The federal debt: worrisome or terrifying?

Oh, Pooh!

Gee, thanks, Joel. I'll read all that later. I suppose I should see if I can balance my checkbook.

*sigh* Mudged myself. Jeez. Reposting:

Just got home after a routine doctor visit. Waited THREE hours in the waiting room (and I had an appointment). Got a swine flu shot.

A little over 400 years ago I saw Alonso Quixano in Man of La Mancha. Guy was wack. Long story, which I'd tell you, but I haven't had dinner yet. (Aldonza Lorenzo, a.k.a. Dulcinea del Toboso, was an eyeful, though, even though I told DQ she was nothing but trouble. Would he listen? Hah. Sancho and I looked at each other and just shook our heads.)

(Did you know one of the possible derivations of the word quixote is a Catalan word for "thighs"? Bet you didn't. Some scholars think the "thighs" reference pertains to a horse's rump. Meaning, I suppose, that Don Quixote was a horse's a$$. I prefer a more romantic, sympathetic interpretation.)

You balance your checkbook, seasea? I just follow the balance on the web myself, and try to remember to write the checks down in the register.

Mudge, I dunno that I believe you. Next you're going to tell us that Don Quixote wasn't a wonderful, romantic gentle knight!

Back from visit to McAdenville, the town in the next county that does Christmas in a big way. This is the best year in about a decade, I'd say. It's an old mill town' recently all the old mill houses were torn down and replaced by shiny new houses. After several years when the displays were pretty thin, the town has gone all out for 2009. May that be a good precedent for a recovering economy in 2010.

We had all the dottirs and their menfolk for supper beforehand. W and P were beside themselves, wanting to play with the Snow Village. Mr. T had to watch them closely so they didn't break anything.

W can say my name! He looks at me and grins when he does. P is into vehicles of all sorts (trains are a favorite) and running.

TBG, I haven't let Mr. T have any lighted reindeer for fear he will do what Son of G did.

Golly, I must live in Goody-Two-Shoe Town, I have never seen lighted reindeer having close encounters with each other!

But he was, slyness! That's what I meant by a more romantic, sympathetic interpretation of his name. He *was* wonderful...but still met a number of criteria under a bunch of listings in DSM-IV. (Which, by the way, has no listing that meets the diagnosis, "a fool for love," but ought to.)

We were passing by McAdenville about four in the afternoon the Saturday after Thanksgiving and wondered if they had the lights up yet. It was too early in the day to go through which was a disappointment.

You know, very few journalists are thoughtful enough to provide pre-reading materials.

But after reading them I still dunno. Maybe we can grow our way out of the problem, but it seems prudent not to count on that. The thing is, I don't think the changes in either tax levels or expenditure rates are really that catastrophic if we are patient. A swing of a few percentage points, I believe, would do a lot of good.

Anyway, I'm looking forward to reading the article.

Man, that Ravens-Packers game has more turnovers than an Amish bake sale.

You've been waiting all season to say that, haven't you Mudge?

Almost forgot, tomorrow is the MA primary election to choose two candidates to run for Ted Kennedy's seat in the senate. I've had robo calls from most of them. I'm voting for Martha Coakley, she's been the least annoying.

Yes, I have. It was rather a nice line, doncha think? Kind of an editorial editor's line, I trow.

I just read the transcript of Joel's chat today. Kept laughing to myself every time a questioner sounded like somebody I knew. Purely a hallucination on my part, of course. But I was chuckling about every other post. Hmmmm.

Krugman kills me. A Nobel winner that seems to think debt forever is great and deficits don't matter, etc. Yikes. Perhaps he should go the way of most Nobel winners and keep a low profile. The more I see of him the more I question the whole concept of the prize.

Krugman seems to me like the guy that has been restrained for a while... keeping his true looniness to himself, but now is untethered. The world is his oyster, and he wants to borrow every last dollar he can to do stuff he has always wanted but never had the chance to buy... with borrowed money.

Thank heavens for that, Mudge! I was starting to wonder about the old Don.

Yello, the McAdenville lights are on December 1-26, so you didn't miss anything the Saturday after Thanksgiving. There was a sign before the turn into town that said the lights go off at 9:30. I assume they stay on a bit later on weekends.

