Asymmetrical Information

Especially ridiculous given that almost all bond trading is for between 2 and 10 year notes, so a default 30 years hence is irrelevant to their value.

Correlation not causation. Clinton and the Republican Congress made an effort to cut the deficit. At the same time we had a good economy. The two things occurred together but deficit cutting didn't create the CLinton economy - the end of the Cold War and improvements in technology did - something Clinton had nothing to do with. To Clinton's credit he largely did nothing for the economy which helped. Nothing like staying out of the way.

I presume that there was at least some argument behind this marginally less stupid than "Business owners are, for some unexplained reason, prone to worry about government interest payments ten or twenty years hence", which was undoubtedly chopped for space.

If I had to make one, it would be that business owners respond to negative economic news, including (rightly or wrongly) concern about rising deficits, by slowing hiring. Brian Despain's explanation seems more reasonable, though.

I call it "The Clinton Cult of Personality." It's kinda spooky how the Clinton's seem to "intrude" into stories all the time, usually at the behest of a less-than-objective press. Such fawning behavior is a hallmark of failed Communist regimes, ala Stalin, Mao, Castro, etc. "The Clinton Cult of Personality" seeks to continuously insert the Clintons into nearly every aspect of life, so "The Glorious Leader" can maintain some sort of legacy beyong being the punchline for late-night comics.

Dan it's not really a hallmark of failed Communist regimes (nice btw comparing Clinton to Stalin, Mao and Castro - it's the Trifecta!) but it's more partisan politics than anything else. You will find people that similarly fawn over George W. Bush even now.

Back to economic new - the 90s were the decade when supply chain management software really came into their own and seriously were adapted by companies. It 's what enabled Walmart to be so successful. To me that was one of the biggest drivers in economic efficiency in the US.

Walmart certainly has effectively used SCM software to expand. But it was growing rapidly far before the 90's (the firm was founded in the 1960's) and experienced rapid growth pretty much from the start.

Although I would say it certainly helped, it wasn't what made Wal-Mart successful. Wal-Mart had a great business model, a clear vision of and ingenous use of logistics (of which SCM software helped).

I call it "The Clinton Cult of Personality."

Kindof like "The Reagan cult of personality?" You had decades of presidents opposing communism. Some of them were Democrats. But Reagan is given all the credit by some people.

As Brian said, it's politics.

Regarding the current topic (and Reagan); In the past, didn't economists think that large government debts would compete with businesses looking to go into debt in order to grow their businesses? And Reagan's deficit spending basically showed that you could have massive deficit spending with no great harm to the economy. (At least if your currency is as coveted as America's was.)

Speaking as a (small) business owner, I'll try to make this plain: I care about government borrowing for two reasons: 1) will a large imbalance (deficit or surplus) raise/lower my taxes? and 2) might this affect any importing or exporting I happen to be doing?

But hiring? I get people to do what I need done. And I'd wager that 999 out of 1000 hiring or HR managers don't give a second thought to any economic statistics.

As for politics, I'm just old enough to be amused by Democrats arguing for balanced budgets while Republicans run up the tab. Somewhere LBJ and Barry Goldwater are shaking their heads ...

Personally, I'm not entirely convinced there's much macroeconomic difference between deficits and taxes, and suspect the real issue is just government spending as a % of GDP. I'd be curious as to what either theory or historical trends say about that...

These are the same folks who claimed that tax cuts caused a rescession which started 2 years before the tax cuts took effect. Anyone who thinks tax cuts cause rescession shouldn't be trusted on economics. And anyone who thinks that a rescession which began in 2000 was caused by cuts which were enacted later and came into effect even later has serious problems dealing with reality.

"it would be that business owners respond to negative economic news, including (rightly or wrongly) concern about rising deficits, by slowing hiring."

No way. We hire because there is profitable work to be done and we don't want to miss the opportunity.

Stan: I once had a California state judge refuse to accept (in connection with a fraud lawsuit) that it's impossible to have relied in October on a statement that wasn't made until December.

These are the same folks who claimed that tax cuts caused a rescession which started 2 years before the tax cuts took effect.

link?
From what I remember, Democrats were saying that tax cuts weren't helping relieve the recession as much as they were trumped up to be because it was aimed mostly at the rich.

