Author Topic: Debt is future spending pulled forward in time.  (Read 126 times)

Mackin USA

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Debt is future spending pulled forward in time.
« on: November 14, 2018, 12:42:02 PM »
Notably, the combined debt of the US, Eurozone, Japan, and China has increased more than ten times as much as their combined GDP [growth] over the past year.

https://www.zerohedge.com/news/2018-11-13/mauldin-worldwide-debt-default-real-possibility
Mr. Mackin

littleman

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Re: Debt is future spending pulled forward in time.
« Reply #1 on: November 14, 2018, 08:06:10 PM »
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As a candidate, Donald Trump promised to get rid of the entire national debt “over a period of eight years.” When this promise was made, the national debt stood at $19 trillion; it has since risen to $21.7 trillion. In the fiscal year ending September 30, it grew by $779 billion, up 17 percent from $666 billion in fiscal 2017. This year, after the Trump tax cuts take full effect, another $1 trillion worth of government IOUs will be issued.

https://www.weeklystandard.com/irwin-m-stelzer/national-debt-under-trump-rises-to-21-7-trillion

This is basically the old steeling from the young imo.

ergophobe

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Re: Debt is future spending pulled forward in time.
« Reply #2 on: November 14, 2018, 09:49:52 PM »
It's also buying elections with unfunded tax cuts that increase future debt, but make the economy soar from the sugar high for the short term.

That is a fundamental problem for politicians of both parties - planning for the future is never rewarded

littleman

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Re: Debt is future spending pulled forward in time.
« Reply #3 on: November 14, 2018, 10:48:12 PM »
>both parties

If you are talking about administrations I'd say one party has been a bit more fiscally conservative than the other in the last 50 years with the exception of the stimulus after the Great Recession.  Deficit spending during recessions makes scene as long as it is reined in when the economy improves.

Mackin USA

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Re: Debt is future spending pulled forward in time.
« Reply #4 on: November 15, 2018, 12:14:14 PM »
>both parties

What party will introduce a bill to end spending beyond our means?

Can they avoid limiting the benefits in entitlement programs for those entering the system in the future?

XXXXXXXXX
The federal government collected record total tax revenues of $252,692,000,000 in October, the first month of fiscal 2019, according to the Monthly Treasury Statement released Tuesday.

Despite the record tax collections, the government still ran a deficit of $100,491,000,000 for the month—because it spent $353,183,000,000.
[CBS News]
« Last Edit: November 15, 2018, 12:19:49 PM by Mackin USA »
Mr. Mackin

ergophobe

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Re: Debt is future spending pulled forward in time.
« Reply #5 on: November 15, 2018, 04:25:55 PM »
LM - yes, I agree with that.

I meant that just generally speaking, our political system does not encourage politicians to think long-term. In many ways, it's like the system of corporate executive compensation that rewards actions that bump up stock prices (and thus the value of their options) over the short term, rather than thinking of the health of the company.

But yes, we once had a system where the Democrats were the party of compassion and the Republicans were the party of fiscal responsibility. That ended when Republicans adopted the Starve the Beast strategy. The idea was that if you cut taxes, you had to shrink government. In theory, Reagan and Stockman argued that once the Cold War was won, the "peace dividend" would cover this and we would balance the budget. People like Greenspan were worried, but acquiesed.

So Republicans unlinked the relationship between spending and income. The problem was that very quickly, what it did is not teach politicians to tighten their belts, but it taught even "conservative" politicians to be comfortable with bigger and bigger deficits. And Republicans had painted themselves into a corner, where much of their electoral success was based on selling tax cuts, regardless of the impact on the deficit.

Most economists studying the question, both liberal and conservative, agree with the broad outlines of that, from Niskanen at Cato to Krugman.

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Empirical evidence shows that Starve the Beast may be counterproductive, with lower taxes actually corresponding to higher spending. An October 2007 study by Christina D. Romer and David H. Romer of the National Bureau of Economic Research found: "[...] no support for the hypothesis that tax cuts restrain government spending; indeed, [the findings] suggest that tax cuts may actually increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases."

https://en.wikipedia.org/wiki/Starve_the_beast


Or, as an Economist editorial put it in 2007 (echoing Mr Mackin's original post)

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Why might this be so?  The study doesn’t answer that question.  My preferred answer is the obvious one:  politicians like to give goodies to their constituents; and deficit spending gives them the ability to send to the bill for this largesse to future generations, who don’t get to vote.  This is a crackerjack recipe for just the sort of entitlements crisis that America(and the rest of the developed world)will face over the next few decades.

To put it as a friend of mine and fellow skeptic of the starve-the-beast philosophy once did, there is one main problem with the starve-the-beast strategy:  once the beast runs out of food it can always start eating the villagers.
https://www.economist.com/free-exchange/2007/07/23/what-really-happens-when-you-starve-the-beast

Forbes (2010) also has an excellent essay that looks at STB from Eisenhower to Clinton.

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I believe that to a large extent our current budgetary problems stem from the widespread adoption of an idea by Republicans in the 1970s called "starve the beast."
...
Once upon a time Republicans thought that budget deficits were bad, that it was immoral to live for the present and pass the debt onto our children. Until the 1970s they were consistent in opposing both expansions of spending and tax cuts that were not financed with tax increases or spending cuts.
....
For some years Bill Niskanen of the libertarian Cato Institute has argued that STB actually increased spending and made deficits worse. His argument is that the cost of spending is ultimately the taxes that will have to be raised to pay for it. Thus fear of future tax increases was the principal brake on spending until STB came along. By eliminating tax increases as a necessary consequence of deficits, it also reduced the implicit cost of spending. Thus, ironically, STB led to higher spending rather than lower spending as the theory posits.

https://www.forbes.com/2010/05/06/tax-cuts-republicans-starve-the-beast-columnists-bruce-bartlett.html#a1a27cc759da

So yes, beginning in the 1980s, the Republicans gave up the role they used to claim as fiscal conservatives and instead became a party that taxes low and spends high, an interpretation widely shared by conservative and liberal economists (Cato Institute, Tax Policy Center, etc).

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What party will introduce a bill to end spending beyond our means?

Neither. Even though the Democrats did not fall for the Starve the Beast, Democrats tend to promise entitlements. So Republicans promise unfunded tax cuts, but both parties say they absolutely will not touch Social Security or Medicare. Neither party can successfully field a national candidate that will run on cutting military spending.

And then there's the simple problem that Republicans and Democrats run as a duopoly. The only thing a Democrat likes less than a Republican, is someone who is neither a Democrat nor a Republican. They have rigged the system to crowd out newcomers and new ideas and both are beholden to constituencies who, for different reasons, are hostile to balancing the budget.

Unfortunately, deficit spending is a fundamental threat to, if not the country, at least the government. The English Civil War and the French Revolution were both direct results of the government being unable to meet its debt service. Until people see the connection between fiscal solvency and national security, I have little faith we will see a balanced budget anytime soon.