The mill used to pay the power bill for the entire town in December, but I don't think they do that any more.

Here's something light for the evening for all you dog lovers (and likers, like me)...

http://www.patrickmoberg.com/lessons-from-a-dog/#0

I agree, Steve, Ignoring the deficit was a major hallmark of Reaganomics. Reagan deliberately tripled the deficit.

"The greatest achievement of President Reagan's Administration may prove to be the roughly $155 billion budget deficit he is leaving to his successor, which is nearly twice the deficit he inherited from President Carter.

As paradoxical as this may sound on the face of it, there is this to consider: the deficit will severely constrain Democrats in enacting the sorts of programs that they are itching for and that Mr. Reagan has fought against for more than three decades. As a result, the enormous budget deficit may be Mr. Reagan's single biggest contribution to strengthening the hand of Congressional conservatives.

That is a peculiar notion, given that conservatives are supposed to be against deficits. 'Lid on the Welfare State'

The notion of the deficit as a deliberate tool of conservative social policy, a notion that was once rejected, has gained credence over several years of constrained budgets. Democrats had a rendezvous with this reality when they regained control of the Senate and found that because of spending constraints they still could not do what they wanted. And the discussions already under way about how Congress and President-elect Bush will shape the budget demonstrate just how tightfisted the deficit has forced everyone to be.

''It has certainly put a lid on the welfare state,'' said Allan H. Ryskind, an editor of Human Events, the conservative weekly magazine that is one of Mr. Reagan's favorite publications. ''The Democrats have sort of trapped themselves because they've said this is all terrible and horrible and that closing the deficit should be the first priority.''

''The fact that they've said the deficit is such a problem,'' Mr. Ryskind added, ''prevents them from proposing new spending programs.''

http://www.nytimes.com/1988/12/02/us/washington-talk-the-deficit-reagan-debt-legacy-his-trap-for-democrats.html

And there's this:

Reagan Says Inability to Control Deficit Was His Main Shortcoming

The Washington Post, November 15, 1988

"President Reagan said yesterday that his inability to control the soaring federal deficit was the major shortcoming of his eight-year administration.

"Answering questions from a group of Washington-area high school students, the president readily addressed a topic that he and the presidential candidates had mostly avoided during the campaign.

"I could sum that up very briefly-the federal deficit," Reagan told a student who asked what had been "the most important thing" he had failed to accomplish as president."

And happily, some things never change:

"Confidence in Reagan on Deficit Declines; Poll Finds Greater Trust in Congressional Democrats to Handle Red-Ink Problem

The Washington Post, July 2, 1987

by David Hoffman

"Public confidence in President Reagan's ability to control the federal deficit has deteriorated and more Americans trust Democrats in Congress to do a better job than Reagan in handling the problem, according to the latest Washington Post-ABC News Poll.

"The nationwide survey, completed this week, found that 50 percent of those questioned believe Democrats in Congress can be trusted to do a better job in paring the deficit, compared with 40 percent for Reagan."

*Snert*

Snert?

The Krugman article reminds me a little bit of the financial rationalization and slight-of-hand of the past decade.

In the late 1990s, people said that profits didn't matter and old-time stock valuation methods were wrong and dot coms would just grow their way into justifying their valuations. At least $5 trillion dollars evaporated in the dot com collapse. In 2009, the NASDAQ still hasn't even recovered half of value from 2000.

In the mid 00s, you often heard that the old methods of valuing real estate didn't apply any longer. Both residential and commercial real estate would just grow its way into justifying 2007 valuations. I don't need to tell you where we are today.

Now, we have people, like Krugman, saying that deficits don't matter. We'll just grow our way out of trouble. Let me tell you, his Nobel prize notwithstanding, he's wrong. Old time economics is going to come and bite him, and everyone, in the kiester. Deficits do matter. There is an enormous, speculative bubble in US Treasuries right now. And just like 2000 and 2008, it's going to blow up with great carnage if we don't stop $1.5 trillion annual deficits. It's not going to take much. One failed treasury auction, and everyone will be running for the doors. The end will be 18% mortgage rates and a dollar that is worth 50% of today's.