The tax cuts (especially capital gains) were aimed at the rich. The theory is that the rich are more likely to reinvest the tax savings. I personally think the tax cuts had very little to do with recovering from the recession - business cycles are business cycles.

That said I generally like my tax relief to come with a little less spending.

Brian,

The theory is that if you are going to use tax cuts to relieve recession at all (that is if you are a Keynesian), then they should be aimed at people more likely to spend money, not save, since recessions are usually characterized by lack of aggregate demand, not investment.

No offense MS it's not my theory but the administrations theory. Is it valid? I don't think so but there you have it.

I get the impression Jane studied at Chicago. Can't remember where I heard that. True?

'Gene Sperling, a former chairman of the Clinton council of economic advisers who is now at the Council for Foreign Relations, draws a pointed contrast between the Bush years and the later Clinton years.'

No kidding! The 6th through 10th years of an economic recovery are different than 5 years that begin with a recession? Whodda thunk!

Even Lazear overstates the Clinton case by saying we're where Clinton was in 1997. We're actually just ending the fifth year of expansion. The comparable period would be March of 1996 (as one of the graphs in the FT piece demonstrates).

The labour markets today are outperforming those of the prior expansion at the same point in the business cycle. Easily.

Another thing about that FT piece; median wages are not a good metric and there are changes coming from the BLS because of that:

-----------quote-------
The planned improvements to the [Current Employment Statistics] are:

Adding new data on the hours and regular earnings of all employees; these data eventually will supplant existing data on hours and regular earnings of production and nonsupervisory workers.

....Planned schedule: First publication of the new data series, on an experimental basis, is scheduled for early 2007.

Discontinuation of production and nonsupervisory worker hours and earnings series – BLS’s current plan is to phase out these series after the new all employee hours and earnings series are well established. The limited scope of the production and nonsupervisory worker series makes them of limited value in analyzing economic trends. Just as important to this decision, the production and nonsupervisory worker hours and payroll data have become increasingly difficult to collect, because these categorizations are not meaningful to survey respondents. Many survey respondents report that it is not possible to tabulate their payroll records based on the production/nonsupervisory definitions.
-----------endquote------------

Meaning that we might soon have some revised median income stats that are substantially different from what we've been led to believe has been the case.

I'm not sure if I follow either argument. I know Rubin's argument for closing the budget deficit is lower interest rates (less bonds out in play). Is that what she is referring to?

I have been following conservatism for almost half a century, and it is distressing how so many conservatives suddenly reversed their position on budget deficits. From the beginning the necessity of balanced budgets was one of the main economic principles of conservative thought. Then with Bush there was a compelete reversal, and we are now told that budget deficits don't matter.

The interesting question is how this radical change came about. The right way would have been if one or more conservative economists had presented a detailed argument that budget deficits are not harmful, followed by a long debate and discussion that eventually lead to conservative economists coming to a consensus around the new position, and as a consequence the new position being adopted by the movement as a whole.

Instead what happened, as far as I can tell, is that Bush decided that the American public could not be sold on small-government conservatism, and so he decided to sell big-government conservatism instead, and conservatives who had fallen in love with him simply went where he lead.

Hmmm...maybe I've missed something but it's rare to run into republican-leaning
voters that praise the government deficit. I certainly don't see it here on
the internet.

And maybe again I've missed something but wasn't the main emphasis of
Goldwater more on reducing government spending -- rather than the budget deficit.
Don't get me wrong, plenty of modern conservatives have been opposed to deficit
spending but hasn't there always at the same time either explicitly or implicitly
an even greater emphasis on reducing government spending?

It also seems odd this extreme emphasis on the deficit. As a percentage of GDP
aren't we actually lower than the norm post-World War II?

Yes, the last few years of the Clinton presidency were lower, but not many other
years.

Speaking for myself, and I think for others, I'm more concerned about the overall
level of spending.

Give the man his due...Clinton's handling of macroeconomic matters was near-perfect. That is, he did almost nothing to interfere with them.

The good state of the economy during most of his term was overwhelmingly due to luck...but he had the power to screw it up, and didn't do so.

Faint praise, I know...but after all, we're talking about CLINTON here.

I'm curious. Is there anyone here that thinks the bonds held by the Social Security
trust fund are real? That is there anyone that believes they will help in any
way to finance Social Security retirements when Social Security goes into the red?

