Good news! Biden says to hell with deficits!

and btw - the Fed has not exactly been the most effective steward in regards to inflation. Many argue that they have focused too much on keeping inflation low, to the detriment of average workers.


drummerboy said:

I don't understand these comments about replacing the Fed as the monetary authority.

The Fed does not go away - their role remains essentially the same.

Under MMT, interest rates are not used to curb inflation.Taxes are.  In fact, some propnents of MMT propose that interest rates be kept at zero forever.  

eta - Under MMT, the two main goals of the Federal Reserve, keeping inflation down and insuring full employment, are taken away from the Federal Reserve, and replaced by using taxes to curb inflation and a guaranteed job to address unemployment. 


drummerboy said:

and btw - the Fed has not exactly been the most effective steward in regards to inflation. Many argue that they have focused too much on keeping inflation low, to the detriment of average workers.

I  don't understand that. The Fed has actually been trying to increase inflation for the last few years to 2% and has been unable to do so. 


I still don't understand. What's to stop the Fed from behaving as it has in the past, more or less?



I think the Fed. has done an excellent job under Bernacke, Yellin and Powell. Why don't you think it hasn't done a good job? 


generally speaking, over the past 20 years or so, the Fed's focus on keeping inflation low (lower than its official target*) has come at the expense of us achieving full employment, so the unemployment rate has been much higher than it could have been. That's fine for the stock market, not so fine for the working Joe.

Related to this, the Fed's idea of what "full employment" actually meant was much lower than the economy could actually support. (not sure if that sentence makes sense. Put another way, they thought the unemployment rate, before overheating the economy, should be higher than it actually could have been.)

That translates into trillions of dollars of lost wealth for the lower percentiles, while pushing that wealth to the upper-upper percentiles.

It's a big deal.

The Fed has recently changed their inflation policy to allow for more inflation.

*The Fed is supposed to try and keep inflation to an average of 2%. But an average implies you go above 2% sometimes. Instead, the Fed has kept inflation at 2% and lower. They have recently changed their position and will now actually shoot for an average of 2%, allowing inflation to rise more than it has been.


db - I'm on my exercise bike in my basement.  if you haven't already done so, take a look at whether the Phiilips Curve is still valid. Also, these two articles about why inflation is so low are pretty good. I posted them above. 

https://econofact.org/why-is-inflation-so-low

https://www.marketplace.org/2019/12/13/why-is-inflation-still-so-low/


DB - Yellin heard you: 

WASHINGTON— Janet Yellen, President-elect Joe Biden’s choice for Treasury secretary, will urge lawmakers in her confirmation hearing Tuesday to “act big” to avert a protracted economic downturn and put aside concerns about the mounting national debt.

“Economists don’t always agree, but I think there is a consensus now: Without further action, we risk a longer, more painful recession now—and long-term scarring of the economy later,” Ms. Yellen says in the text of remarks to the Senate Finance Committee as reviewed by The Wall Street Journal.

Republicans have decried the size and scope of the measure, arguing it would spend more than the economy needs. Some Republicans and Democrats have also expressed concern about the growing national debt, which at $21.6 trillion exceeds the annual output of the U.S. economy.

Ms. Yellen aims to address those concerns in her testimony: “Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big.”

WSJ 

eta - The hearing should be interesting. 







cramer said:

DB - Yellin heard you: 

 

yeah, we've been texting.


"Treasury Secretary nominee Janet Yellen will face a Senate hearing today where she'll argue, among other things, that now is the time to spend nearly $2 trillion on more Covid relief. In light of all this spending, and the Fed buying billions of dollars worth of bonds, commentators are all talking about how we're "going full MMT" or "trying some crazy MMT experiment" or something like that. So once again it's time to clear up some misconceptions about what MMT is and isn't.

  • Aggressive deficit spending isn't MMT. It's just fiscal stimulus, the likes of which the U.S. has done many times before. The government might be spending on a historically large scale these days, but still, that just means it's a large fiscal stimulus.
  • QE isn't MMT. The Federal Reserve buying bonds represents a swap of long-term government liabilities (Treasuries) for short-term government liabilities (reserves held at the Fed). It's a tool that central banks employ, in part, to signal their desire to keep rates low. It's not that new or special. It's not even clear if it does very much.
  • Low rates aren't MMT. Low rates are just low rates.
  • Low rates + QE + fiscal stimulus all at the same time isn't MMT. It's just monetary policy and fiscal policy both pushing toward expansion at the same time."