I don't care which political party gets up the nerve to fix it. And it's going to be political suicide--with raising taxes and cutting spending. But there is a bomb in the room, and it's going to go off, sooner rather than later.

Snert

But if deficits didn't matter a damn to Conservatives in the 80s, why do they matter now? Different party in power?

And by the way, it wasn't just "people like Krugman," presumably meaning liberals, who caused the dot.con bubble, or the housing bubble. It was the Wall Street crowd. Republicans and Conservatives, in other words. Liberals don't zackly control banks and business, yanno. Of course, it must be unpleasant to be reminded how badly people on the business/Conserv side of the aisle royally effed up over the last couple of decades. Kind of emjbarrassing to admit how they screwed themselves right into the sward.

Speaking of Joel's article, here it is:

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/07/AR2009120703984.html

The debt markets are quietly interesting and scary places if you happen to notice that billions of dollars are flying around at the press of a button.

This Ravens/Packers game has gotten pretty interesting on the odd turnovers, and hey - GB missed a field goal. Oy.

bc

Not only did they miss a field goal, bc, it was one of those pretty much easily makable ones like we saw all weekend.

And howja like that offensive pass interference call AND the unsportsmanlike flag?

But yes, a pretty...interesting...game.

Mudge,

I don't know if you we're aiming your comment at me, but I never implied anything to the effect that it was liberals who were causing the problem now or making the rationalizations in the 90s. I don't know Henry Blodgett's politics, but I'd suppose that he wasn't particularly liberal (at least in his approach to government and business). I'd argue the same about Rubin, Paulson and the rest of the Wall Street crew who brought us both dot.com and the mortgage crisis. I'd also assume that you're old enough to remember 2002-2008. It wasn't liberals who were spending us into the ground back then.

I am somewhat worried that $2 trillion annual deficits are on a scale that is not only larger than previous deficits, but that there is also less "margin of error" given the profligacy of the Bush administration.

May I please urge Boodlers not to take any one comment or post personally?

Hey, they showed a little curling at the Grren Bay Curling Center coming out of a commerical break.

MNF never fails to surprise -- nor does a flag thrown for the 9th pass interference penalty of the game, followed by yet another turnover (Flacco throws an interception in the end zone). Double oy.

bc

Nope, Awal, sorry for the misunderstanding. I was mostly aiming at steveboyington, who in two consecutive posts was knocking Krugman, whom everyone knows is considered some sort of flaming firebrand-- "keeping his true looniness to himself, but now is untethered." And then you said "people, like Krugman," which kinda sorta sounded like you were also in the "Krugman is a looney" camp. But I have a major problem with anyone thinking that an economics columnists *causes* things to happen in the economy. No matter *what* one thinks of Krugman, he doesn't cause anything to happen. (Myself, I don't even read the guy, I'm just reacting to people's remarks about him like he was some sort of "player," instead of just a side-line critic.

But no, not you.

Curling is just so Scots. A stone with which to play.

Remember the Kids in the Hall parodying Russian poetry?

A dead dog in the road.
At least this year we'll eat.

Deficits DO matter. Problem is cranking down on the fiscal responsibility right now (read: Tax increases & benefit cuts) will cause more harm than good.

Once the economy is better on it's feet, then, yeah.

Of course, I do find it ironic that the loudest voices now were among the greatest perpetrators of the pre-Obama debt.

There's no point to being an economist (or natural scientist) if you don't come up with non-obvious results. Nate Silver, too. I think that extends to various fields of liberal arts scholarship, not to mention intellectual stuff published in the Atlantic and New Yorker. And Zhuangzi's followers, too.

So I'm happy to see economists following the money flows and behavioral cues and pronouncing when deficits are needed, and when they are to be shunned.

This sort of divination is very demanding; I feel for Joel's entry into the realm of the Krugmans and Bernankes. I almost hear an assistant to the Divinity whispering to Joel that he's on holy ground and needs to take off the bad sneakers, pronto.

So how does a mere newspaper reporter take on Deficit Spending? Even one who's certified to be Highly Competent at Nearly Everything? I suppose we'll find out in the morning.