Eduardo,

My take:
At the time that conservatives complained about the deficit they were largely out of power and liberals were the ones running up deficits. It was easy to take the moral (or at least responsible) high ground and remind people about the deficit. When conservatives gained power (starting in the 80s with Reagan), fiscal responsibility became less important than cutting taxes. Cutting taxes was just too irresistible and reducing spending too politically inconvenient so they chose the best of both worlds.

In the 90s the deficit was again an issue during Ross Perot's presidential bid and the failed attempt to pass a balanced budget amendment. However when Bush Jr got elected supply side economics was again in full force.

To be fair, I doubt Democrats will be as fiscally responsible as they say they will be now that they are in power. Especially with a recession looming.

Mark,

I'm not sure if the trust fund is real or not, but I do know if it is not, it illustrates the largest and possibly most immoral conflict of interest in accounting. Come 2018, Authur Andersen might have a counterpart in the U.S. Treasury.

--In the 90s the deficit was again an issue during Ross Perot's presidential bid--

Don't forget his chart - for every $1 they raised in taxes, they spent $2!

1986 - Call Rosty! But I can't remember if that was before or after his senior citizens acting as hood ornaments because he wanted to cut back on something they got.

Show me a functioning example of a laissez-faire economy before you inflict one on me, thanks.

Purple, show me an example of a laissez-faire economy, period.

You had decades of presidents opposing communism. Some of them were Democrats. But Reagan is given all the credit by some people.

Perhaps because the last of the aforementioned Democrats -- and, coincidentally, the last of the Presidents to take an aggressive stance against Communism while in office -- was Johnson, over 20 years before the end of the Cold War? Nobody's denying that the earlier Presidents did important work. But they were followed by Nixon, Ford, and Carter, whose policies ran the gamut from appeasement to retreat. Reagan gets the credit for winning the war because he turned things around.

Giving Clinton credit for the tech boom is a much bigger stretch.

Reagan turned things around?

His military budgets as a share of gdp were smaller then every cold war President but one,
Clinton. Moreover, the Reagan militray build up actually started under Clinton. In addition, much of the supposed impact of the expanded military spending under Reagan was offset by arms agreements that allowed the Soviets to cut spending on the missile race.

Reagan did little or nothing that was not just a continuation of policies that had been in place since Truman and followed by every cold war president.

Moreover, military spending had little or no impact on the collapse of communism in the USSR.
If you want to look for the proximate cause of the collapse of communism look at the decline in oil prices that had a much, much,much larger impact on the soviet economy.

What Reagan did, and for which he deserves all the credit in the world, is he recognized and facilitated the change in the soviet leaderships attitudes that they were willing to let the system change and were no longer going to implement draconian police state measures to preserve communism. But virtually all of the conservative pundits opposes Reagan when he did this.

Bryan,

I don't think we have to wait for 2018 to figure it out.
Far from being assets these bonds the social security trust
holds are actually negatives. They just deepen the hole
we'll be in come 2017 and for quite a few years thereafter.

Every bond the Social Security trust fund holds increases
the debt of the United States and makes it more difficult
to borrow money when we'll actually need it -- which as far
as Social Security is concerned will be 2018, 2019, 2020,
and on and on for quite a few years.

After all where will the extra money come from to finance
Social Security post-2017? There are only two sources,
the taxpayers -- which have to be the source of the overwhelming
majority of it -- and investors willing to buy government
bonds. Now the more debt outstanding the less attractive
those bonds of the future will be.

We should be trying to shrink our debt now, not expand it.
Paradoxically every dollar extra that Social Security
takes in just increases the burden on the future.

Regardless of whether its a con or not, we are going to
need Social Security. Therefore we need to think what
we can do to make this actually work. One think that
could be done it to change it to a pay-as-you-go system.

That is every year the Social Security administration should
calculate how much it will need to pay for current retirees
and set the Social Security tax accordingly. That would
mean dropping the current rate by some small amount. It's
probably counter-intuitive that this would strengthen the
system but remember that for the bonds created now, all
the gains are in the here and now and only liabilities
are left for the future.

As we move into baby boomer retirement, social security
taxes are going to rise and rise. This is inevitable,
there is nothing we can do about it and it doesn't matter
whether we call them Social Security taxes or not.

What we can do is moderate the rise by means-testing social
security, extending retirement ages and rewarding people
for staying employed instead of seeking retirement.