Bloomberg



deficit scolds gotta scold


Who the hell is drew?


DaveSchmidt said:

Who the hell is drew?

 A pseudonym for a rhetorical question?


DaveSchmidt said:

Who the hell is drew?

 doesn't matter - his words stand alone and make sense. I've made similar comments here myself.


DaveSchmidt said:

Who the hell is drew?

 Who dat?


Inflation hasn’t picked up despite the Fed’s best efforts because of slack private demand. Demand comes from two sources, public and private. Private demand is low in part because of income inequality. Those who would spend money don’t have much and the rich have too much, so they invest it, mostly in the stock market, which is why asset prices have risen despite a pretty bad economy.

Those who say deficits don’t matter argue that the government can just keep spending. That spending won’t help the relatively poor unless it is well-targeted to them. And it will ultimately lead to inflation. You can’t turn off massive government spending on a dime and good luck raising taxes to cool the economy every time it overheats. 

Increase demand by increasing the minimum wage. Subsidize favored industries like clean energy and electric vehicles.  


What do people think Biden should do about the SALT deductions?

On the one hand, I can see an argument that those should remain capped -- why give a tax break to wealthier households just because they are Democratic-leaning? OTOH, I can see an argument from federalism -- states don't issue their own currency, and the cap here narrows their fiscal flexibility, and abolishing the cap restores the ability of states to pursue more progressive agendas if they choose.

I guess MMT would say that an incorrect argument would be to say that the cap currently redirects money to pay for tax cuts for the wealthy, since it loosens that connection between taxes and directly funding policy choices.


Why should there be a Cap? How do you tax people on money they are forced to pay in taxes?

Really, the entire  Income Tax system needs reforming.


STANV said:

Why should there be a Cap? How do you tax people on money they are forced to pay in taxes?

Really, the entire  Income Tax system needs reforming.

 Well, if I were either an anti-progressive on the hunt for liberal hypocrisy, or a purist "soak the rich" leftist, I might point out that the removing the cap saves households able to afford very expensive homes quite a bit in taxes, and ask why liberals are ok with that. Removing the cap for the SALT deduction doesn't help renters or working families in Newark, but it does benefit the wealthy suburban towns of mid and west Essex county...


STANV said:

Why should there be a Cap? How do you tax people on money they are forced to pay in taxes?

Really, the entire  Income Tax system needs reforming.

Definitely worth thought. Double taxation is the clear rationale for repeal. 

Deductibility is to encourage home ownership, which encourages community stability. 

Perhaps you could phase out deductibility based on income, rather than capping it.


And completely phase out for anything but a primary residence. 

The blow could be softened in vacation areas by the shift to remote work.


PVW said:

STANV said:

Why should there be a Cap? How do you tax people on money they are forced to pay in taxes?

Really, the entire  Income Tax system needs reforming.

 Well, if I were either an anti-progressive on the hunt for liberal hypocrisy, or a purist "soak the rich" leftist, I might point out that the removing the cap saves households able to afford very expensive homes quite a bit in taxes, and ask why liberals are ok with that. Removing the cap for the SALT deduction doesn't help renters or working families in Newark, but it does benefit the wealthy suburban towns of mid and west Essex county...

 my understanding was that the deduction was there from the beginning of the federal income tax as an acknowledgement of the primacy of the states.  They get the "first crack" at taxing our income because the states provide most of our everyday needs as residents -- roads, schools, courts, first responders, etc., etc.  And it's not just property taxes that are capped, it's all state taxes.  

reinstating the deduction does make sense from the standpoint of trying not to hobble the revenue generating efforts of the states.  Now more than ever with the states facing pandemic-caused shortfalls, and limits on deficit spending, this reasoning should be considered.


ml1 said:

PVW said:

STANV said:

Why should there be a Cap? How do you tax people on money they are forced to pay in taxes?

Really, the entire  Income Tax system needs reforming.

 Well, if I were either an anti-progressive on the hunt for liberal hypocrisy, or a purist "soak the rich" leftist, I might point out that the removing the cap saves households able to afford very expensive homes quite a bit in taxes, and ask why liberals are ok with that. Removing the cap for the SALT deduction doesn't help renters or working families in Newark, but it does benefit the wealthy suburban towns of mid and west Essex county...

 my understanding was that the deduction was there from the beginning of the federal income tax as an acknowledgement of the primacy of the states.  They get the "first crack" at taxing our income because the states provide most of our everyday needs as residents -- roads, schools, courts, first responders, etc., etc.  And it's not just property taxes that are capped, it's all state taxes.  

reinstating the deduction does make sense from the standpoint of trying not to hobble the revenue generating efforts of the states.  Now more than ever with the states facing pandemic-caused shortfalls, and limits on deficit spending, this reasoning should be considered.