Maybe it's appropriate that surf enormous enough for the Eddie Aikau competition is expected tomorrow. This is the outer limit of surfing. Watch Joel find the shoulder of that deficit wave.

http://www.youtube.com/watch?v=hitMpM-P-Bs

http://www.youtube.com/watch?v=XWQesR7aoj

http://www.youtube.com/watch?v=XWQesR7aoj

The US deficit will increase in the short term. There’s not way around it. Unemployment will still be high for the next 4 to 5 years. GDP growth figures will make you sad. So is the long term projection. Still you have to be an optimist. Somebody might invent something. A major technological and scientific breakthrough. It’s always possible. Scientists/Engineers are always tinkering with something and businessmen are always thinking of different ways to make money.

rainforest1 - for what it's worth, Keynes was right that, when things are going well in the economy, the government should be taking it's wealthy citizens and building a surplus. Logically and ethically, while good times make everyone's life a bit better, the rich (called that because they are) are stuffing money in their pockets. The government should tax them for the people.

As our economy matures and keeps expanding, we need more of a surplus than the previous boom time. This is because our downturn will be tougher each time. Our problem is that, during the Bush years, we radically cut our taxes on the wealthy even as Bush embarked on a 2-term war in Iraq and Afghanistan.

The wealthy are wealthy because they can afford to pay heavier tax. They are also able to pay for teams of accountants who find ways to navigate their way around the taxes owed.

It is a myth that, putting even more money into the hands of wealthy will get them to invest in the county's business has been substantiated over and over and over. What builds and sustains the economy are consumers who have the money in their pockets to spend.

If anyone is still buying the donkey calls about how raising the taxes on the wealthy NOW would be so counter-productive, remember that this is the INCOME TAX. It isn't a WEALTH Tax. Income taxes are only on their earnings each period and not on that big pile of money.

The sad truth about us folks on the wrong side of the income bell curve is that we spend all the money that we have. Therefore, the smart economist (Like our friend Krugman) knows that each dollar put into the hands of the less-wealthy and lower income folks goes back into the economy immediately to buy food, clothing, appliances and cars.

There is an immediate bump in spending. This particular spending usually causes more spending as baseline hiring occurs where businesses staff up to serve their neighbors as they spend their marginal windfall. Conversely, give a wealthy person a windfall and the money is less likely to be put back into the local economic engine.

While it is true that the odds of a portion of each dollar returned to a wealthy person is much higher to be invested in a new business than a dollar handed to a poor person. The odds of that money actually being invested is much lower than the odds of the dollar being spent. The consumer dollar breeds its own confidence and the dollar gets spent and spent locally.

(cont.)

(cont.)

The point is that, the promoters of the theory that we should be giving money back to the rich have deluded us into thinking that there is some sort of hugely significant relationship between giving rich people free money and business investment. (sounds like the Wall Street Bailout!!!). People who have amassed large amounts of money probably have no problem investing in money making schemes when the time is right. That's how they got the money in the first place.

The neatest thing to know is that there is NEVER a bad time to start taxing the rich a reasonable rate again. WE CAN DO IT NOW and they are still rich. Don't think about families with two working adults managing to save twenty grand a year, think about people making 4 to 5 million a year off of investments who would still make 3 to 4 million. Those are the folks who to whom Bush gave the huge break.
Bush gave the break to those Wall Street bankers who, each year, take home an additional one to two mil, over and above their paltry salaries.

Those folks spend millions blurring the lines between the perception of the upper middle class and the wealthy.

The next time you hear a talking head say that you can't possibly raise taxes during a recession/depression remember again that these folks have millions and billions in the upper brackets. It's an income tax and at the current low rates, it is a reasonable thought.

Income tax means that if times are hard on them, it means that their 'current income' may have dropped from 20 million a year to 10 million a year. Point being, they aren't suffering in the recession. It ain't a recession for them no matter if their millions is dropping on the income side.

And a further thought, understanding Krugman, if one bothers has to be done with some knowledge of the soft science of Economics--which is getting less soft all the time.

Curiously, economics is not any less exacting than, say, physics and often very interesting--though we rarely have the entertaining writing about the topic such as we have with the hard sciences and Joel's pieces. (and the comments and boodles done by our wonderful group of guest boodlers).