All these are things we are going to have to do and the
sooner we start doing them the better off we'll be.

> Moreover, the Reagan militray build up actually started under Clinton.

Is there anything that Clinton can't do?

An economic thread! Hoorah! Complete with "Chairman Clinton Is Always Right!", hoo-boy...

Jane's comment about the little markers issued to the SSA somehow becoming bonds sorta misses the point, though. The Democrats really have no choice but to treat them bonds as real, and Efficient Market, bonds. Because the alternative is to treat them as the kind of pieces of paper an alcoholic sticks into his daughter's piggy bank in exchange for a little cash to buy some booze with -- promises that cannot, and will not, be kept.

To admit that is literally unthinkable. Therefore, it will not be thought. Therefore, SSA "bonds" are fully funded and backed by Uncle Sam, who has never missed a payment & never will, and pay no attention to the fact that payment will be in severely depreciated dollars...

Well, we could admit that the social security trust fund notes are not real, but we would have to reduce social security taxes to back where they were before the Reagan tax increases and refund the money...and we don't have the money to do that, either.
Realistically we aren't going to default on the military, civilian, and social security pensions, so look for wealth taxes and income taxes and excise taxes to go up. It's not politics, it's arithmetic.

wkwillis wrote;
Well, we could admit that the social security trust fund notes are not real, but we would have to reduce social security taxes to back where they were before the Reagan tax increases and refund the money...and we don't have the money to do that, either.

Excuse me, suh, are you speaking ill of the great and loyal Democrat Claude Pepper, who saved Social Security singlehanded from the evil Republicans in the early 1980's? Because those tax increases were necessary to the long term solvency of the system. I read it in the NY Times, therefore it must be true.

Realistically we aren't going to default on the military, civilian, and social security pensions, so look for wealth taxes and income taxes and excise taxes to go up. It's not politics, it's arithmetic.

Greenspan is on record stating that payment of all the long term liabilities can be guaranteed, but the value of the payments cannot. That says it all to me; the SSA "bonds" will be redeemed at pennies on the dollar, thanks to inflation. Of course, that makes mincemeat of any claims that those "bonds" are priced correctly, doesn't it?

Clinton did make one undeniable contribution to the recovery. He instilled confidence that the US government would wish to honor its obligations. For the last few years under Reagan, the deficit exploded despite strong economic growth. His successor, GHW Bush explicitly stated that it would be fine for the US to run continuously expanding deficits forever. That was awful for investor confidence. Clinton demonstrated that the US could indeed exercise fiscal discipline. He showed that there were politicians capable of taking necessary but unpopular steps to control the deficit. You may have forgotten, but that was not always believed to be true. Yes, he benefited from an abundance of investment capital availability, but his actions demonstrated that the US was a good place to invest. That money could have gone elsewhere.

These are the same folks who claimed that tax cuts caused a rescession which started 2 years before the tax cuts took effect. Anyone who thinks tax cuts cause rescession shouldn't be trusted on economics. ...

I seem to recall people claiming the Reagan tax cuts of the early 80's had somehow magically caused the Clinton boom despite the odd fact that they were followed by tax increases by Reagan, Bush and Clinton. What was that about? Do business owners respond to the tax cuts/increases their dads experienced twenty years before? I don't doubt for a second if we have a booming economy and a Democratic President 3 years from now we will be told it was due to Reagan.

Speaking of which, I noted a certain sitting President was taking credit before this election for the recent drop in gas prices!

As for the rest, just politics as usual. You will always find some good stats to use to spin whatever story you want. The art of being a good economist is finding the stats that mean something among the sea of useless data.

Jane Galt:
"The desire to attribute all wonderful things to Bill Clinton...is leading Democrats to make ever more bizarre claims for the benefits of closing the budget deficit."

I don't understand. Do you dispute the benefits of a smaller budget deficit? Are you saying it is better to borrow to finance government spending than to tax?

At the very least it seems to me that it makes no difference. Borrowing taxes individuals and companies through higher interest rates, making it more difficult to invest in and expand businesses. Borrowing also increases future taxes. Taxing today does the same thing except more of the burden is on current taxpayers. So assuming that Democrats are only talking about raising taxes, intead of reducing government spending (which I don't concede, I actually think they are more serious than Republicans about reducing growth in spending), I don't see how that is any worse than the extravagant borrowing that is currently going on. In my view, when choosing between borrowing and taxing, it is better to tax and be honest with Americans about the true cost of their government. (Instead of borrowing trillions and then saying that "deficits don't matter") Only when people understand how expensive this government is will they demand smaller government. Borrowing hides the cost and convinces them that it's a free ride.

