corporations started shifting profits back out of the US after that big reward during the amnesty in ....2006? to bring them back in. So now they're of course lobbying for another tax amnesty - wash, rinse, repeat. It's been in a couple of versions of these various debt limit bills.
Like I said, I'm not as concerned about capital flight in the face of higher taxes as both the Hayakians and the Marixists I know are, but I don't think it's silly either.
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According to this survey, more than a third of Tea Partiers are Evangelicals, and nearly half identify with the religious right. I wonder how many of them (consciously or not) identify economic catastrophe with Armageddon.
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