The useful phrase for Krugman and all economists is "all other things being equal." Krugman does not believe that deficits are good, he just suggests that running a larger deficit is better than having our economy fall off the cliff into crisis. As Mudge pointed out this past evening, the deficit has been created, for the most part, by cutting revenues during good times. Krugman has written that, far from being pro-deficit, those times are when we create a war chest to pull the economy through the bad times (like now).

The key to understanding economics is in efficiency concepts, multiplier effects and relative impacts. What we can work with are very complex econometric models that can fairly accurately project what will happen based on various forces on the economy.

I must note that Bush left Obama such a bare cupboard that he has been forced to wage economic war with a spit gun. Obama has actually been at his finest by keeping us a bit confident that we will get out of this mess, which, in turn, makes us spend money by the very confidence factor.

(as opposed to a President that goes on television and says, "go and shop.")

The vast majority of the country comprise the lower and middle classes and it is their interests that we must protect. Krugman and many economists will tell you as he has over and over, that what the Bush 2 years represented was a large wealth redistribution in our nation from the poor and middle class to the wealthy. Republicans like Kevin Phillips who understands governments and the economy will tell you the same thing.

The standard of living for the average American has been eroding. The Labor productivity measure is an alarm bell, not a note of something that Joe Blow should feel proud.

(cont.)

rt,
I agree with you immensely except that many definitions of 'rich' seem to include my household which includes a school teacher and a college student. I look real closely at any proposal designed to 'soak the rich' which tends to start in the low six figures of gross personal income. Around here that is a school principal married to a police officer territory.

And the truly rich (my working definition is anybody making more than twice I do) have convinced the aspirational Joe Plumbers of the world that somehow they'd be rich too but for the confiscatory policies of evil libruls.

Yoki,
There you go. Three in a row, including a double post. The WaPo gods are smiling on you again. Only the second video link was 'malformed' which seems like an awfully cruel thing to call something.

(cont.)

Obama's greatest economic planning mistake with the design of the recovery act was to try to attract the eyes of the American public with lots of shiny objects represented by a long list of noble causes. He did it by focusing on all sorts of investment projects which, by their very nature, are very inefficient ways of dropping money into the economy. The economist would just say, who cares, put the money directly into the pockets of the poor and middle class. The problem is that Obama had to sell his package and so we got all sorts of do this and do that plans.

Again, the economist would say, while that is all well and good (those are noble concepts), what we really need to do is be "efficient" and the most efficient measure is to just stroke a check for the poor and working class—get some positive results from the work. Those folks will indeed go out and spend the money.

Rep. Peter DeFazio has been screaming for 10 months, JUST FIX THE ROADS and INFRASTRUCTURE... and he is right. That will pay workers to do good for the nation and help our economy work better right now.

As a side note, to get the recovery act through congress, many of these infrastructure development provisions were AMAZINGLY struck from the bill as being Pork.

Reviving a recession bound economy isn't sexy, but we the people have a hard time understanding the basic tenets of sound economic policy, again, we like shiny things. Now, I think, Obama is getting the message and will just go fix the roads and mass transit. Build buses and trains.

Further, I think the Obama government has also realized that it can't expect the banking industry to do anything really aggressive and creative with the foreclosure mess and there are movements afoot do work there.

Krugman is very right. We are not out of the economic woods by any stretch of the imagination. What is more startling is the terrible level of economic ignorance that we share as a nation. The Tea Party phenomenon is just one representation of that problem. We shouldn't even be discussing ad nauseum, a national health care program. This is an ignorance driven kerfuffle. It is America stupidly holding a gun to its own head. It is about "efficiency."

Involving private insurance companies in the health care process is by its very nature a very inefficient manner to provide the service and everyone should see this and understand it.

jkt, No... I tried to explicitly mention that rich is millions a year in income. If you are that, then I guess I did.

I think we are so possessed by that process of being "rich" by income. If you are making money off of your money to the tune of a half of a million a year, then you are rich.

jkt, our problems are becoming more dangerous with the IRS going after the truly poor. I do agree that the government does have a way of turning out hidden taxes that deny the guideline principles.