Njorl: His successor, GHW Bush explicitly stated that it would be fine for the US to run continuously expanding deficits forever.

Uh, what? Bush lost his reelection because he broke his "no new taxes" pledge, as part of a deal to cut the deficit.

Jacob, I'm on record as advocating closing hte deficit . . . but that doesn't mean I think it will make me happier, smarter, or give me lovely silky hair. The fact that closing the budget deficit is a good idea doesn't mean that it is responsible for all good things; and frankly the idea that a moderate reduction in the budget deficit touched off the labour market book of the late 1990s is ludicrous. What would the mechanism be?

Uh, what? Bush lost his reelection because he broke his "no new taxes" pledge, as part of a deal to cut the deficit.

Kind of hard to square that Bill with the fact that the two people who ran against him (Clinton and Perot) were promising tax increases instead of cuts. Yes he did loose respect and support among the right wing for breaking his pledge but he probably would have lost even if he hadn't broken it.

At the time Bush was seen as being too focused on foreign policy and out of touch with the domestic economy.

Jane
Jacob, I'm on record as advocating closing hte deficit . . . but that doesn't mean I think it will make me happier, smarter, or give me lovely silky hair. The fact that closing the budget deficit is a good idea doesn't mean that it is responsible for all good things; and frankly the idea that a moderate reduction in the budget deficit touched off the labour market book of the late 1990s is ludicrous. What would the mechanism be?

I've posted about it before, the mechanism was a perfect storm (but in a good direction). Banks were on the brink because regulators had allowed them to go heavy on long term treasury bonds. If long term rates increased banks would have taken a beating and would have faced a severe financial crunch. The opposite happened when the gov't signaled it would seriously control the deficit (it wasn't as much about reducing the deficit as keeping it from exploding). Rates fell and banks earned windfall profits instead of huge losses. Even better they now found that treasury rates were low so instead of buying more bonds they started lending again spurring investment and consumption.

Jane, we no there is no causation (and certainly no mechansim I know of) but the correlation has what gotten the Clintonites all excited.

Besides we all know reducing deficits gets rid of dandruff and makes everyone's stock options magically rise. Those two items are about related. Clinton got lucky with the right side of a business cycle.

If there was no benefit to reducing the budget deficit then logically the best economic policy would be massive spending with 0% tax brackets. Heck why not even negative tax brackets paid for with deficits!

If there is a benefit to reducing the budget doesn't that presuppose there must be a mechanism to deliever it?

Jane, I agree that you can't credit the entire improvement in the labor market to Democrat policies. But I feel that you are being a little too picky when you leap on Democrats for claiming any benefit for reducing the deficits. Of course they are going to claim a benefit when it is virtually proven that reducing deficits does help the economy. And that claim has far more credence than other claims made by Republicans (such as the Reagan tax cuts, Bush tax cuts, deficits don't matter). I know that a lot of people are reluctant to credit any economic improvement to a Democrat administration, but if you concede that reducing deficits does have benefits, then you should also concede that it is possible that it did have some benefit to the economy under Clinton. Sure, it wasn't responsible for everything, but it was one healthy drop in the bucket among a lot of other factors, the most important one being technology.

(however, among the factors determined by government policy, it is fair to wonder if the deficit reduction was one of the most important)

On the subject of Trust Fund being real - we beat that to death:

http://www.janegalt.net/blog/archives/005299.html

Mark Amerman: "Hmmm...maybe I've missed something but it's rare to run into republican-leaning voters that praise the government deficit. I certainly don't see it here on the internet"

I don't know about Republican voters on the internet, but once the Bush administration began running deficits, its officials and most of the pro-Bush politicians and commentators suddenly started saying that deficits are no problem. For instance:
http://www.ontheissues.org/2004/Dick_Cheney_Budget_+_Economy.htm

On the other hand, you are right that a lot of conservatives didn't go along with Bush and stuck with their original position.