 So that's the federalism argument, which I think does make sense. I do think some phase outs, as jimmurphy laid out, would make sense too though -- if they were paired with increased federal spending in areas like education, public transit, etc.


PVW said:

 So that's the federalism argument, which I think does make sense. I do think some phase outs, as jimmurphy laid out, would make sense too though -- if they were paired with increased federal spending in areas like education, public transit, etc.

 and if it seems like it's unfair to give wealthier people back this deduction, just raise the rate on a couple of the upper income brackets to make it as close to revenue neutral for those taxpayers so they end up paying roughly what they are paying now. 


Or bring back the AMT in a proper form which, I believe, addressed this concern.


here's a good post, with a NYT excerpt, regarding unemployment, inflation and the FED


Friedman today. Sums up my thoughts on this quite well.

“There has been so much focus in recent years on the downsides of rapid globalization and “neoliberal free-market groupthink” — influencing both Democrats and Republicans — that we’ve ignored another, more powerful consensus that has taken hold on both parties: That we are in a new era of permanently low interest rates, so deficits don’t matter as long as you can service them, and so the role of government in developed countries can keep expanding — which it has with steadily larger bailouts, persistent deficit spending, mounting government debts and increasingly easy money out of Central Banks to finance it all.

This new consensus has a name: “Socialism for the rich and capitalism for the rest,” argues Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, author of “The Ten Rules of Successful Nations” and one of my favorite contrarian economic thinkers.”

https://www.nytimes.com/2021/01/26/opinion/us-capitalism-socialism.html?referringSource=articleShare


jimmurphy said:

Friedman today. Sums up my thoughts on this quite well.

“There has been so much focus in recent years on the downsides of rapid globalization and “neoliberal free-market groupthink” — influencing both Democrats and Republicans — that we’ve ignored another, more powerful consensus that has taken hold on both parties: That we are in a new era of permanently low interest rates, so deficits don’t matter as long as you can service them, and so the role of government in developed countries can keep expanding — which it has with steadily larger bailouts, persistent deficit spending, mounting government debts and increasingly easy money out of Central Banks to finance it all.

This new consensus has a name: “Socialism for the rich and capitalism for the rest,” argues Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, author of “The Ten Rules of Successful Nations” and one of my favorite contrarian economic thinkers.”

https://www.nytimes.com/2021/01/26/opinion/us-capitalism-socialism.html?referringSource=articleShare

That's kind of funny. I was going to post an article by an economist which tore Friedman a few new orifices because of the amount of misinformation in that essay.

Here, I think I will.

https://cepr.net/thomas-friedman-the-donald-trump-of-the-new-york-times/

Friedman is way past his sell date. He should retire.

Here's an example from my link:

And, Friedman also gives us this Trumpian gem of illogic:

“Now that so many countries, led by the U.S., have massively increased their debt loads, if we got even a small burst of inflation that drove interest on the 10-year Treasury to 3 percent from 1 percent, the amount of money the U.S. would have to devote to debt servicing would be so enormous that little money might be left for discretionary spending on research, infrastructure or education — or another rainy day.”

Hmmm, the amount devoted to debt service “would be so enormous that little money might be left for discretionary spending on research, infrastructure or education — or another rainy day.”

Let’s bring in Mr. Arithmetic here. Our debt to GDP ratio is roughly 100 percent, give or take a few percentage points. Let’s suppose that the interest rate suddenly rose to 3.0 percent. That would mean that the amount of interest we were paying was equal to 3 percent of GDP. That would make the burden of our debt service a bit less than it was in the early 1990s, which folks may recall was a very prosperous decade.

Furthermore, the interest on our bonds won’t jump all at once, since we have locked in low rates on the long-term bonds we have already issued. Also, more rapid inflation means that the debt to GDP ratio will be falling. Ignoring the effect of compounding, if we see inflation that is two percentage points higher than expected for a decade, that means nominal GDP will be 20 percent higher at the end of this period and the debt to GDP ratio, and the interest burden will be 20 percent lower.


Not following the “Mr. Arithmetic” paragraph, but fine, let’s agree to disagree. I have no interest interest in tit-for-tat citations.


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