I have heard about taxes going up on those in the 250,000 plus area. I have rumors that the Democrats are going to tax children's toys, however. On Fox, I heard for sure that Obama is going to tax family goldfish.

rt,
I understood your definition of rich and I would be okay with individuals of $250k and families of $400k counting, but even they are 'working' people. This obsession with capital gains being sacred is very worker unfriendly.

We got cigarette taxes, carbon taxes, sugar taxes, fat taxes, maybe even boodle taxes. Just up the top marginal rate and be done with it.

The wealthy people’s argument is that they have already paid taxes on their salary. They don’t use the public services more than the average person, so why should they be taxed more. I read this argument somewhere. Just don’t remember where. This is after their argument that they will invest if they have more blah, blah, blah…..

I'm rich in Boodle friends, that's all I know for sure.

But all I have to say to Stanley Fish is:

Huh? Whaaaa?

http://opinionator.blogs.nytimes.com/2009/12/07/sarah-palin-is-coming-to-town/

*somewhat-surprised-at-the-level-of-stomach-rumbling-as-I-head-to-the-Dawn-Patrol-kitchen Grover waves* :-)

That's good, Scotty. Cuz that's not taxable.

That is an excellent article Joel. Honest and well-balanced. And yet, not at all dispassionate. For example, I loved this phrase:

"...a new entitlement program, the Medicare prescription drug benefit, that Congress and the White House decided didn't need to be paid for."

If prose could grind its teeth, these words would need immediate dental intervention.

Joel sez:

///The United States owes investors nearly $8 trillion. That number could more than double in a decade.///

From the other article on the front page:

///Ten months after signing into law a $787 billion stimulus package to boost the economy, Obama faces mounting pressures from the nation's yawning $12 trillion debt burden and its growing ranks of jobless Americans. ///
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/07/AR2009120704125.html

So we got 8 or 12 trillion. Take your pick. Obviously they are counting the same thing different ways, but to have two different numbers right on the front page suggests a little fuzziness on the issue.

So what's a couple trillion between co-workers?

I yam whats I yam, and thats all whats I yam.

http://www.guardian.co.uk/technology/2009/dec/08/ec-segar-popeye-google-doodle

Oh well Scotty, as they say in Washington a trillion here, a trillion there, pretty soon we're talking real money.

There's nothing like spending 40 minutes in an immobilized elevator car to start the day. We should do that more often, it's a good way to learn what people are doing in other parts of our organization. Really I wish I were alone, I had a book with me but I felt that would have been rude to start reading it in front of my 3 fellow inmates, one of which being really nervous.

One thing that is often overlooked is that the US federal government is carrying quite a bit of dept in the name of the States. As most if not all States have enacted laws or even constitutional amendment to bar any deficit the feds have to come up with money to fill in the gap when the state revenues are dropping below a level that ensure that schools remain open, social services could still function. The so-call Stimulus was mostly a transfer of money to the states. Had the sates be capable of making deficits and borrowing money by themselves the stimulus could have been a lot more effective in re-starting the economy.

People calling Krugman a loon should read other economists as well, he is actually fairly mainstream. Like most economists he points out that the existing medicare/medicaid entitlements, and social security to a much smaller degree, are the real long problems. The new spending on stimulus or the upcoming health care reform are a pittance compared to the existing committements. The loons are those that defend medicare as it stands and decry the Porkulus as the cause of the looming fiscal crisis.

SCC long TERNM problem. I need more coffee. This is what was really missing in that elevator. There was just about enough air but no coffee.

double SCC term

Porkulus -- the other white meat.

Porkulus -- it's what's for dinner.

Thank you, SD. I will whisper this word several times today and laugh.

Scotty -- change the password. I will order new decoder rings.

Damn... what Weed said.

But I do have to quibble at how "the soft science of Economics--which is getting less soft all the time." I'm afraid we don't know that much more, and so much of what is "known" is colored by political and philosophical bias. Economics as a "science" will be forever hampered by the inability to conduct proper experiments with control cases.

I fully suspect after this whole Keynesian experiment is done, economists on the left will be hailing Keynes and on the right demonizing him, each cherry picking evidence like so many squabbling politicians.

New kit!

Does porkulus taste like chicken?

New kit btw.