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PaperclipPerfector  6d ago (text post)   29639 thread views

Culture War Roundup for the week of March 3, 2025

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In a way, this realization is liberating. It puts you at peace. You understand that the problem will never be solved until a fiscal crisis occurs.

And the next step, for even more complete inner peace that lets you sleep like a baby at night: realizing that the government's deficit is the private sector's surplus, which most people find desirable and wouldn't want to cut. That's why we run government deficits for centuries, because the private sector likes accumulating net savings over time.

I think we're still in mistake theory territory with some true believers like Musk who thinks government debt is "our" collective debt, which would somehow be an existential problem soon. But unless things really ramp up dramatically with DOGE with congress's backing, it's currently still thankfully mostly beating up the ideological opponents with the current small cuts.

the government's deficit is the private sector's surplus, which most people find desirable and wouldn't want to cut.

Citation needed? Every citizen is ultimately on the hook for the government's debts in one way or another. If you find it desirable, why not cut the middleman and increase corporate surplus by donating your money to a corporation directly?

Every citizen is ultimately on the hook for the government's debts in one way or another.

I'm pretty sure they were also saying 200 years ago "our grandchildren are going to be burdened by paying off this debt!" Somehow the bill hasn't come due yet, but maybe our grandkids will finally be the time? Seems a bit more likely that people should solve their cognitive dissonance on this stuff by realizing they don't quite understand money, accounting, banking, and government finance as much as they thought they did.

"The fiscal crisis is about to destroy this country, the government deficit is about to hit $10 million $2 billion $90 billion $1 trillion $50 quadrillion"

Particularly if anyone finds themself like Elon saying 'what, the total worldwide debt is $100 trillion...lol who do we owe it to, Jupiter??', surely there must be some sense of 'maybe I just don't understand this fully'.

If you find it desirable, why not cut the middleman and increase corporate surplus by donating your money to a corporation directly?

If I had the power of broad taxation where the only thing I accept in payment is my own IOUs back to me, then: my IOUs would be perpetually valuable, people would probably want to save some extra for a rainy day / retirement, and I would indeed (have to) satisfy their savings desires by spending & giving them out (hopefully in reasonable ways).

I'm pretty sure they were also saying 200 years ago "our grandchildren are going to be burdened by paying off this debt!" Somehow the bill hasn't come due yet, but maybe our grandkids will finally be the time

Has it not? Per Wikipedia, the US spent about 14% of its total federal budget on debt servicing in 2023, or 726 billion per year. Put differently, everyone's taxes could be 14% lower if you were not paying off the debt. This seems nontrivial, especially for businesses that operate on slim margins.

They are choosing to set the interest rate above 0%, to subsidize savings by giving money to people who have money. Interest is just another type of deficit spending. On balance I agree with the view that it's probably a pretty dumb idea to do that subsidy spending. But the current macro regime still thinks that higher interest rates are anti-inflationary (even with large debt-to-gdp, which doesn't seem to have been worked into their models), and they want to have the ability in the future to drop rates (because they still think that's stimulative).

realizing that the government's deficit is the private sector's surplus, which most people find desirable and wouldn't want to cut.

You're reasoning from an accounting identity, and I won't stand for it.

Yes, in order for the private sector as a whole to be a net creditor, the government must be a net debtor, but that's meaningless. There's no reason we should care about the private sector being a net creditor.

Note that this does not mean that the private sector can't accumulate net positive wealth without government debt. Private wealth did not decline along with net federal debt in the late 1990s, but grew rapidly. Real wealth is physical assets, not entries in a ledger.

It's true that if government doesn't run deficits private investors can't invest in government bonds, but they can buy private bonds or invest in equities. The government borrowing doesn't alleviate private actors of the burden of borrowing so that others may be creditors, but adds to the burden of private borrowers by driving up interest rates and reducing the amount of capital corporations can get by issuing stock.

If there's enough demand for government bonds that government can borrow at rates low enough to invest in infrastructure that will add enough value to pay for itself, that's a reasonable thing to do, but government borrowing does not, in itself, enrich the private sector.

Under no circumstances should the government borrow 6% of GDP at 4% interest at the peak of the business cycle in order to subsidize middle-class consumption.

Yes, in order for the private sector as a whole to be a net creditor, the government must be a net debtor, but that's meaningless. There's no reason we should care about the private sector being a net creditor.

Well I agree that it's not like a rule of the universe that the private sector must always need or want to be in perpetual surplus, accumulating monetary savings. It just happens to be how people have acted, in the US in the past few centuries at least.

In the US's history, there have been 6 periods where the government went significantly into surplus, with the private sector being significantly in deficit. Those ended in the 6 depressions in the country's history:

  1. 1817-21: In five years, the national debt was reduced by 29 percent, to $90 million. A depression began in 1819.
  2. 1823-36: In 14 years, the debt was reduced by 99.7 percent, to $38,000. A depression began in 1837.
  3. 1852-57: In six years, the debt was reduced by 59 percent, to $28.7 million. A depression began in 1857.
  4. 1867-73: In seven years, the debt was reduced by 27 percent, to $2.2 billion. A depression began in 1873.
  5. 1880-93: In 14 years, the debt was reduced by 57 percent, to $1 billion. A depression began in 1893.
  6. 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.

And it seems pretty understandable logically, that people like accumulating net savings over time.

In more recent history, the private sector going into financial deficit (some combination of spending down savings and increasing private debt) in the late '90s and mid '00s ended with a massive recession. Your contention that non-financial physical asset wealth was fine didn't seem to stop that resulting recession.

It's true that if government doesn't run deficits private investors can't invest in government bonds, but they can buy private bonds or invest in equities.

It's not even about the actual financial savings instruments being available, because we have banks with infinitely flexible balance sheets (indeed, the current monetary policy regime is simply paying interest on reserve balances directly, so treasury securities are a pointless vestigial leftover). It's more about the flows of spending: someone's spending is someone else's income.

The government borrowing [...] adds to the burden of private borrowers by driving up interest rates

If there's enough demand for government bonds that government can borrow at rates low enough

For a government that uses their own currency and has their own central bank, the base interest rate is a simple policy tool set wherever you want -- it's not subject to market forces.

Under no circumstances should the government borrow 6% of GDP at 4% interest at the peak of the business cycle in order to subsidize middle-class consumption.

Totally agreed, as they should drop the interest rate much closer to 0-1% and leave it there. Interest income is just deficit spending in a mostly-pointless, regressive way.

But isn’t it “our” debt but the surplus of the rich who buy bonds?

It's not our debt, it's just the government as a balance sheet entity which is issuing IOUs that we (the actual people/households/firms) get to hold as assets. As for people/firms 'buying bonds': at that point it's just an asset swap between different types of interchangeable government IOUs (reserves, notes, coins, bonds, etc).

Anyone benefiting from the government spending more money into the economy than it drains back out in taxes is taking part in the aggregate private sector surplus. The rich undoubtedly are benefiting from the government deficit, but the evidence isn't that they're holding their savings in the form of bonds at the end of the day. (The government could set the interest rate at 0% permanently, and would still use the deficit to inject savings into the private sector.)

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