"And maybe again I've missed something but wasn't the main emphasis of Goldwater more on reducing government spending -- rather than the budget deficit. Don't get me wrong, plenty of modern conservatives have been opposed to deficit spending but hasn't there always at the same time either explicitly or implicitly
an even greater emphasis on reducing government spending?"

It was all supposed to fit together. You reduce government spending, also reduce taxes, but the reduced taxes would make the economy grow which would increase tax revenues, and together it would lead to balanced budgets.

Plague: "At the time that conservatives complained about the deficit they were largely out of power and liberals were the ones running up deficits"

A very astute observation. In fact, the whole situation is very strange in that the two groups have now switched positions on the deficit. I don't think the Democrats are very sincere on this, however, it is more political opportunism, as you indicate. What bothers me is that, at least lately, each side is basing its position on political considerations rather than real economic analysis.

> Realistically we aren't going to default on the military, civilian, and social security pensions, so look for wealth taxes and income taxes and excise taxes to go up.

There is another place we can default, namely folks who loaned money to the US govt.

This will discourage folks from loaning money to the US govt in the future, which is one way to reduce the deficit.

Mindles pointed out:
On the subject of Trust Fund being real - we beat that to death:http://www.janegalt.net/blog/archives/005299.htm

Oh, I don't think it hurts to bring up the truth from time to time...

Andy Freeman wrote:

There is another place we can default, namely folks who loaned money to the US govt.

True, or the Fed/Treasury can flood the world with enough FRN's to make repayment of US govt. debt pretty much meaningless.

This will discourage folks from loaning money to the US govt in the future, which is one way to reduce the deficit.

Well, let's test this: Argentina defaulted in the 1990's. How long was it before Argentinian bonds were being touted as a good deal?

Mindles,

Thanks for the pointer to your earlier discussion on
the Social Security "assets" at:

http://www.janegalt.net/blog/archives/005299.html

After reading through a good part of it, I have two
observations.

First of all, Jim Glass (and Milton Friedman) are
correct that we really don't want to increase the
Social Security tax. The payroll tax is already
regressive; we don't want to make it even worse. There
are no easy choices, probably we're going to have to
raise the income tax dramatically. But if so it should
be as a variable surcharge. In other words the Social
Security Administration calculates each year how much
it will fall short and what additional income tax
percentage would make up for that.

By keeping the Social Security income tax surcharge
separate there's the hope that income taxes will come
down some decade instead of becoming permanent.

Second, although I don't doubt your presentation is
accurate, it is just way, way too complicated. I realize
that naming the so-called Social Security assets bonds
as I did above isn't accurate. But they are much like that
and if one thinks of them as bonds, which many people are
familiar with, one isn't too far from the truth.

They are liabilities not assets and not only does the
Social Security Administration not have any savings but
with incredible perversion every extra dollar they take in
(beyond what's paid out to current retirees) just makes
things worse.

"This will discourage folks from loaning money to the US govt in the future, which is one way to reduce the deficit.

Well, let's test this: Argentina defaulted in the 1990's. How long was it before Argentinian bonds were being touted as a good deal?"

I don't know much about Argentinian bonds, but I strongly suspect that the only thing that ever made any third-world government bonds a good deal was a promise by our government to re-imburse investors in case of default. (And that re-imbursement is welfare for the rich.)

Even better, show me a third world country that found the road to prosperity by using debt defaults to push its gov't towards frugal spending.

First of all, Jim Glass (and Milton Friedman) are correct that we really don't want to increase the Social Security tax. The payroll tax is already regressive; we don't want to make it even worse. There are no easy choices, probably we're going to have to raise the income tax dramatically. But if so it should be as a variable surcharge. In other words the Social
Security Administration calculates each year how much it will fall short and what additional income tax percentage would make up for that.

Social Security is not anywhere near the problem that it has been depicted as. An equally easy solution would be to simply index the retirement age to lifespan or even a modest means testing of benefits. At the end of the day SS's doom and gloom projections are quite frankly too far out in the future to be trustworthy and way too sensitive to even slight changes in estimates of productivity, growth etc.

> Argentina defaulted in the 1990's. How long was it before Argentinian bonds were being touted as a good deal?

Even better - folks giving their money to govt.

Why would anyone prefer taxes to that?

> Even better, show me a third world country that found the road to prosperity by using debt defaults to push its gov't towards frugal spending.

Third world countries have foreign aid options, the US won't.

Also, the goal wasn't to get to prosperity, it was to eliminate the deficit. If folks insist on donating that money, I've got nothing against spending it.

I don't care much about how other people's money gets spent. The "tax issue" is that taxes are MY money, and they're spent by folks who think that they're other people's money.

"Argentina defaulted in the 1990's. How long was it before Argentinian bonds were being touted as a good deal?"

They're a good deal because Argentina has to pay more than twice as high an interest rate as the US. Argentine bonds are going for 10-12 % now. Do you want the US to pay that much?

I wrote:
"Argentina defaulted in the 1990's. How long was it before Argentinian bonds were being touted as a good deal?"

Njori wrote:
They're a good deal because Argentina has to pay more than twice as high an interest rate as the US. Argentine bonds are going for 10-12 % now.

They're a good deal so long as Argentina does not default again. What's the interest rate on defaulted bonds, again?

Do you want the US to pay that much?

Not particularly, no. Sorry my point wasn't clear enough. In the pre-credit bubble days, a country that defaulted on bonds was untouchable for years, even decades. Nobody would buy their debt. Nowadays, an "emerging market" can stiff bondholders one year and find more suckers willing to lend them money a year or two later. Thus if the US defaulted on bonds, it's pretty obvious to me that new ones could be issued in short order.

Thus does moral hazard come to affect, well, everything eventually, thanks to the "Make Money Fast" notion that spreads throughout a society.

Well, that is the whole point of different interest rates. There is a base rate paid for the privelidge of having money now rather than tomorrow, and a premium assigned for the risk of default. That's the way it always has been. The Soviet Union got loans almost immediately after defaulting on Tsarist Russian debts. There's nothing new about it today.

Also, the goal wasn't to get to prosperity, it was to eliminate the deficit. If folks insist on donating that money, I've got nothing against spending it.

Ohhh well then using nuclear weapons to push a comet into a collision course with earth would also eliminate the budget deficit.

I don't care much about how other people's money gets spent. The "tax issue" is that taxes are MY money, and they're spent by folks who think that they're other people's money.

YOUR money, though, results from your interaction with the economy. If a policy harms long run economic growth then that would be an invisible tax on YOUR and everyone else's money.

Mark Ammerman wrote "By keeping the Social Security income tax surcharge separate there's the hope that income taxes will come down some decade instead of becoming permanent."

He *almost* owes me a new keyboard. Putting a mechanism where the "needs of the many" automatically override the "finances of the few" without politicians having to pay any price, and he thinks the number will ever go down?

ROFLMBAO

> They're a good deal because Argentina has to pay more than twice as high an interest rate as the US. Argentine bonds are going for 10-12 % now. Do you want the US to pay that much?

(1) How does the amount of extra interest compare to the principal on the defaulted bonds.

(2) Deficits are the difference between two numbers. Where is it written that both of those numbers can't be changed? Where is it written that spending can't be cut?

If deficits are important, then making them more expensive now is better than letting them accumulate.

He *almost* owes me a new keyboard. Putting a mechanism where the "needs of the many" automatically override the "finances of the few" without politicians having to pay any price, and he thinks the number will ever go down?

Social Security taxes are on the 'finances of the few'? They seem to apply to just about everyone who has a job.

Megan: "The desire to attribute all wonderful things to Bill Clinton, combined with the fact that Mr Clinton just didn't do very much, economically speaking, during his time in office, is leading Democrats to make ever more bizarre claims for the benefits of closing the budget deficit."

Snort. Remember 'a one-way ticket to a recession', by Phil Gramm, describing Clinton's first budget? The GOP was uniformly against Clinton's policies, and predicted failure. When they succeeded, the GOP uniformly credited everything else under the sun.

Posted by: Patrick R. Sullivan: "Even Lazear overstates the Clinton case by saying we're where Clinton was in 1997. We're actually just ending the fifth year of expansion. The comparable period would be March of 1996 (as one of the graphs in the FT piece demonstrates).

The labour markets today are outperforming those of the prior expansion at the same point in the business cycle. Easily."

Considering that Bush was the first president since Hoover to end his first term with fewer employed Americans than at the beginning of the term, I doubt that.

Do you have any stats to support your claim? And don't pull unemployment rate; the labor force participation rates under Bush showed a dramatic deline.

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